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Friday, July 21, 2017

SINS OF A TRADER

“Traders don’t need confessionals … markets take care of their own!”

What you read today you won’t find anywhere else at any price; you won’t find it at any “Barnes & Noble”, nobody on the internet professing to be a professional trader will even broach the subject, and for sure none of the stuffed shirts on Wall Street “proper” will ever talk about this cuz they’re too busy producing chart porn and pseudo-intellectual bullshit to hypnotize you into believing they know what’s going on, when in fact they are clueless. What it boils down to is simply this; “do you want to believe JPM, Vampire Squid, and others have “zero, zip, zilch, nada” a clue what they are doing, or do you not like that feeling and want to believe that the glossy research and soothing words of the guys in Italian silk suits wearing Rolex watches MUST be right … cuz, well … those sure are nice suits, heh”?

I have written in detail before, and longtime readers/clients know of the phrase, “choose the form of your destruction”; it is imperative I again bring it up and talk about it for 2 reasons; 1) the version 4 volatility algorithm I’m presently working on for your education and enlightenment, and 2) the vast number of readers who are new to the website and don’t know what I’m talking about.

Every trader, no matter if you’ve been in the biz forever [me for instance], or you’re a complete Newbie; whether you want to admit it or remain in the dark, your trading method, system, or algorithm has inherent weaknesses you must address and confront [but, so very few ever do] … so, before you go pick the color of that Mercedes 380SL you got your eye on from all the money you’re gonna make, it behooves you to forget about that and concentrate on more important matters first. And while what at first glance seems easy to do, you soon quickly realize it isn’t simple at all, but a vast complex ecosystem at work that has multiple tentacles to trip you up, not the least of which is it’s tough to know what you don’t know!

There is no getting around the fact that “trading” [or even investing, if you want to call it that] is a total 100% “probabilistic endeavor”; there are no guarantees, no “sure things”, but simply positive expectations if you play right. To that end, it has always made sense to me, that I want as the “form of my destruction”, the absolute least probabilistic event that can possibly come my way each and every day I trade to lose me money. If anybody reading this doesn’t agree, write me and tell me why you would want a higher rate of failure, more often, with catastrophic consequences built into the equation … cuz I’d really like to know the rationale here. But I’m going to assume everybody wants the same as me; i.e. limitations and weakness that don’t come very often, and has the lowest statistical probability of showing up at any given moment in time.

To that end, please understand in a probabilistic venture, eventually EVERYTHING must happen; even the dumbest, most stupid trading model dreamt up by people who couldn’t spit and hit the ground, must work and make money at some point. Well, on the other side of the “bell curve”, even the “smartest people in the room”, no matter how many Ph.D.’s in math and computer science they got on the payroll, or the fastest computer network on the planet, they have to lose money at some point as well. Simply put, there are no “free lunches” in trading or investing.

Since stock indices became trading instruments in April of 1982, with the SP500 futures at the CME, there has been one trading pattern, that has exhibited the LEAST amount of trading time day-to-day hands down; that is the infamous “Flying Wedge of Death” [FWD] and its attendant daily candlestick formation of the “Doji”. For simply reference purposes, directly below is an M1 chart from gold a few years back when it was trading in the 1600’s; focus your attention on the chart formation as the day unfolds. Second pic is the “Doji” as it will appear on the daily candlestick. When you get the FWD, you also get the Doji in some variation or form.



As you can clearly see, and I use this gold chart because it is an almost perfect example of a FWD, no matter the market, the market goes from high to low, back to a high, then another new low, etc., and then closes in the middle. What ends up happening is that many traders who count on momentum, and a continuation of a move [higher or lower, makes no difference], simply get caught on a “yo-yo” of price moves opposite their position, and liquidate before stops take the market against them further. Only thing is, though, that isn’t what happens … what happens is traders get long near the top and short near the bottom all day long, and each and every trade becomes a loss in short order … at the end of the day, add it all up, and it can be a real disaster, even though in the general overall scheme of things the market didn’t do much if anything.

With the rise of the “Central Bank Trading Paradigm”, which has its origins in the U.S. stock indices from exactly February 2016 to present day, the number and frequency of “Doji’s” on the daily candlestick chart, and the FWD on the M1 and/or M5 HAS INCREASED DRAMATICALLY IN FREQUENCY. One of the problems the U.S. markets face is that they are, for the most part except one hour and fifteen minutes a day, 24/5 markets. Turnkey, on its server has the day start at 8 P.M. EST, coinciding with the open in Japan; this is 00:00 time on the server; it ends the day the next night at 8 P.M. Well, that leaves the “vapors” gap of 13 hours and 30 minutes to the open of Wall Street in New York at 09:30 A.M. the next morning; and many times, the Dow30 is sharply higher thanks to the central bank manipulations the night before when everybody is sleeping. In other words, it’s difficult to get a read on intraday volatility from the Dow30 daily candlestick. For example, I see on the daily chart the high and low for the day for the Dow30; I do the subtraction and get a range of 110 points. Well, what if the market opened at 9:30 70 higher on its high for the day? That means we had a 40 point range the rest of the day; not exactly a recipe for riches.

