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Thursday, March 16, 2017


“A floor trader’s guide to happy & productive mental health!”

Well, market reaction in pretty much everything was “sell the rumor [rate increase], & buy the fact [Yup, they did it and said, which nobody believes, that there will be 2 more in 2017]. Over on ZH [zerohedge] is an article about Kathleen Hays and her questions for ChairSatan Yellen at the presser, which clearly annoyed Yellen, and points out what I said yesterday; “these Twits at the FED have no clue, base everything on politics and fuzzy warm feelings, and when presented with evidence … yes, solid economic evidence in the last 2-3 months, that things have softened considerably since December when they didn’t raise rates … how come now it’s OK? And to actually listen to what Yellen said in response is truly mind blowing; 1) she never addressed the questions to her, and 2) rambled on about “dot plots”, what they think mighta, coulda, hopa, please God bail us out of this mess!”

Clearly, not a frickin’ clue; “now be a good little girl Kathy, and run along, stop bothering me before you never get a chance to ask another annoying question, and why can’t you be like the other sycophants and ask softball “Obama-type” questions that we planted for you to ask before this presser started”? Is it any wonder why this country is in serious monetary “full metal jacket” mode?

I’m somewhat surprised we didn’t see a more bullish reaction from the “Retardistan” vote yesterday from the Euro and the Euro crosses … the muted response points out just how many problems the markets feel the Euro has; and while the U.S. Dollar suffered across the board, there wasn’t anything special about the EURUSD response to Dollar weakness.

Coming into the European open, that opening shot down was a surprise; range was tight in EURAUD from Asia, but the rebound off the SDEV line, I think, caught shorts “off guard “; I came really close to selling this bounce, but the market provided no follow through on the downside, and the bounces up were quick. Fast forward some, and now we are breaking through the 50% retracement level, and this is now trouble for the shorts. First trade of the day isn’t really a case of “buying against the middle”, which is what I want, but more of pure momentum before we attempt to take out the high of the day. I know going into this that if I wait I have a better than 50/50 shot of buying it higher, and I also know that market momentum should keep the price higher than my buy for at least a short few minutes. Again, timing is everything … some days you’re the pigeon, some days the statute … the weakness that showed up right before the move up got me to liquidate. First trade directly below.

So, after the shot down, we get an “official” reversal day with a new high … and then there’s “nothing in the tank” to propel us higher and we subsequently proceed to go straight down and through the 50% retracement the other way … all-in-all the order books get wiped “clean” on both sides, and now we sit here half an hour before stocks open drifting around the half way level of the day’s range, cuz nobody of substance wants to get hurt multiple times on the same [what appears to be in the making] day with a “doji” seen below.

And a “doji” day [or something very close], my dear trading friends is something I want to avoid cuz “it’s the form of our destruction”. Remember; every algorithm, system, trading model, whatever you want to call it, and no matter how smart you think you are cuz you been trading for 6 months … everything has limitations, and you better understand what they are and how to “beat the hell out of ‘em”. Doji days for the version 3 volatility algorithm are not guaranteed losing days; our signals generally almost always put you up money first, giving you options, before the market turns. Having said that, though, the potential exists with a far greater probability of losing, if the day in fact ends up a doji.

[click to enlarge]
Above is a daily candlestick with white arrows highlighting “doji” days; generally speaking they come about 10% of the time, and you must constantly be aware of trading conditions to defeat this animal. Generally speaking, it’s one of the main reasons I am “quick on the draw” when I trade; any “chimp” can manage winners. Put anybody up 10 PIPS on every trade, and you’d be hard pressed to ever having a losing trade, much less day; getting to that level, though, is where professionalism, discipline, and patience come in and having the mindset of giving no quarter to the market when it’s either not moving or going your way … like right now. Some time periods [days, weeks, months] it’s like shooting fish in a barrel it’s so easy; other times, you sometimes feel like dental surgery with no anesthesia is preferable; in essence, it’s the market’s attempt to put everything and everybody in the same boat and produce losses from a random matrix. “Sorry, I ain’t playin’ that game”!

