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Thursday, November 3, 2016

CRITICAL THINKING IN TRADING


ASKING THE IMPORTANT QUESTION: “How many holes need filling in your trader head?”

I had the best of intentions of linking up the October DOW30 data to the website last night, but for one small problem; when I got back from the beach yesterday, showered, ate dinner and fired up my laptop, what do I see but about 15 emails in my inbox covering every subject imaginable. From the time I turned on the machine to when I finished replying to all of them with a personal response, it was time for my beauty rest [“and you know how important that is, right?”] So, I’ll get the data up and linked tonight.
The main reasons damn near all of what you see [and sadly, for some of you, have paid for] about trading “systems”, trading “methods”, or trading “algorithms” is complete junk are a combination of the following; 1) they are not thought out from a “top down” philosophical or logical line of reasoning to get to dealing with a very specific finite set of priorities in trading, 2) they are put together using “back fitted” historical data under the best of trading conditions [like straight up/down] to give the least “regression mean” to losses while favoring profits, thereby insuring at the first hint of increased intraday volatility you will lose money, 3) no mention or thought is given to the limitations of the method, when it will turn sour, or what to do when it happens; and believe me it will happen, 4) priorities are intentionally set to maximize profit and pay no attention [or very little] to risk tolerance or the size of losses when they occur; you therefore could have 10 winning trades in a row and the 11th trade shows your account down 20%+, and last but certainly not least 5) who is it exactly that is the author of the code and what are his/her “street creds” in trading that should make me want to investigate my time and do the necessary research to see if it’s “legit”; and by extension of this do I have to send a shipload of money off somewhere to get even the janitor in the building they are supposedly in to talk to me and answer some questions I might have?
Well, unless you find yourself in “Willy Wonka’s Chocolate Factory”, I can pretty much assure you money is going to flow from you to them before anybody will even say “Hi”; and what happens after you send them money? Can you get it back when you find it’s all bullshit based on Soybeans back testing when there was a drought and prices sky rocketed? “Sure, and I can get you Super Bowl tickets on the 50 yard line 5 rows up totally cheap; sound good?”
So, what I have done is pretty much eliminate the money equation; and that should have your brain cells working overtime to critically evaluate and eventually asking the all important question, “well, if there isn’t any money involved, then if his algorithm is bullshit and doesn’t work, why would he go to the trouble of ‘putting it out there’ cuz there isn’t anything for him to gain but people who think he’s full of shit; it doesn’t make sense.” AND MY RESPOSNE: “What took you so long?”
Right now, I have “affiliate” programs with 2 brokerage houses; 1) ASSETS FX [Finland], and 2) LMFX. ASSETS FX is now only for NON U.S. Citizens, and LMFX is open to anybody. Both have the very best conditions for spot gold [traded in 1 Oz. increments] that you will find; I have a suspicion that they both use the same liquidity provider bank because their quotes during the day [bid/offer] are right in line with each other almost to the penny after round turn commissions are factored in at ASSETS FX. Currently ASSETS FX has the better DOW30 CFD by a very slight margin, but for American clients that can’t have accounts there any more, LMFX is about as good as it gets for trading.
At both houses, when you open a live trading account through the website and my link, you become an “affiliate” account of mine; what that means is simple. 1) You get better service if there’s a problem with your account cuz both houses know I will be on their ass like “white on rice” if something isn’t taken care of like it should be; both have felt my wrath before, and both know I carry some weight in the trading community and don’t want the negative publicity criticism from me attracts to them, and 2) as everybody should know, both the brokerage house and the LP make their money off of the spread in any market; while we pay “retail”, they offset our positions in their books “wholesale” and pocket the difference. The most common practice is for them to split the spread 50/50, but it doesn’t have to be this and in some instances there could be other factors at work as well that determine what the final split actually is.
When you trade and the brokerage house gets their “cut”, they kickback to me part of their spread profit for bringing your account to the brokerage house; it isn’t much but it adds up. My affiliate clients do not have any spread that is different than anybody else; whether you are an affiliate or not makes no difference to your “net” cost of trading.  What I’m getting from the brokerage house is simply part of their cut.
Now, the way I look at this is as follows; it’s a net win for everybody involved. The brokerage house gets increased business, the client [you] pays nothing for the algorithm and has no expense whatsoever, and Yours Truly pockets a little coin for his efforts. In essence, the brokerage house is paying your algorithm fees. If everything is bullshit, then I get no clients and if I have clients they will eventually lose money and go away, so I end with nothing for my efforts; why would I want that?




Turning to gold today … ahhhh, the Chuckleheads traders in Asia just couldn’t help themselves could they? … had to rally it by about $8 back up to yesterday’s high so the dealers & bullion banks could stuff it down their throats … “seriously, do you traders over there ever look at your P/L and wonder WTF is going on? Cuz from where I’m sittin’, I’m amazed any of you have any money left from the ‘pounding’ you take practically every night I’m asleep. And, oh boy, the open today is going to do exactly what I wrote about yesterday; sell stop heaven for the commercials!”
From earlier in the day, a lower exhaustion move in late Asia that had the algorithm make for a very nice buy signal; the selloff and subsequent trade directly below.


