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Thursday, June 21, 2018

TEACHABLE MOMENT IN TRADING INSANITY

“Thank you, Mrs. DAX30 for spilling the beans!”

“Well, that escalated quickly to the downside, didn’t it”? First came the Daimler 
earnings warning cuz of “tariffs”, but it wasn’t until the U.S. saw the sun come 
up that the DAX30 got hit with some insane action to the downside with 2 bits 
of news; 1) the U.S. Dollar “nosedived” on worse than expected economic data, 
and 2) U.S. Supreme Court says internet sales tax “OK”, reversing a 1992 
limited ban, and thereby gives the green light for cash strapped states [like all 
of them] to make online businesses collect taxes for them … “what could 
possibly go wrong here”?

And in a nanosecond, there goes AMZN in the backseat with  
“Thelma & Louise” off the nearest steep cliff. And seein’ how the NDX100 hits 
an all time high last night @7335.6 [on the CFD], there’s plenty of room on the 
downside for some “profit taking” [thank you Bob Pisani, CNBC bull peddlers], 
and away we go! None of which is any kind of good news for the DAX30, which 
brings me to today’s “teachable” moment in market insanity and what to do 
about it.

About 98% of all trading days will see daily ranges in the DAX30 of 
approximately less than 250 index points; about 1.8% to 1.9% will see ranges of 
250 - 350 index points; that leaves about 0.1% greater than 350 index points. 
And while we didn’t see total “bat shit cray” today, we came “Hoover Dam” 
close … and the dirty little secret is, that it almost always has been created by 
external political or geopolitical news events that shake the core of the market, 
and bring into question the sustainability of stock prices higher … and that 
creates “panic” on the sell side, where only God knows the level at which people 
will go to sell anything down the rabbit hole … “price shocks, here we come in 
your face”! Bottom line is this: “when intraday price action starts making 3 - 5 
index point moves in fractions of a second, it’s time to back away and let nature 
take its course … anything you do will spell trouble … sell it [take a look at 
earlier today and what happened 4 times … 50+ point up moves that turned on a 
dime and killed shorts within minutes], and you get to panic again real soon on 
the upside … buy it on a rally, and watch how fast it drops when the short 
covering is over … say goodnight to about 20 points if you’re lucky”!

But here’s the “real deal” teachable moment about today’s DAX30 trading 
action, something I mention in the manual and show extensively; “as bat shit 
crazy as this day was on the downside, as bad as the news was, and outside of a 
total meltdown in U.S. stocks, especially NASDAQ, the action on the upside 
[try 5 frickin’ times!!] in the DAX30 was greater than the volatility on the 
downside in shorter amounts of time! … in other words, the blistering short 
covering melt ups were something to see and behold … so fast and vicious, some 
of the gain in price couldn’t be captured no matter how fast you were”!

As I point out in the manual, 1) above average crazy markets in terms of 
historical volatility, 2) markets that have insane intraday price activity, and 
3) markets that have incredibly low costs of doing business [spread & RT 
commission], which all 5 of our markets exhibit and have, 
do NOT … REPEAT, DO NOT, go straight up or straight down, and are 
1) extremely unpredictable, and 2) regularly show super mega spikes up and 
waterfall spikes lower, and then go “sleepy time”, thus frustrating hardened 
traders looking for follow through and never getting it, except enough to keep 
them looking for it.

Now, the only way you can CONSISTENTLY make money in these markets, 
and the data backs me up on this, is to 1) not follow any kind of “trend”  
indicators for trade initiation, cuz in a fast market they are too slow, and you 
end up buying a breakout high and sell breakout lows … exactly what you 
don’t want to do, 2) understand and comprehend the nature of the market you 
are trading, meaning that in either of the stock indices we follow, the NDX100 
& DAX30, both have “bias skew” to the upside, meaning you can buy sell side 
panic breaks and make money over 99% on every trade, and 3) you never, ever 
chase price, meaning buy rallies and sell breaks … nothing will lead to your 
account going down faster than this one point. 

And all this points to what I have said repeatedly of late; “the purpose of trading 
is for big money to get small money to do trading they don’t want to do [buy highs, 
sell lows, and then panic to get out], thus transferring money from small money to 
the accounts of big money … and they do it constantly and consistently every 
day/week/month/year, and most retail traders don’t have a clue they’re being 
manipulated … turn the shit around on them, and attempt to beat them at their 
own game”!

