The topic of today applies to all of the items listed underneath it and I will cover them in order.
First, 16/18. This is something I have really been having trouble with and since this is essentially an expression of my inner monologue, it is time to get this one out in the open. I have been showing Bond trades live in here, even though there have not been many, from a system I use to trade them. The purpose of doing it was to give it a spin live before potentially offering it as a subscription service. It has been crappy so far, only generating 3 trades, two small wins and one loss that was larger than the two wins combined. It once again today had no trades. With any system there are periods like this so there is no point for concern about it yet.
One of my mentors recently offered a service for trading that I signed up for. I was mostly hoping to see how he was using one tool of his I use that at times I struggle with interpreting, it is very subjective. This tool has made me a lot of money at times, so I did not want to walk away from it even though at other times it has given me fits. I thought I would be able to tell, since I think he uses it to trade, how he was resolving the dilemma's with it I was having. Incredibly at this point the service has lost on 16 of the last 18 trades, with another open trade about to get stopped out for a loss. This is mind boggling and something I have really struggled with. On one had you have one of the greatest traders of all time, who has made millions of dollars almost every year trading, on an incredible losing streak. All else being equal, you would think this would be the time to bet on him not walk away. However, with anything from a marriage to an illness, to many other things in life, you have to have an uncle point. There always has to be a point where the pain gets so severe you have to walk away and move on.
Generally using a moving average of equity is a good way of doing this. You wait for it to break then once it gets back above the average, you go back in. With systems at times when they break it they just completely go south and never come back. At other times you wind up exiting at the worst possible time on a draw down, and miss the good trades that bring it back in line. There is no perfect solution to this dilemma. In my case what I have done here is initially I only took these trades in one of my accounts, and with very small size, just one contract a piece. This has been a life saver. I was able to make more money in my own trades than what these were losing, so I was able to over come them. After this streak got to about 9 out of 10 losses, I started trading them in a second account looking for the reversion, still just one contract just in case it continued to go south like it has. Another good decision from the standpoint of the low risk. However, now it has gotten twice as bad, and I am unsure what to do with it. It is having a huge negative effect now, and it might be time to just admit it was a bad decision and get on with things kicking it to the curb. The only reason I have not done this is that I know over the course of a year this person rarely if ever has had a trading loss, and these are trades I think they are actually doing. The thinking was it will turn around at some point. At this point it has gotten so bad I am just not sure now.
Because all the markets move together, there are no trades separate from these setting up for me, so I find myself in a spot where I can't overcome them at the moment by trading separately. Net net I am not quite sure what to do on this, but thought I needed to get this out since it has really been troubling me now for a few weeks. It makes me very hesitant to offer this trading service live with Bonds even if the trades wind up working out. I am someone who really cares about others and I can't imagine how bad I would feel if something like this happened with something people were paying me for. I am sure I would change it to free until it became profitable, but at the same time as a system, I would never allow a streak to get this bad before the circuit breaker would hit and it would be stopped. Pretty much anything along the lines of 4 losses in a row is pull the plug time on a system like this.
Here is the worlds favorite market, GOLD. Once again everyone is saying put your money here for the impending disaster. That same video calling for something huge to happen in the next month or two is out there. Of course it has been out there for two years so at some point chicken little has sailed there one would think. What I have drawn in is what would be the bullish argument for this market. There is a nice inverse head and shoulders pattern forming here, with the right shoulder not yet established. We do have the COT picture looking the way we would want it to here, big buying by the commercials and big selling by the small specs. The problem is that price is not cooperating and it is free falling at the moment.
Most readers know that I think this market is doing to decline more than 50% bigger picture, and we may well have begun that move. One trick to using COT stuff is that at times when a trend changes, the commercials shift to the opposite side too soon and give false signals for a resumption of the old trend. I have never figured out a sure fire way of determining when that is happening and when it is not. Here we have to let price guide us. If we penetrate the low where I have the arrow, the game is over here for probably a decade or more, or at least a huge decline. If we hold above that level, then make higher short term lows, we can buy break outs from there and life could still be good here. We have to let price be our guide now. Fundamentally we appear to have a good setup for a buy. It remains to be seen if price will cooperate or not. I have this in the Overdue category more because of the big decline that I think is overdue than for the shorter term buy that appears to be setting up.
Here is basically the same chart I showed previously. The ES is setup for a decline and is months overdue for one. We know the FED and Barry don't want one and here is one thing I rarely hear mentioned but it very relevant. Earnings on Wall Street have been very good so bulls can point to that as to why the market is actually undervalued here. Just on the surface that is correct. However, if you were to strip out the effect that low interest rates have had on the balance sheets of companies, and put rates at a 10 year average, I would wager earnings would be terrible. The whole world is window dressed at this point, it is what it is.
At this point this pullback is just that, we have not broken any major support points. The problem with this move and with all manipulation moves, is they leave no logical support levels to buy against. This is what leads to these huge air pockets down we see time and time again. Look how far we have to fall to hit any meaningful support levels. It is 200 points down in the ES to where any real support should be lurking. I am hoping for a bounce here to short just about everything since most trends are declining now.
Once again, no trade in the Bond System today.