[Note: Take a look at that daily candlestick above, and notice 2 key items; 1) the Ichimoku cloud, and 2) the ± 3 SDEV (standard deviation) lines plum (above) and yellow (below). Many people in the Pacific rim part of the world trade AUD & the AUD crosses, and a very popular technical indicator is the “Ichimoku Kinko Hyo”, developed back in the 1960’s by a financial writer. Both the “top” and the “bottom” of the cloud is support coming down and resistance going up into it; notice how the last 3 days has found resistance going back up into the cloud up near the highs. In addition, notice how few days ever reach the SDEV lines, and when they do, the market isn’t there very long. I keep track of both these indicators on the weekly, daily, HR1, & M30 to give me “perspective” on what’s happening; although not technically part of the version 3 volatility algorithm, they are very helpful in gauging legitimate support & resistance levels, especially when liquidating positions after a move.]

Now that markets have totally morphed into “speed of light” trading … then crickets, more than ever it’s of utmost importance that the doji days not produce mind blowing losses … which they can easily do as you wind up on some “Yo-Yo” express buying the highs and selling the lows multiple times, looking for an expansion of the day’s range and/or HVALUE that never comes. Some of the worst losing days I have ever personally witnessed from other floor traders happened on “doij” days when nothing really happened in terms of price movement or market action. And when they seek out your advice after it’s all over for the day, they will be the first to admit 1) leverage got out of hand trying to “win it back”, 2) they abandoned all discipline, and 3) they were in fact their own worst enemy. This is what “doji” days can do.

Hand in hand with this, of course, is the utter frustration of sitting here and watching paint dry and asking yourself, “WTF is this”? You think this is bad? Try buying an exchange membership for $500K, commuting into the city “kitty litter box” known as Chicago and putting up with traffic and congestion, and then standing all day in a “pit” where others either hate your guts cuz you make money or despise you as a loser not worth spitting on cuz you can’t make a dime to save your life. Now, ask me what that’s like; it’s why most traders fell into one of two camps; either you worked out after trading or you went down to the bar and drank yourself into oblivion. And as I tried on many occasions to tell people back then [some listened and some didn’t], “you can’t make this stuff move … it is what it is … there are “makers” & there are “takers”, and unless you got billions in your trading account, no matter how much you want to shove it up or down, there will be dealers who will take anything you want to bid or offer and then laugh right in your face when they SHOVE IT DOWN YOUR THROAT”!

And then would come the obligatory, “well, I got a mortgage to pay, wife & kids to feed, and blah blah yada yada”. Hey, you ain’t listening; “the market [whichever one you want to plug in here] doesn’t know or care about you and your personal financial situation … what you want … what you need … is totally irrelevant to what’s going on … learn to read the market and take what it offers, cuz that’s all you get … ever”!

As I’m writing this early in the A.M. while zip is going on in EURAUD, I have no idea if today will end up being a doji kind of day; maybe, maybe not … we’ll see and take it from there, but I wanted to explain the “doji” days anyway and make sure you understand how to handle them, not “if” they come, but “when” they come.

A flurry of trades in late morning New York session, and I just have to laugh out loud cuz the majority of my orders to liquidate come [literally] 1/10th of a PIP from getting filled before backing off; 3 times already … “Ok, I can take a hint … so, next time I’ll lower it a tenth and get the fill; right Mr. Market”? [Umm no, I’m still off a tenth! HAha.]

What made us money today [and granted, I ain’t braggin’, just sayin’] was Turnkey; if we were clearing anyplace else in the world there would be zero. Their very tight spreads in EURAUD [usually about 0.00002 – 0.00003], low RT commission [$2 per 100,000 notional value traded], instantaneous fills, and zippo slippage won us the day. At times today, it reminded me of being on the floor and having the very best, most excellent trading conditions possible.

I already put up the first trade, and I really don’t see the need to put up the rest they are so similar; once again, a somewhat subdued day in EURAUD, with first the quick slam down right after the European open, the rally straight with very little backing off to the highs, and then new highs before selling off to current levels.

One thing besides “doji’s” I want to stress and today’s trade provides clear & hard evidence of one of my most basic rules of trading; “Do not [except for maybe a scalp hunting for stops] buy or sell “BREAKOUTS” on a chart; dealers, banks, and large hedge funds muscle these markets knowing … absolutely KNOWING [cuz the banks tell ‘em] your stop is on the other side, and thus are counting on you to help them cover their positions. “Breakouts” are for LIQUIDATING long/short positions at the very best price … and if you’re wrong and it keeps going? Big whoop, you’re out some opportunity … opportunity is infinite, remember?”

