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Monday, October 31, 2016


Over the weekend, I had the experience again [for the umpteenth time] of meeting someone who is absolutely convinced that people “like me” can’t exist; “it’s simply not possible cuz markets are random in nature, and nobody can beat “randomness! How can ‘you’ explain this phenomenon?” [“As if it’s my obligation to defend my career & proven trading results to somebody that starts with a faulty premise; but, it’s the weekend and I feel like playing with this guy who doesn’t yet know I’ll be leading him into the biggest logic trap he’s ever seen.”]
I start by replying, “I’m reasonably sure you must follow some market; are you familiar with gold or the DOW 30 index?” And he says, “Yes, I watch the Dow every day almost; it’s crazy how it gyrates! Gold I watch occasionally, when it’s in the news, but stocks in the Dow I follow pretty much daily.” “Ok, then let’s talk about the Dow since you’re more familiar with it”, I say and then continue, does the Dow just go ‘straight down’ or ‘straight up’, any day when you’ve watched it, for the entire day?” He says, “Well not that I’ve seen; sure, there are big up and down days, but I don’t ever recall the index going ‘straight’ in one direction for the whole day; it’s just F-ing nuts most of the time; it’s up 70 points and then I go grab some coffee or something and come back and it’s unchanged or vice versa; it looks and feels to me like a mess is going on and most of the time I have no understanding of why it’s doing what it’s doing. One day ‘news’ is bad and it skyrockets, the next day the ‘news’ is worse and it plummets. I just don’t see how it’s possible you make money doing this?”
I pause for a second or two and then say, “You do know you can ‘trade’ the Dow 30 index as a futures contract or as a CFD?” He replies, “Yea, but I don’t understand the mechanics involved … had a broker once try and talk me into opening a trading account to trade the stock indices, but I didn’t do it. But yea, I know they exist and you can make money if you guess right, but Christ when it goes against you … man the losses can be horrific.”
I pause again with him and finally say, “Do you believe in cycles? You know, the cyclic nature of things?” And he says, “No not really … just ‘mumbo jumbo’ for the masses; besides, they’re so unpredictable.” [And this is where I know I have him right where I want him.] I say, “So, your wife has no monthly period?” “For God’s sake man, what’s that got to do with anything?” “It’s a ‘cycle’ isn’t it?” “Well yea, if you want to get technical.”
“And since you don’t believe in ‘cycles’, you’d buy a farm in Iowa and plant corn in December too right?” “Ok, I see where you’re going …‘those’ kind of cycles sure … because you can see them and modern society knows they’re real … the ones you are inferring, not only can I not see ‘em, there’s no basis for them to exist so why should I believe they are real?”
Now for the kill; “Well, I can’t see ‘X-rays’ EITHER and for the life of me have no reason to know why they exist, but they most definitely are real and can kill you if you’re careless with them, just like markets like the Dow 30 or gold. Mathematical cycles or vibrations most definitely do exist; ever hear of a ‘sine wave’ in electronics? How about ‘elliptic wave’ cryptography that keeps military websites and computer networks safe from hackers? You yourself just said a minute ago that the Dow was ‘nuts’ and ‘gyrates’ a lot during the day; are these not mathematical cycles playing out before our eyes with big changes in momentum and direction? And by the way, that just happens to describe vector calculus, so I guess in your world that is meaningless and doesn’t exist also? [I’m on a roll, and I can see he’s starting to squirm a little, as the logic of my argument is eating away his armor.] I will be the first to admit, my algorithms build upon others in the trading field’s successes; most notably W.D. Gann and my mentor Bert, WHO JUST HAPPENED TO HAVE MADE ‘MILLIONS’ THEMSELVES, and can’t have possibly existed except that they did. Together, with what they taught me plus my own original research into ‘exhaustion’ moves, I have about the highest probability you will ever come across of making consistent money from trading; oh, and I been doing it since before you were born!”
AND THAT ENDED THAT! [“Go ahead, go get some shrimp off the barbie and grab a cold one; I know what you’re doin’; it’s Ok.”]
Imagine taking Gann’s ‘Square of Nine’ and printing it out on rectangular paper that was the size of an acre [43,560 square feet] with a starting level of ‘1’ and just going from there until the entire acre of paper was filled with cells; take a crane and lift the starting number of ‘1’ into the sky, and the acre of paper becomes a pyramid made up of 4 triangles bordering each other with a square at the base. And the 4 corners of the pyramid going up to the apex in the sky are the ‘cardinal cross’ numbers. From what I can gather from limited information, this was discovered by him on his 10 year [1909 – 1919] “fact finding” epic journey to the middle east & far east; think of this, 10 years gathering research for trading traveling the “far reaches” of the globe to dusty and long forgotten libraries in Cairo, Beirut, Istanbul, Bombay [Mumbai], Peking [Bejing], & Bangkok to name just a few.
Gann died 3 years after I was born; I was introduced to his work by my mentor Bert, who I had the distinct privilege to study under for about 3 years at the brokerage house we were both at before heading to the trading floor in Chicago. Gann is extremely cryptic and hard to understand from his writings; he doesn’t give you anything, he makes you work for it by going down blind alleys. Give any “Newbie” any of his work [you pick ‘em], and the first words out of his/her mouth will undoubtedly be something along the lines of, “I don’t understand this … where’s he going with this? … how does this tie in to buy/sell signals? … Mercury? … wait … what? ... what the hell does Mercury have to do with pork bellies? … ephemeris tables? … what the fuck are those? … nodes of the moon? … arcs? … 45° angles? … screw this I’m outta here!”
Bert was totally a “physicals” commodity guy; lumber, cotton, & corn were the big 3 he traded; here I was, and all I was interested in were gold, silver, interest rates, and currencies; I had no interest [intellectually speaking] in the markets he was trading, but came to “see the light” in his approach using Gann’s principles. Week after week Bert piled up some huge profits, and changed me from “skeptic” to “total believer” in 3 years time [actually a lot less than that].