Where we can get a good clue to stock indices is the DAX30, cuz it’s closed for 10 hours a day. It has an open and a close where trading is going on, and isn’t subject to the whims of central bankers to shove the index higher. However, even here, the FWD isn’t something you can ignore and hope it doesn’t come up, cuz it does. On average, there will be 1-3 Doji days [meaning the FWD is on the M1] in the DAX30 per month; that’s about 5%-10% of the time. Most often, doji days “cluster” around Holidays and/or important central bank interest rate policy decisions, along with the FED interest rate decision days and NFP Friday; you have to be aware of them and know what to do.

From a trading perspective, any chimp can handle gains; it’s avoiding losses and keeping proper risk/reward that is the key to long term prosperity. Simply put, treat every day as a potential FWD day, scalp when you have to, and if you choose to “ride the pony”, make damn sure the position at all times is showing a profit, and for “hell’s bells” don’t let any gain over 10 points ever turn into a loss … ever … this way, until you book the profit, you’re playing with “house chips”. What all of this means, of course, is defeating the FWD the only and best way we can; cuz while we know the FWD has to show up at some point in trading, it doesn’t have to mean we lose money because of it. Granted, the probability of losing money is higher than otherwise would be, but it’s not a guaranteed loser day. Most likely you aren’t gonna get rich on these days, but it doesn’t mean you have to get poor either. Watch out for them, be prepared for them, and you will defeat them!

Cuz here is what I know; taking the DAX30 in conjunction with the Dow30, and the fact the DAX30 starts its trading day a full 6 ½ hours earlier than the Dow30, the DAX30 becomes the “driver” for the day and has the full set of “keys” from which to read the day successfully from the version 4 volatility algorithm. “From the daily candlestick chart directly below, take a close look at the “fat candle” part of the DAX30; that will be the gain [green] or loss [red] from the open until the close of Wall Street at 4 P.M.; a full 14 hours. All of these “fat candle” days should, in theory and practice, be profitable days for the PAMM and your trading [if you trade your own account]; what we see in the chart are the “Doji’s” where there are white arrows. These are our potential problem days; sidestep this “form of our destruction” in both markets and it’s clear sailing ahead.


Turning to today’s market … well, that escalated quickly in the DAX30 didn’t it? Seems somebody says Germany’s auto industry [VW, BMW, Mercedes, etc.] have been operating as a “cartel” … colluding with each other to control market share and prices [Note: see my shocked face] … anyway, that’s the catalyst for the “ass mauling” in the DAX30. Here in the first hour in the Dow30 & SP500, it’s “begrudging selling” is the best way I can put it … we’ve gotten to the point where the Dow30 is the first to panic … either buy or sell … and traders are quick to take advantage of what they perceive as a change in sentiment from minute to minute … throw in the obligatory panic short covering from time-to-time, and you get the pops up in the Dow30 while the SP500 does zero or even goes lower. As I have been saying, the correlation to the upside between the 2 indices has collapsed and you can’t trade on it; the downside is just the opposite, as moves lower in the SP500 will see the Dow30 drop, sometimes precipitously.

The indices markets are very quickly approaching what I would call a “critical mass” moment, where we either see some kind of correction in both the Dow30 & SP500 that works off some of this idiotic euphoria, or a blow off to the upside in the SP500, especially, that sees 2500+, before crashing this fall. The simple fact of the matter is, and I don’t care who is manipulating it, there comes a point when the market is bigger than whoever it is manipulating it. I realize the central bankers think themselves omnipotent, but they aren’t, and my greatest fear right now is that U.S. equity markets are becoming a “one-way” street with every single “squiggle” lower being bought with both hands to sell higher by the BTFD crowd, which by the way have no clue what it is they are doing.

Both markets [Dow30 & SP500] are so far extended to the upside by historical standards it isn’t even funny anymore. One look at a long term weekly chart will quickly convince you, it wouldn’t take much to make both a disaster rather fast. And the dirty little secret is, the longer they delay the inevitable, the worse it’s going to be when it happens. Right now, everything these 2 markets have built on since President Trump’s election last November has FAILED; no health care reform, no tax cuts, no infrastructure spending plan, no nothing … and, come this fall, which is only weeks away, a budget battle and a very big debt ceiling increase that is far from certain. And in the face of all this, continued hard & soft economic data that is a disaster, a world on fire, and a political atmosphere in Washington that is nuclear toxic. “Oh, by all means, tell me again how stocks go up every day forever”!

Add to all of this, there is a generation of traders who think a “bear market” lasts anywhere from 24 – 72 hours, and have never, ever seen what a true bear market can do, feel like, and how quickly it can destroy trading accounts in its devastation … well, I’ve seen every one of them since the beginning of stock indices trading, and I can tell you it isn’t a pretty picture.

