“Group photo of all the happy EURUSD & Stock Index traders!”
In the U.S. stock indices, it’s “vapors” and the outright blatant manipulation by the government via the “Plunge Protection Team” [PPT]; they come in, they back away, they hand each side [mostly shorts though] their collective donkey’s in a sling, and then walk away happy with the damage they created. In the European indices, especially the DAX30, it’s bank and large hedge funds running stops [both directions], and simply a game where the “Golden Rule” applies; what’s the “Golden Rule” Skippy? He who has the gold makes all the rules.
And so, what we are left with doesn’t make any sense to the average person who wanders in with a couple of bucks and wants to take his/her shot at the stock indices; how many times have I said this, that 1) education and life experience will betray you and lead to losses, and that “doubling up” or worse “tripling up” losing positions and then freezing like a deer in headlights is utterly foolish, 2) listening to the “news” and/or following reports on CNBC and then following consensus, will more often than not, lead you to the poor house, 3) “fun-dur-mentals” don’t mean Mr. Jack Squat and never have … ever, 4) don’t let profits in a trade turn into a loss no matter what you think, and finally and most importantly, 5) it’s the “setup” stupid and nothing more than that counts.
Add to this, the absolute need for an adequate risk/reward profile, and a battle plan that addresses SHTF, not if … but when it does, cuz at some point in anybody’s career, “The Reaper” comes for your donkey, and he ain’t lookin’ for anybody else but you on that day … so, be prepared for it.
I’ve been hearing an awful lot lately [via email & phone], from traders I’ve known for years and decades, who should know better but don’t, and think just because they’ve been around a market or group of markets for a while, that they deserve some kind of special treatment from the market and somehow should be immune from the things that can go wrong quickly … I’m hearing horror stories all over the place, of just how deadly and treacherous markets from gold to FX to stock indices have become, and what do I think is the solution for their collective problems.
As I’ve said many times, first understand your market and what is driving it, then evaluate your trading method to see if it needs changing, and finally the need to be totally honest in your approach to trading. For sure, lying to yourself and blaming bullshit moves and stop runs for heavy losses isn’t the markets fault, but your own for not recognizing the danger before you took the position.
Today, in the DAX30 I’ve seen some people literally go “kaput” … I’ve seen this before in the Dow30 and SP500, when people would convince themselves that they are right and the market is wrong and stay short until the money dried up. “Sigma” events [standard deviations] happen; it’s why they call them probabilities NOT guarantees, and you must face them and draw a “line in the sand” somewhere that simply gives you a “paper cut” and not something that takes both your legs off and leaves you for dead. Sadly, people don’t want to face reality, they much rather instead want to be stubborn and foolish in the face of oblivion. It’s only afterward, that you get the phone call and are asked, “why did I do this? … please tell me … what I was thinking”? And my reply is always the same; “you weren’t thinking, and I told you before this would happen to you, cuz in our talks before today, you laughed off the chance of ever getting caught in something and thought I was nuts … remember? Who’s nuts now”?
I said in a previous blog post how hedge funds and CTA’s [commodity trading advisors] in general are having the toughest time in 30 years; not since the great crash of ’87, have such a large group of “professionals” been “whacked” as hard as they have been this year and last; there’s are a multitude of reasons, but a lot of them have not recognized and changed their style of trading to take into account central bank manipulation.
In European markets, like the stock indices, you have to be aware of the stop runs, 50% levels in the marketplace, and effects FX might have on the index; and in an environment where there are no rules, you absolutely cannot let any position go against you where “prayer” suddenly becomes part of the trading strategy … cuz there’s one thing at play here like no other, and that is the ability of those with the most money and winning positions to “stick it” to those on the other side for MAX pain … and they do it with glee. You simply must play using your rules and not be a part of this.
Coming into the year, I was as optimistic as the rest of the professional trader community … what’s not to like? … you got President Trump coming in, and markets looked to be volatile, and most hoped for better trading conditions because of it. What markets got was more PPT and the worst collapse in volatility I have ever seen in markets since I don’t know when. It didn’t take me long to figure out that trading anything FX was a disaster, and that stock indices were the only place to be. Granted, it’s taken me a couple of months to “tweek” my algorithm to adjust to central banks in the U.S. market in the Dow30, and to adapt the algorithm to a suddenly resurgent DAX30 market in Europe [Germany], but trading is “back on track” and making money [too be sure, not as much as I’d like, but getting there], the algorithm in version 4 as “good as it gets” in pinpointing optimal trading opportunities, and volatility is picking up in the stock indices. So,, as far as I’m concerned, things look good going forward.
That doesn’t help much to those who decided to play “trader idiot” and refused to take a small loss at the beginning, instead getting “pig headed” and decide that the market is just simply wrong. NEWS FLASH; “The market is never wrong; you on the other hand”? And no matter how many times you tell people this, over all the years I’ve traded, some choose not to listen … well, the Pudding Business is hiring, so good luck; hope you follow directions there better than you did in trading.