Many readers know that over time, I have made adjustments to my original floor trading algorithms; the last major one being in early April of this year. With the tremendous changes in the nature of the way markets are trading now [i.e. greater HFT volume and much greater Central Bank manipulation], it was time for a “total re-write and examination” of the trading algorithms. From this, the “volatility algorithms” [gold, DAX30, crude oil, & soon to be DOW30] that are available for download [free I might add] were born. I can categorically state, the changes I made have been highly profitable.
For example, take the DOW30 on Friday; the FBI announcement on Cankles emails caused quite a stir; directly below, the DOW30 M1 candlestick on the MT4 with algorithm overlay, after the “knee jerk” selling that ensued. At this time, the market was in “buy mode” from the rules of trading this market.
The white arrows are buy signals from the plum line slope change from negative to positive when the plum line is under the yellow line; notice how close to the bottom of the move these signals are. The blue rectangles are of course exhaustion hits for liquidation; can they realistically be any more precise and “on target” in real time for you in getting out? This isn’t just a rhetorical question; find me anything else [in real time] that can come close to this.
Of course, for the last 6 months+ it’s no secret to me; the volatility algorithms for XAUUSD [spot gold] & DOW30 have almost perfectly mapped algorithm exhaustion behavior in both markets, and outside of “Brexit” [where things got more than a little nuts with RM=4 moves the norm for a couple of days], some FED interest rate decision moments, and of course the idiotic monthly NFP reports, I don’t see anything that even comes close to the algorithms ability to make money on a daily basis with a very low risk profile, that you can get your hands on and use to your benefit. Oh, and it’s free; go figure.
Crude oil is still doing well, but volatility has dropped since summer, making it tougher to make money. The DAX30, outside of some days where the market has actually put in a somewhat decent range [150+ points], has seen intraday volatility crater; and if you think I’m getting up at 2 A.M. to trade this and see miniscule ranges and volatility stare back at me … well, it ain’t a happenin’! Which, don’t get me wrong … this shit happens in markets, and when it does you leave it alone until it comes back. As it stands right now, it looks like gold and the DOW30 are ready to return to higher intraday volatilities; coupled with the fact they are U.S. based markets and can be traded during the business day, makes them ideal candidates for trading and making money.
FX? Don’t get me started with how totally fucked up this arena has become; 1) 24/5 market pairs with absolutely no preference to any of the three 8 hour sessions [Asia, Europe, U.S.] to make violent moves quickly and hurt traders with no subsequent follow through, 2) total lack of risk control over your account where stops mean nothing, and 3) because of the first 2, volumes are off 30%+ from 2 years ago, making liquidity and slippage an issue like never before. These are the reasons hedge funds large and small have left the trade or gone out of business in record numbers. I’m not working on an FX volatility algorithm, and I don’t expect the future will see me back here anytime soon [that doesn’t mean “never” though].
It’s 6:30 A.M. here in Paradise; the “impenetrable bacon box” has been successfully penetrated, so breakfast has been a success and the dog is happy cuz he’s eaten roughly half his weight in bacon and roast beef already; it’s that day again, and I feel like the pic directly below.
“Seriously, why can’t these markets open at 11 and close at 2:30?”
Amazing what caffeine does after your second cup of coffee; turning to gold today … well, looks to me like the Friday afternoon “Cankles Blitz” caught some serious short players off guard and trapped them into submission before the weekend … nothing like a Friday to squeeze people who stay at the party just a little too long. Not much range overnight in Asia and from the looks of the HR1, the Asian Chuckleheads traders seemed like they didn’t want to play starting the week off with more uncertainty than I can remember in a long time. Not much of an argument you can make to be aggressively short here … right now uncertainty plagues this market [and others as well], and as we saw on Friday, [not if] when another shoe drops from Wikileaks or the FBI, or even some other source, that causes “concern” for the political process and equity markets react, gold is going to react with it; until things settle down some in that regard, it seems to me the “safe” side of gold is to be long on breaks into the 1260’s. Of course, the algorithm will tell me what to do, but from a “macro” sense if I was a commercial seller, I would be somewhat hesitant in pushing prices lower at this moment.
On the other hand, Friday’s short covering burst could be seen in a longer term view as “capitulation” by the “Johnny Come Lately” crowd who had short positions at less than advantageous prices; just the kind of necessary market action dealers & bullion banks look for before they actively attempt to push prices lower; we’ll see who wins [besides us that is!].
Here at the 8 A.M. open, market appears “soft”; looks and feels like I’m going to be waiting for some kind of “waterfall” sell off to get long; this could be a long day. Half an hour into this today, & it’s Chicago PMI @ 9:45; maybe that will move this some, cuz it’s “chop city” from where I’m sittin’.

Well, there goes 4 hours of my life I can’t get back; what a bucket of slop gold is today. The good new? The DOW30 had some good buy signals that made profits; they didn’t turn out to be exhaustion moves, so I’m not going to show you the charts because you don’t have the manual or tutorial for the DOW30 yet, and I don’t want people losing money trying to “reverse engineer” the process and infer that all the rules and signals for the DOW30 are the same as that of gold. They are different, and if you “do it wrong”, the trading universe is a cruel place.
So, no trades today in gold, as the market spends pretty much all day under the daily calculated white horizontal line and we haven’t seen any type of waterfall action on the downside that would get me long; whaddaya expect with a $7 daily range? Ughhhhh. I’m so outta here, you have no idea … until tomorrow.
Have a great day everybody!



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