Saturday, September 01, 2012


I mentioned that I was looking to get long in Gold and Energies in Friday's trading, and what follows are the trades I made. Early on Friday when I did my post it did not appear that Gold was going to rally, it had been down all day at that point. What happened next was a furious rally. I had set my alarm and was working on something else not death watching price. I always tell people I don't death stare the screen. I can be enticing, but it does not add to profits. As a result I do not do it. What good is it going to do you to watch every tick? Do you really think that amount of stress is something that helps your results?

I had my protective stop on the long entered as an OSO ( Order Submits Order ), so I had nothing to do but go about other business. Once the alarm went off I just checked to make sure the OSO worked correctly, then went away from the screen. I did talk to my partner Michael who was also in the trade about an hour afterwards, and he assured me the trade was doing well, so he saved me the trouble of looking at the screen. When I checked in toward the close and saw the huge range, I decided to take my profits right before the close. I got a bit lucky in that my sell order went in right as the high tick of the day was taking place. This was luck, not genius. However, I had a plan and I followed it. It was that simple. Do not make it more complicated, trading will do that for you on it's own.

I basically had the same plan with RB, which was the energy I thought had been the strongest. As a result, that is where I went long. You can see I also exited this at the end of the day. I see no bearish scenario for either of these markets at this point, but with the long holiday weekend, I just decided to be flat. Gold had such a huge expansion range, that I thought the odds of a pullback were greater than those of another big up bar. However, it could very well just explode. I do not care. I took $2700 out of that per contract in just a few hours, and that is good money in my book. RB gave me about $1800, so all in all two decent basically day trades.

I do not always trade like this. One of the things about trading is that we have to constantly adapt to our and the markets circumstances. With the theft of my money at PFG, I need to steadily build back up my account balances, as opposed to holding things for home runs. Had PFG not happened, I would have held both of these trades, since they are with the trend and could well roll from here. However, I am where I am, and once I get the accounts built back up to sizable balances, I will begin to hold things for bigger moves. It is possible I would have taken the money in Gold either way, due to the huge expansion of range in one day. Most often these wind up consolidating that move for the next few days that follow them. There are other ways of handling things like this, which I will discuss specifically in my newsletters going forward. In any event, the above shows what I did in this situation.

I want to review the overall fundamental picture for Gold since we are on the topic of it here due to the trade I showed above.

One thing to point out, I do not consider Joe your neighbor telling you he heard all the jewelers he knows are hoarding Gold, to be a fundamental. A fundamental is a hard statistic that has over a long period of time reflected supply and demand in some direct way. New formula's that are created with no history, to support and argument one way or another are just noise like an annoying Joe Theisman prostate ad. I would like to interview his wife to see if he really does only get up once at night to pee, I bet he gets up more often, and she is irritated as hell until she says the checks that come in from the advertisers.

What we see that bothers me in this market is the large steady selling in the Commercial Proxy Index. I have marked off the prior occurrences of this on the chart, and you can see that in each instance a decline followed. In the first instance, it was a small sideways to down move, but still a time as a trader you would not wanted to have been long. The next two were much larger moves.

Next, we also see the Commercials starting to sell. They are not selling in large amounts yet, so no panic, but they are coming to the party here. You also can see that my Kitchen Sink index which is a proprietary combination of many things, is at it's lowest level on the screen. This is not good. Technically, the bands I use to determine trend have still not turned bullish yet, even though we are getting close. As a result, from a purely fundamental standpoint alone, this is a sell setup here.

Do I think this is a short right here? Obviously not since you saw above I just was long this market. We still have a strong seasonal up bias here, that we are following closely. What I am looking for here to setup a short, if one does set up, is a break and retest, while at the same time this above picture remains basically the same. We know that in this market in particular, it is being driven upward like the stock market, by governments. This is not a fundamental, it is an opinion. However, we know there is something in the way of the fundamentals working as well here as they do elsewhere. Is it just pure random chance that the one other place they don't work as well is the ES?

I just wanted to show this setup not as a precursor to shorting this market, but to once again make the point that using this data is a judgement call. It is my judgement for the time being that this data should be ignored until if and when, price breaks this trend. It is not close to doing so at this moment.

I am working this weekend to try and get the web site done so it can launch next week.

Have a nice holiday weekend.


Frank said...

Hi Chris,

I'm a PFG victim like you and would like to have a talk with you over the phone. Is that possible?

Angeline said...

Coincidently, I also Long Comex Gold 1667.0 with an initial stop 1646.8. I still hold my long despite such a big favorable move. I have moved my stop to breakeven when it moved 1R from my entry. If moves 2R from my entry, I will adjust stop to entry + 1R. This is basically how I trail the move. Care to comment on my strategy and any advice for improvement. Thanks in advance.

Chris Johnston said...

sure frank, my home phone is 760-734-6927 I am working today on my web site so call any time you wish

Angeline, I am assuming R stands for range. Is that average range of x number of days or just the last days range? If R is not range what is it?

My partner Michael is managing that trade the same way, carrying a break even stop now and holding it. If I were trading lots of contracts like I did before the PFG theft, I would likely have taken some profits and held some of the contracts.

Trailing stops is somewhat of an art not a science. I am going to devote a lot of time to this in my newsletter and show actual examples of how I do it. In general, the most important thing to keep in mind is that you need to keep stops above and below pivot points on charts where clear support and resistance have formed. Having the stops in the middle of bars ranges is not a good idea. Keep in mind the only person to whom your entry price matters to is you. The market does not care where you are "in." Therefore, breakeven stops often wind up in bad spots where there is not market logic to them being there. As a result they get picked off a lot, then the market just resumes the path it was on.

However, with a gain the size of what you have in that trade, having a stop at b/e even though it is mid range, is correct. You don't want a profit that big to become a loss.

What matters most with trailing stops is being consistent and understanding that no strategy will work in every instance to perfection.

Maybe not a great answer, but the best way to answer that is multiple pages of discussion.

Angeline said...

Dear Chris,

I am sorry for not properly define R in the first place. R is my context is my initial risk (entry price - initial stop), that is used to calculate my position size and risk management.

I agree with you that putting stop at breakeven is more "personal" than "rational". The fear to avoid turning a profit to a lose is definitely greater than let market enough room to move and make noise. Once the pivot point (support in this trade) is comfortable above my entry, I will trail my stops just below recent support.

Thanks for your great explanation and looking forward to learn more from your blog. Happy holidays.