One of the key strengths of the version 3 volatility algorithm is that you are always buying up trend corrections and selling down trend corrections [“against the middle” of the day’s range], and this positions you correctly to profit when the market goes to a new high or low and you liquidate; rinse & repeat! In other words, you’re doing the opposite of what most retail specs do.

I last traded USDJPY on March 9th and that market has simply lost its “mojo”; gold, the way it’s trading is an account killer … with no way to get it back once the bullion bank LP skins you on stops or slippage, if you have to liquidate on a market order that is before your stop but going the wrong way. Sure, as I have repeatedly stated, there is a lot of profit potential on the “right” side of gold; there’s also about 20X the risk not “if” things get ugly, but when they get ugly. The only thing you’re doing is effectively increasing the VAR & SDEV of your account and adding risk with no commensurate comparable addition of the same or equal profit.

I will be the first to admit that back in my floor trading days, there were always markets that were very active with above average volatility. If the Swiss went dead, you could go over to the Yen; if the Yen died, you could always go to the SP500, etc; in present day markets, asset classes are tied at the hip, but we have choices now, that few of us ever dreamed about back-in-the-day. For a number of reasons, U.S. exchanges never traded non-Dollar denominated futures contracts; today, we have the ease of trading on the MT4 the 3 crosses that ALWAYS WILL MOVE.

You will be hard pressed to see consistent daily HVALUES below 100 PIPS in EURAUD; sure, they cluster some around event risk like what we just went through, and no doubt will again right before the French elections in a few weeks. But for the most part, that 100+ PIPS [or close ± a few PIPS] will be there every day the market is open; and now that we have trading conditions that rival spot USDJPY, and are the best in the world hands down, there isn’t any reason NOT TO BE HERE!

Even in 2013, I didn’t foresee the conditions we have now, and to have them in a PAMM/MAM structure is further evidence of technology forcing pricing lower via competition; we are literally at the point of being just a “hair” above [in terms of cost structure] of being our own damn bank and clearing house [a few pennies per 100,000 notional value traded]. And seriously, who’s gonna put up millions of Dollars to make a few hundred Dollars on the margins? [Hint: Not me.]

Right now, it makes perfect sense to be in EURAUD; the other two [GBPAUD & GBPNZD] have an approximate 100% & 150% higher cost structure to trade, and maybe an approximate 25% - 50% higher daily ranges & HVALUES. Over the last months, some days have seen wild ranges in EURAUD while the other GBP crosses are relatively tame; vice versa the other 2 are wild and EURAUD is tame. At some point if GBPUSD can get more volatile and have a consistently higher average daily HVALUE, that market will draw my attention [with GBPNZD as a last choice simply because of its highest of the 3 cost structure]. For now, though, we got the best of all trading worlds in EURAUD; all we need now is for IT TO MOVE in Europe and/or the U.S. sessions, which it surely will.
So, with today’s “Doji” possibility notwithstanding, we still had enough intraday volatility to produce profits, with a daily range of about 97 PIPS, and an HVALUE of approximately 65 PIPS [which is at the very low end of the majority of trading days]; by contrast EURUSD is in a 41 PPI range day, and USDJPY is in a whopping 63 PIP range day with an HVALUE of approximately 49 PIPS. If you end up on the wrong side of something, it’s near impossible to make it back the same day with these low values. And that my friends is why we’re in EURAUD.

PAMM spreadsheet totals from today directly below.

“Somebody is gonna pay for this!”

I think it was the “indignity” of the pic that threw him for a loop; only thing to cure a grumpy dog is mass quantities of bacon! Beach beckons … I’m outta here . until tomorrow.

Have a great day everybody!


UPDATE: Super Mario waits until almost 8 PM in the night in Europe to drop the “rate hike” possibility bomb on the market? Here’s another example of “managed outcomes” I was talking about the other day; why not wait until morning Mario? Afraid your buddies at “the Squid” won’t have any time to get long first? This just stinks to high heaven, the timing of this.

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