And so, here we are again today with the SP500 coming back from a very mild decline into the open to now higher from the open … right on schedule, cuz we all know to buy the break … and it is becoming increasingly apparent to me the vast number of traders who are being conditioned like lab rats … and I’m telling you, that one of these days soon, the day will start off like today and we will bounce off of the lows like today, and come midday or afternoon it will start to roll over, and then comes the “decline from hell” that will take price lower, farther and faster than you can ever dream … followed by overnight action that will double or triple the decline. And folks, there ain’t no way in hell I’m getting caught in that … that’s why I have always taught people that the only way to trade is to liquidate on the spikes up, cuz if you wait for it to roll over, you run a very real risk of utter destruction.

We are already seeing dislocations among the indices; on the way down, the Dow30 is the clear front-runner, tumbling much farther and faster than the SP500; the “generals” [big blue chips] have become the laggards, and this is never a good thing. In fact, JPM’s head “quant” says it would only take a 4% drop from all-time highs in either index to set off a tsunami of selling from the institutional crowd, mostly those short trillions of dollars in either “risk parity” funds or those short option gamma. Either way, the only way out is to sell, and throw in the trillions in redemptions from the passive investment crowd, and you get the idea of what can happen … and unless the manipulators allow these markets to back off, it isn’t a “can happen” it’s a “will happen”.

Today also has seen the DAX30 get “monkey hammered”, just as I’m starting to get up early, and once again, trade the index. How I’m basically going to trade the DAX30, is to use it as a proxy for pre-market Dow30 trades before the market opens. There are clear rules I’m following in the version 4 algo manual for getting long the DAX30; bottom line is that when it goes lower it usually takes the Dow30 lower, which is fine with me cuz it gives us some breaks to buy when the market opens. On the other hand, if I get long the DAX30, it also usually means the Dow30 is rallying with it to some extent in the pre-market. If I’m already long the DAX30, I’m not going to care as much seeing the “overnight vapors” in the Dow30. And as we all know, nothing is more frustrating than to see the Dow30 open New York 100 higher and then have a 30 point range for the rest of the day, with the vast majority of the gain being put in during the European morning. As far as I’m concerned, this opens up the day to correct that situation, which for the better part of May, June, and part of July was what constantly happened … no more.

So, since the Dax30 today got hammered, no need to venture in and get long cuz the Dow30 was headed lower [although not as much, but still lower] right along with it and gave us a lower opening, from which the PAMM profited with the first trade. Again, until I see the SP500 have at least some kind of decline [and 2 index points ain’t it], these buys off the bottom are going to be scalps up to the point I start to see some real market weakness instead of “wimpy” lurches downward that go nowhere. Cuz when the SP500 turns and really starts to go lower, whatever gain you just had in the Dow30 is going to vanish very quickly. So, that’s where we are at for the moment.

One thing I am glad to see is a general pickup in intraday volatility throughout the stock indices in general; what I still don’t like are the markets ability to “go to sleep” at the drop of a hat and spend long hours during the trading day simply drifting like a raft out in the middle of the ocean. I simply don’t want to be in anything when conditions go dead, cuz you don’t know what’s coming next.

Directly below, the world’s deepest, most liquid and highest volume futures market for all to see what a manipulative charade looks like up close and personal from today’s early afternoon “action” [make that, lack thereof].


What an F-ing joke. Not even fortuneteller “Madam Cleo” of 900 number fame from back in the 90’s, can tell you anything about anything from this chart, it’s so pathetic. Which only means, more than likely, new “record-er-er” highs on the close, as the volume-less ramp up to get it “green” will not meet any resistance the manipulators can’t handle with ease. EXIT QUESTIONS: “What does the PPT and ChairSatan Yellen fear from the SP500 closing “red” for a day or two. What is it that makes them panic over the thought of the U.S. stock market being down for even a frickin’ day? What do they fear that  they aren’t telling us”?

Mid-afternoon, and the market is in “manipulative drift” by the central banks; ever so gradually up on M1’s that have 1 and 2 point ranges, with three steps up and maybe 1 or two down; this is the hallmark “fingerprint” of the manipulator central banks, as they adjust their bids under key component stocks gradually higher. Problem, though, is that at some point they pull the bids, and panic sets in quickly among the futures players, and we end up with a Dow30 that has the potential to go down very quick and fast … 3 minutes can undo 2 hours of mind numbing drift up. Still, you have to ask the question … “What the hell are they afraid of that the indices can’t ever go lower again? What”?

Very near the end of the day, and once Europe closed, the manipulators took over and it’s been a complete nothing burger afternoon since then, with Germany’s automakers a distant and non-existent problem for U.S. indices. The entire afternoon has been untradeable; sadly, this is what you get when central planners are deciding whether to allow stock indices to go up or down. DAX30 info, here on the blog, Sunday sometime for the week ahead, along with some version 4 algo instructions on how to use it specifically for the DAX30. Onward & Upward!

PAMM spreadsheet directly below.



Time for the beach … dog and I are outta here … until Monday mi amigos.

Have a great weekend everybody!

-vegas

OUR TURNKEY FOREX “PAMM/MAM” IS NOW OPEN AND OPERATIONAL; SEE “PAMM/MAM MANAGED MONEY PROGRAM” IN “DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND START YOUR JOURNEY FROM WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!

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