Half an hour into this today, and all I see is some light short covering from the big drop overnight in late Asia and European sessions.  But what has me worried is that Asia went sharply lower; and you all know what that eventually means for New York [Hint: up from the lows].The daily calculated white horizontal line is $4-$5 above the market from where it stands right now, meaning we need a waterfall of some kind [hopefully a lower exhaustion move] to get long; we should get another selloff here once some shorts cover, but with an already $21 range, I’m wondering what’s left to the downside to get that to happen? Again, remember Asia and what happened and what I have always said.
And as I write, we just got an upper exhaustion move @ RM=1; this should be the “last gasp” of final short covering. The chart directly below.


EXIT QUESTION: How good was the algorithm in “nailing” this high? “Still wanna talk to me about ‘randomness’?”
Oh wait … you want more “randomness”? How about the second move to the upper exhaustion lines? Oh, and what a surprise … it touches the exhaustion lines and then … what? … anybody got an educated guess out there? Directly below the second up exhaustion move of the day.


“Hey Mr. Market, how ‘bout showin’ a little love out here for us traders waitin’ for an exhaustion line hit LOWER! Gooooooood, it’s like I’m asking for the F-ing world here or what?” [Patient Bear is patiently sitting and waiting … show patience & discipline grasshoppers!]
So, 2 and a half hours into this clusterfuck and gold is reverse correlating almost to the tick with the SP500 and DOW30; both indices have been down 9 days in a row, and with the ever idiotic “most important evahhhhhh!” NFP report tomorrow morning from the Bureau of Unicorns & Fairy Tales, I’m just a tad surprised we didn’t see an early short covering rally in both which would have sent gold lower [maybe] into the lower exhaustion lines for us to buy.

We could still get stocks to rally late in the day, but I doubt seriously gold is going to “tapioca” itself into the lower exhaustion lines; just not enough players that late in the day to want to trade to give it that “oomph” that we need for exhaustion. And, trader thoughts will start to converge on the NFP report and markets morph into “position squaring” which is almost always a bucket of slop up and down with no clear trend to speak of and/or take advantage. It looks to me like a wasted day in gold.
Newbies may want to know so I will address this point; when the price is below the daily calculated white horizontal line, the only way we get long is through a waterfall drop in price. We don’t get long on a plum line slope change when plum is under yellow; why not? Simple answer: the probabilities aren’t high enough to justify a trade with above average profit expectations. But remember this; the primary goal of the algorithm is to keep your trader ass out of trouble. After it does this, then you can go for profits in a long trade with probabilistic scenarios that are definitely in your favor; in other words, I trade when I’m the casino, not the customer.
Sometimes, like today, the market goes counter to all of this, and the lower probabilities prevail; it happens, so what? Opportunity is infinite, capital is finite!
Oh, but looky here; the market has crossed the white horizontal line on the upside, and then subsequently backed off, and when the plum slope line changed, we got the day’s first buy signal. Again, like yesterday, I’m not thrilled about getting long up here, but when the algorithm says “buy”, I click the damn button. Below, the day’s first [probably only] trade.
I have no intention of getting “stuck” up here, so once I’m up over a buck in this thing, my fingers become very quick looking for the “close position” button; if it wants to continue to climb minute-after-minute without pause, be my guest. But once the previous M1 closed, and the current M1 on this chart went immediately red, I liquidated; I’ll take the approximate $1.50 and rejoice, because an hour or so ago I didn’t think we would be up here for a trade, and it was looking and feeling like a nothing day. At least it keeps the dog in bacon. [To the Mrs., this is a “rounding error”.]
Once this trade is over, I can feel things slowing down; the M1 candlesticks are getting smaller in range, and prices are more “disjointed” from one bid/offer quote to the next one; “folks, we’ve just moved into the ‘position squaring’ for tomorrow’s NFP stupidity part of our show today. Please have fun in getting whatever position you want to get 15 cents outside the bid/offer before it goes against you 60 cents in a heartbeat.” Thanks, but no thanks … I’m done today … Mr. Market, do whatever the hell you want.
It’s cloudy and rainy here today [wait … what?], and so the dog and I will be watching “Too Cute” on Animal Planet that comes on about 3-ish … he keeps looking out the window and sees it drizzling rain, then at me as if to say, “hey boss, WTF is this shit I’m lookin’ at outside? No beach? Aw man … life just ain’t fair!” But, when I grab that T-bone steak bone I got last night from the steakhouse, and give it to him while we’re watching puppies frolicking around on TV, he’ll be in heaven. Until tomorrow … I’m outta here.
Have a great day everybody!
-vegas
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!”

 




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