BUY BREAKS, SELL RALLIES; RINSE, REPEAT!
Well, we are visited again today with more “hurry up & wait”, as the financial world turns its’ hungry eyes towards Friday, and the release by the Bureau of Unicorns & Fairy Tales” of the most important employment report evahhhh! Christ, it’s only Monday, and already “talking heads” are pontificating about the “importance” to the FED of these August numbers; a stronger than expected number above consensus [180K] and we are told it’s a “slam dunk” rates get raised September 21, while a weak number throws us back into “bad news is good news” for gold. Given this headwind, it’s hard for me to see how gold sustains itself higher in the next few days; more likely slow breaks to nowhere that does nothing but set sell stops off before it attempts to rally again.
And speaking of “rallies & breaks”, our old friend Captain Obvious is back today with a guest appearance.
And while it would be nice for me to believe many of you are buying the breaks and selling the rallies, which should be obvious if you want to make money, most of you instead buy/sell the breakout from technical support instead; and that has less than a 50% probability of success on any given day.
Gold especially, given its erratic nature in predictability for Newbie traders, is a recipe for losses without the volatility algorithm you can download [or view] for free; once you know “what you have to do” versus “what you want to do”, you flip the probabilities for success on their head and it becomes a winning long term trading/investing paradigm.
I will admit, the hardest part of trading is knowing “what you don’t know” will come up and hurt you; for me, that process has always been one of keeping my “ear to the ground” and making sure my algorithms are dynamic enough to withstand changes in macro trading paradigms; nobody sends you an email to tell you the rules have changed.
When things “should work” but don’t, always keeps me seeing “red flags up the flagpole” and searching for ways to stay ahead of every other professional trader out there.
What we have seen over the last few years, is an absolute explosion of HFT’s [very high frequency trading systems proliferate beyond stocks into FX and metals], artificial intelligence [AI’s] systems tied into the HFT’s, and outright, blatant manipulation of markets by Central Banks. They don’t even hide it anymore.
As a trader, you no longer have the luxury of waiting for a confirmation of trend change in the short term to initiate a buy; if you do, more than likely you just bought the high or very near it. Bullion banks, dealers, liquidity providers, and large hedge funds spend millions in software and math Ph.D’s every year to GET YOU TO MAKE TRADES YOU DON’T WANT TO MAKE BUT DO ANYWAY BECAUSE YOU THINK A “NEW” SHORT TERM TREND HAS STARTED OR YOUR STOP GOT HIT. In any event, they win and you lose.
And all of this brings me back to the “obvious”; buy breaks and sell rallies, not the other way around! Which is why the volatility algorithm is structured the way it is; basically to get you long very close to a short term bottom, and then pump it out and liquidate on the way up to those who are “late”. One of the problems Newbie traders have is “regret” if a buy trade goes higher than where they sell it; so for example, you buy gold at 1320 and sell it at 1322.50 and 30 minutes later it’s sitting at 1325, and what I hear is, “oh man if I only had held on a little longer I could have doubled the profit on the trade!! Geesh, what a dumb ass I am!” [Umm, not really]
Trading is about making money, not validating to yourself how “dumb” or “smart” you think you are; you’re never going to consistently buy the lows of the day and/or sell the highs of the day for profit in any market. The key is to “take” what the market gives you consistent with very high probability trades, which over the history of trading [and in gold that is about 40 years] have proven themselves valid. I don’t care where the price of gold is because I don’t deposit into my bank account “price”; I deposit “profit”; there’s a big difference!
Turning to today’s trading, I made one algo trade [could have done more, but this market is waiting for Friday, so I’m not pushing it] which is directly below.
Today just might be one of the sickest market rallies in gold I’ve seen in a while; struggle, struggle, pop some buy stops from shorts, fall and then repeat the process over yet again. But, whatever happens today through Thursday will pale in comparison to Friday, when we get to play “Stump the Math Unicorns” with the idiotic NFP report. Oh, see my joyous face.
Have a great day everybody!
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