Turning to today’s market … forget the Dow30, it’s “deadsville” … the killer today [so far] is the DAX30, where the “flying wedge of death” [FWD] has appeared once again before a killer move lower [start at high, make 2 new lows, go back to the high, and then plunge quickly over 100 points to fresh lows for the day … and then sit & play nice] … so far today, we’ve had one signal from the algorithm, and while I took it and got long, I never felt comfortable in it, and liquidated it a little while later … the setups were all wrong; the move to the 2 lows were wrong, and the move up to the high didn’t set up well either … meanwhile, everything is inside of a very tight range for the day, meaning that it doesn’t take much movement either way to start setting off “alarm bells” within the big money crowd that something is/was wrong. And if you ever want to see how “big money” trades, when they get “antsy & nervous” and start pushing buttons, look for the panic created almost everywhere. And so far today, it doesn’t matter if there was news or not, when they start changing their mind, look the hell out.
I came into the day somewhat bullish, but the utter refusal of EURUSD to back off the 1.18500 level and “correct” below 1.18000, gives no real reason for the DAX30 to sustain a rally, other than buy stops and fresh retail longs. Other than that, why? The quick rally up to the very early morning high [didn’t make a new high but came close] backed off so rapidly, the rate of the decline told me that the move up probably exhausted itself. Even if I had gotten a signal to buy, I don’t think I would have taken it. And of course, from there it was straight down to cascading lows, where I am most definitely NOT selling into a falling market … the probabilities for profit just plain suck if you do that.
And now here at the cash close, the DAX30 finally gets a “sell” signal from the algorithm … no thanks, cuz the cash market is 4 minutes from closing, and the day’s range 130 points … where’s it gonna go Skippy? So, time to move over to the Dow30 and see if that market can generate anything besides a gigantic headache.
Here in the afternoon, the Dow30 continues trading as if its mirroring “oat spreads” … no wait, oat spreads are more volatile. The “driver” today is simple: EURUSD, and it’s breaking out of its multi-year slumber and making some real noise in practically every market. It most definitely affects the DAX30 … nothing is affecting the Dow30 except the PPT, which is in the market practically every day, so it’s biz as usual for the manipulators. And judging by this afternoon’s comatose trading action, with almost no movement at all, the manipulators got things well in hand. Nothing to do but sit.
One trade only today in the DAX30, a scalp for literally pennies profit, as I was just happy to get out … when it’s not working, I don’t want to hang around and find out what happens next, as this market has a tendency lately to refuse to go in any direction for more than a couple of hours before somebody turns the lights out and the market reverses quickly. The last 10 trading days has been nothing short of reversals, FWD’s, and doji’s on the daily chart … I dunno if that’s due to indecision on the part of portfolio managers who see a rising Euro hurting profits of German companies, or the fact that it is the summer vacation season in Germany, and nobody there cares a hoot about the “German Dow30”. But again, I’ll say this for the umpteenth millionth time … “it’s about the SETUP of the trade and nothing else”!
One thing I wanted to add today, which will be in the version 4 Algorithm Manual when completed, and that isn’t in the “Quick Guide” over in the “Download Links” … simply cuz I had to draw the line somewhere and if I included everything that is important it wouldn’t be the “Quick Guide” but the manual itself … is the second trading rule for initiating a trade: “Trades can be initiated long/short from a “BREAKOUT” of price on the M5 “Kumo Cloud” … protective stops [I’m wondering if this is an oxymoron?] either placed with the order or used as a mental exit point should be no farther than the other side of the 5 minute “Kumo Cloud” … try and “hang on” for the pony ride if you can and avoid the temptation of scalping this trade … if it’s not going to work, you got about a 95%+ probability that you’ll know it within approximately 10-15 minutes. Once in it and you have profits, lock those profits in with mental stops if the market corrects past a certain point where you aren’t willing to give up any more gain. The earlier in the trading day you put this on, the more you want to see a bigger gain; use large spikes in the direction of your profit or the M1 SDEV exhaustion lines to liquidate”.
One other item before I call it a day; finally, after about 3 – 4 years of literally being in the proverbial wilderness, one specific FX cross … EURJPY … has come awake with the resurgence of the Euro [EURUSD], and along with the world’s favorite “asset class” [USDJPY], is again spreading its influence on stock indices, especially the DAX30. From March of this year forward to today, directly below the correlation between the two. First chart is the DAX30 and the second chart immediately following is EURJPY.
I’ve marked on both charts the corresponding dates of highs and lows; should it be a surprise that the DAX30 & EURJPY “inversely correlate” rather strongly? I don’t think so, and while it isn’t a “tick-for-tick” correlation [very few are], it is something to watch. At the moment, I’m about ready to drop the SP500 from my “watch & trading” list, simply cuz 1) it is so manipulated it’s ridiculous, 2) it never moves during the New York day, and 3) the spread is way too high for its movement. I haven’t made a final decision, but I’m giving strong consideration of making EURJPY the “Anti” DAX30 … since one usually goes the opposite way of the other, treating it as a “quasi stock index” is something I’m considering seriously. And why not, it’s got one of the thinnest spreads going, with approximate $2.40 RT commissions per 100,000, which makes that cost almost forgettable, it has approximately the same level of intraday volatility as the DAX30, and it’s got all the liquidity and volume you’d want in any stock index. Anyway, a consideration for now on my part, as I’m getting sick and tired of watching the U.S. indices do absolutely nothing during the day but sit and waste our time. So, we’ll see … I’ve got to run some numbers and figure out some things, but I’m giving it serious consideration. Onward and Upward!
PAMM Spreadsheet directly below.
Time for the beach … the dog and I are out the door … until tomorrow.
Have a great day everybody!
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