Tuesday, March 13, 2012


I have been digesting some of the comments and it seems for the most part people like what I am doing here. There were some requests for a bit more of the logic of the actual entries, and also some about how to handle the realities of the ups and downs of trading. Also one about why I do this.

Here above is an example of a trade I am in, long the DZZ which is the double short ETF for Gold. Since I am short the futures now and also have been bearish as readers know, I decided to leg into an ETF position as well. I have on the screen the Force Index, which is an Alexander Elder creation that seems to work well for divergences at extremes. I have marked one off at the low. I have found that when a divergence occurs with this when the market is extended past a volatility band of some type, the markets often change direction. In this case I just have standard deviation bands on the screen, but Bollinger Bands would probably also work fine. In this case it just gives an idea, that a significant low could have formed there. We then proceeded to base moving sideways for quite a while. All I have done here is buy into weakness at a time when I think the futures are setup for a decline, as this is the inverse ETF that rises on a price fall.

I would love to sound smart and tell you there is more to this trade than that but there is not. Most of my trading has pretty consistent logic as to when I do what, but how I get into the trades varies quite a bit. I wish there was a way around it but there just is not. The markets are full of random activity, and I cannot impose my will on them even though I would like to. For the most part, I buy above prior highs and sell below prior lows, when my other tools tell me the time is right. I use pivots to give me the structure of the markets and identify trends. Beyond that there are a few things that I am not going to disclose here. They are tools that I have put in painstaking months and even years developing and or learning to use, and they are just too valuable to expose. I think I give readers more than enough information to do their own research on certain things. Here is another chart showing this tool and how it picked the top in the DX. You can see the only divergence that occurred outside the bands happened right at the high. Put this in your tool box. Just like anything else, it is unwise to go nuts with this or anything else. Just check in on it from time to time to see if it is speaking. Do not put it on a 3 minute charts and scalp with it.

You do need to find your own way in this business and it is not an easy road at times, which leads me to addressing the one comment that came in yesterday. It is true my trading has been sub par lately. I mentioned at the beginning of the year that markets running like the stock market is tend to be difficult for me to trade. I trade both sides of markets, so when we get this quiet creep, I just don't get as many trades as I would like. I have also had an avalanche of difficult situations with my animals over the last 6 months, and at times have been so upset I just did not feel like doing anything but existing for a day here and there. I try to keep in mind the greater good we do rescuing all these wonderful souls, but all the tragic deaths at times can be overwhelming to me. This has effected my trading without a doubt.

I think it is imperative if you are thinking about making this your living, that you establish a good pile of money to be able to draw from. You don't want to get into every time you make 20k having to take it out of your main trading account to pay the bills. Maybe you develop a side business that brings in money, or maybe you do this on the side while your main occupation is something else. Going down the road of just opening an account, and hoping to just make millions and leave the worlds troubles behind, is just not a very good plan. Most people that do that lose everything, MOST! As they say "don't be that guy." There are people that have done this and will do it again, but be smart about what you are doing.

My largest draw down has been 17% since I became a profitable trader. Most people would say that is nothing, and some would not even believe it. I can tell you that I have enough money in my accounts where 17% is a lot of money, that period was brutal, it occurred during 2010. Keep in mind that during that period I was also forking out 20k a month to pay bills. This is the reality of things. You may not have overhead like I do, hopefully you don't, but no matter who you are this is going to happen to you. Buying those psycho babble books about the emotional aspects of trading and all that other stuff is just crap. You have to suck it up. Life can be wonderful, but there is no guarantee it will be easy. Just turn on the news any given night if you are not convinced. I remember having a terrible time with one of my dogs I lost in 2010, I covered that loss in here. I still think about him every day. I was in the vets office recently and he came up and he asked me if I needed to talk to somebody about it?

What exactly is that going to accomplish? I am going to lay on a couch and spout off all this crap while some geek just sits there and listens, and pay him to do so? The bottom line is that he was a big loss for me, and if when you lose someone important to you if you don't feel deep pain something is wrong with you. That is part of being alive. Trading has very difficult periods there is absolutely no way around it. You need to setup your life so that when they happen, they don't ruin it. This is not quitting your job, opening a 50k trading account, buying a new Porsche and being a big dog. It is about grinding out a living, learning from your mistakes, and moving forward. Tiger Woods could be a trader right now. He falls from a perch higher than most ever get to by his own doing, then has one up and down after another trying to get back to the perch. He seemed to be hitting the ball as well as he ever has recently, the equivalent of a good winning streak in trading. All of the sudden he gets injured, the akin of a draw down. Now he will at some point I assume, try and come back again and get it going. Will he be able to? Who knows, but his saga is very similar to that of a trader. We just get to watch it live.

As to why I do this blog? 

There are several reasons for that. First, selfishly I thought if I could establish a following, I might be able to morph it into some type of a revenue stream some day. What form that would have I don't know. I am hesitant to get under Uncle Sam's thumb which is where you wind up once you launch a web site. All the new regulations that are being created make this something I probably need to do from another country. If we get 4 more years of Barry this will only get worse. As a result this is something that I am still considering, but nothing is pending.

Second, I felt there was a void in that a product like what I have here did not really exist. There seems to be just one BS pitch after another out there. Charts that show buying every low and selling every high. Just join them and partake in guaranteed riches. I can assure you that if someone really had something that would do that, they could make more money trading it than selling it and not have the liability exposure with subscribers. These folks are all full of crap. I thought people would appreciate someone talking about real wins and losses, dumb mistakes, some analysis etc.. In this area I think I have accomplished my goal

One other reason I do it is that when you put something in print on the Internet you better damn well be sure about what you are saying, because it will travel around the world. There are readers of this blog from every country on earth. It is helpful in my own trading in terms of conviction with trades, to be able to state where I am looking in a public forum. I have backed off a little bit on live trades due to concerns about liability. I don't want someone suing me because they claimed I told them to do something or they saw I did and went along and lost money.

I have wandered my way into the short side in a few things over the last couple of days, markets I have talked about in my setup commentaries.

Good Trading


Anonymous said...

I see you put down therapy a lot. It's not all bad or useless. Sometimes it does help people and may even help you. Like any professional, there are good and bad ones out there.

John M said...

I woke up today to GGC down over 40 bucks, so I suppose that DZZ trade is doing very well for you. Congrats.

Chris Johnston said...

John the futures shorts in gold and silver I have are making way more than the dzz will make

As to the therapy comment, I should not have allowed that through. I suppose for a very weak minded person there could be some benefit, but like most of the medical profession, business is much better when nobody gets cured of anything. Maintaining or treating illnesses is how they make the money, not be truly healing anyone.

The point which you have missed is in trading which is what this blog is about, skip the psychology books and suck it up.

Khalyser said...

Keep up the good work, your blog is very informative. Using the COT report has always been a struggle for me, but the way you explain things make it much clearer.

Thanks a lot for your help.

Anonymous said...

business is much better when nobody gets cured of anything<<


I think you are reincarnate :)