MATHEMATICAL VISUALIZATION OF A “STOP HUNT”: BEWARE THE CHANGE IN COLOR
Stops are treated more viciously, on a consistent daily basis, in gold than any other market you can name [except maybe its’ cousin silver]; downside a lot more damage than the upside. Now to be sure, other markets have their moments; FX crosses can be particularly messy on news or trend line breaks, but on a consistent daily basis nothing approaches gold.
In many respects, for the average trader, stops are placed where they shouldn’t be; namely, where everybody else has their stops as well. You think the dealers, bullion banks, and large hedge funds don’t know technical analysis 101? You think they don’t know what’s in that book you bought at Barnes & Noble on charting and that it’s a pretty safe bet you’re using some kind of breach of technical support for a stop?
In this age of market manipulation, where gold first took the plunge starting in 2012 before other markets, the aim of the “stop hunters” isn’t to sell on the way down or buy on the way up; no, that’s supposed to be your job. Instead, they precipitate the fall [or rise] and then are on the other side, lest anybody in gubermint accuse them of manipulation. “Hey, we were buying on the way down; how’s this our fault?”
And so, one of the main differences in the “volatility” algorithm for gold versus previous momentum based models is that you can’t wait for confirmation of a short term up trend to buy [plum crossing yellow] before you establish a position, because if you do you run the very real risk of getting a rotten fill and/or buying near the top and having to “sweat” the position. In addition to that, though, you end up being much closer to your stop [mental or placed] and that puts you in real danger of getting it “hit” only to see the market take off on the upside leaving you sitting there wondering, "Hey, WTF just happened here?”
By using the daily calculated [per the algorithm manual] white horizontal line as our “line in the sand” for determining upside momentum and how we choose to initiate our positions and the criteria for liquidation [again, per the manual which is free to download on the “Download Links” section; just click to view or download.], we set in motion the way we set up our trades to give us maximum advantage based on the current short term momentum available in the gold market; we don’t need to pick the bottom, all we need is to be close, and when the gold price is above the white daily horizontal line, that “marker” for us is the plum line slope change, with a stop a couple of bucks below our fill [which by the way nobody else is there keeping us company so it’s very much a good thing.].
Moving to today’s action, first off you got to realize with no news overnight and markets listless after 15 hours of BS from Asia and Europe, and ranges tight due to the fact it is “vacation time” worldwide on most trading desks, there isn’t a lot here to drive markets up or down significantly so I’m not looking for a big range today [unless the dealers can unleash a stop hunt below 1330]. Having said that, what we need to see [at least in my mind] is some kind of opening hour “fake out”; meaning take it one way first and then reverse. Well, we got that, as the sell off that met trading starting New York hit a brick wall and the market started to drift higher. Below are the 2 algorithm trades for today.
Ok, given the fact that ranges are subdued, I’m not pushing my luck any further than these 2 trades; yea, I realize there were other profitable algorithm trades that could have been made after these 2, but it’s August and with no news trading desks are “thin” to say the least. How many times I gotta say this?
On the PAMM front, word from LMFX is that they are days from having the PAMM’s up and running again after updates. I’ll be creating ours as soon as this process is finished, and I’ll announce this on the blog post. Until tomorrow …
Have a great day everybody!
OPEN A DEMO AND/OR LIVE ACCOUNT AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”
OUR LMFX GOLD TRADING PAMM WILL BE READY AS SOON AS LMFX GETS THROUGH WITH UPGRADES TO ITS PAMM SOFTWARE! WE ARE VERY CLOSE; OPEN YOUR LIVE TRADING ACCOUNT TODAY, FUND IT, AND BE READY TO PARTICIPATE!