Turning to today’s DAX30 market … “Oy, the double whammy of Daimler’s 
warning & Supreme Court tanking NASDAQ … but, as anybody who thought 
“I’ll just get short and stay short” found out, staying short is extremely risky and 
it leads to panic buying when they goose the index higher on those buy stops 
… rinse, repeat 5 times, and you got today”!

Two trades today, both from the long side … PAMM up halfway to 0.1%.

Probably about a dozen buy signals today … a large portion of them I couldn’t 
make the trades for one or another of two reasons; 1) the signal comes after 
price runs 20+ points in literally 2 seconds, or 2) I get the signal, and in less 
than a second price jumps 10 - 20+ points before I can get a long trade off 
… frustrating, but nothing I can do about it, cuz I’m not buying a 20 point 
jump [one signal today it was 30 points] … hell, I want to sell that if I could 
have gotten long, not buy it. 

And in every case today, that I saw, not a single buy signal was wrong or 
unprofitable, if you somehow could have gotten the trade at the signal … a 
couple early on were close, but as I have said before, when it isn’t working for 
you, and you’ve been in the trade more than a few minutes, you either have to 
liquidate it or give it a very small amount of additional time to work out, and 
if it does, as soon as it’s profitable get out.

Today sees small gains in spite of a large 250 point range day to the downside
“sure, with hindsight it’s an easy sell, but sells early got rammed up people’s 
noses with short covering rallies that were blisteringly fast and vicious … it 
wasn’t until U.S. stocks got the “Thelma & Louise” treatment after the Supreme 
Court decision, a half hour to an hour after the NYSE open, that things got 
extremely messy on the downside for a time … and then again, the explosion 
higher that wiped out shorts for the FIFTH TIME TODAY … sure, a piece of 
cake. Only by following the “Force Volatility Algorithm” did I not get long on any 
of those massive rallies, cuz it sure looked like the low was in for the day three or 
four times … but the algo says NO!, it’s not how we do things, and you need to 
wait for a signal … and it’s a damn good thing I listened! … yea, somewhat 
unlucky on the immediate gap higher in price on multiple buy signals, but as I 
said before, ain’t buyin’ a 20 or 30 point blast up … and once Europe closes at 
around 16:00 server time [Noon EST], it’s over and things die quickly in the 
DAX30 … now what”?

And although I say it in the manual, I’m gonna say it here to, and that’s this,
“gone are the losing days, unless there’s an alien force that causes a mess up 
(cough, cough, see yesterday for details), cuz there’s only “ONE” realistic way to 
have a losing day … and it’s so improbable I’m not even worried about it! Sure, it 
could happen, and today’s action & news should give you a strong clue as to what 
that type of scenario that is, cuz after the NYSE open today, it sure looked and felt 
like upticks were gone forever … and then a funny thing happened, like IT 
ALWAYS DOES … BOOM! … another “in your face” rally, that burns the 
eyebrows off anybody that is still short hanging on for more, or anybody that just 
got short recently … you couldn’t shove money down the toilet faster and lose 
more if you tried! … so how come we never just keep going down and never come 
back? … history has never seen it … why should it happen now? … even during 
the ‘87 crash, a 36 “sigma” event the world of finance has never seen before or 
since, the market rallied numerous times to trap shorts; it wasn’t until the final 
45 minutes of that day that things turned ugly, and who the hell is gonna be 
buying then for a short term trade? … and I should know, cuz I was standing in 
the SP500 futures pit as it occurred”.

Yes, we can have losing trades, but if you follow the algo, they will ALWAYS 
BE SMALL … to get a losing day, look in the mirror to see where you “messed 
up”, cuz it’s about the only possibility unless some truly strange and “never 
before seen” shit is coming for us in the future. And so, all my trades today on 
the long side, and if it wasn’t for some truly bizarre market action with gaps in 
price via the bid/offer to the upside, today would have been a big winner … on 
the long side … on a day when this stuff went down 250 points in exactly 1 hour 
and 25 minutes, and then rallied 50 points in 25 minutes … the FIFTH TIME, I 
might add. Oh, and the good news from today; “hey, I didn’t “F up” today, and 
actually got the order tickets right … do I get a participation ribbon or 
anything”? Much more on all of this in tomorrow’s blog post.

So, we’ll see what tomorrow brings … the future’s so bright I need sunglasses! 
And with that, I’m outta here … until tomorrow mi amigos 
… Onward & Upward!!
 
I’ll have the updated PAMM Spreadsheet here, after tomorrow’s trading 
… right now, I’m using all my spare moments outside of writing the blog and 
trading, to finish the manual on time, for Sunday nights release.

Have a great day everybody!

-vegas

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