WHEN TRADING GETS PERSONAL

“Doing what needs to be done to solve a problem.”

What’s the definition of a long term “investment”? ANSWER:”A short term trade gone bad”.

I remember vividly, a very long time ago back when I was a “young skull full of mush” gophering for Bert [my mentor] in the brokerage house up in Madison, Wisconsin. Bert was by far the largest commodity trader at the time the brokerage house had ever seen, and some bright MBA in New York got the bright idea that what this stuffy, East coast, WASP-ish, 3 piece suit at all times brokerage house needed was more “commodity business”. And to that end, they wanted Bert to set up satellite branch offices all over Wisconsin to “bring in” farmers & the other rubes who lived out there and trade [mostly hedge crops & livestock] commodities, all the while gaining their trust so that eventually that money that sat in a savings account would find it’s way into stocks & bonds. Bert told them politely, “Stuff it, it ain’t happening”.

Ok, so they went ahead anyway, and in 6 months opened about 12-15 little commodity offices in places like Baraboo, Beloit, etc. Since Wisconsin is a big hog producing state, what they did was offer “hedging” services to farmers; especially those unfamiliar with the futures market and how they, “the big city brokerage house with all the savvy and expertise” could help these poor rubes farmers get ahead and make more money.

And Bert said to me, “Kid, this is going to be a big F-ing disaster; if anybody from New York ever calls you, you don’t know nothing, you ain’t seen nothing, and you’re not even sure what your name is. Got it”? And I’m like, “sure … whatever … it’s got nothing to do with us”. And Bert says, “What? … Are you that F-ing stupid … did I pick as my understudy the dumbest carrot from the bag? … of course it’s got shit to do with us, and if it goes “south”, somebody somewhere its gonna try and pin it on us … that’s why I’m tellin’ you don’t say an F-ing word to anybody … good or bad keep the Yap shut … and especially don’t say anything to Joe [branch manager], who is nothing more than a Class A apple polisher when it comes to the assclowns in New York”.

And what happened was, after some of these guys the brokerage house hired got some farmers to start hedging their hogs, the farmers discovered day trading; they’d sell 2 hog contracts, and 15 minutes later they’d be up $400, and they’d turn around while drinking coffee and eating some donuts in the office and say to the broker, “screw that hedge BS, buy ‘em back and I’ll pocket the moola”. And the broker would do it cuz he wanted the commission and the business. Well, what everybody discovered, and of course what Bert knew way back in the planning stages, was that all of these guys … New York, new brokers in Wisconsin, and the rubes farmers … they were about to discover “investing” just got personal; cuz when that 2 lot sell went up, Joe Bob didn’t want to take the loss, and when the loss got bigger & bigger & bigger and forced Joe Bob to get a loan from the bank to cover the losses, Joe Bob said to the brokerage house, “F you, F the bank, F the brokerage house, and F everybody else in this, cuz it wasn’t my idea anyway”.

And what had Joe Bob really upset, was as futures for hogs kept going up, cash hog prices didn’t do squat; the bank looked at this and said, “Who’s idea was this anyway”? Bottom line was that a whole lot of Joe Bob’s all over Wisconsin got introduced to what happens when SHTF. Bert knew it, saw it coming, and when it blew up and cost the brokerage house millions, both of us were as far away as Tahiti.

And while everybody and there brother will tell you “it’s not personal” when you lose on a trade, unless there is no blood in your veins, part of it is personal. Which in a sense is OK … don’t get me wrong here … nobody is going to start a trading career and never have a losing trade … that isn’t the issue … the issue is how you plan for it, how you deal with it, how you learn from it, and how you move on from it. To that end, it’s important to be able to look into the mirror and ask yourself if it was your fault, your algorithm’s fault, or the market’s fault.

I’ve said before, everything you learned in life that is valuable you learned from Kindergarten to 3^rd grade; since then it’s been nothing but a validation of those things that got brought home to you in spades. Get side tracked by crap you think you learned in college, and sometimes you need to be reminded what a doofus you can be when events take a turn for the worse and you knew it all along, but did nothing about it to change it … and it got personal … and shutup already!

And what makes trading so damned hard … cuz really it’s simple … what makes it so hard is that everything else in your life works on a different dynamic, and switching back & forth between the two is difficult until you can see the problem.

Nothing brings this home better than stock indices, and it always brings a chuckle to me when I see guys … otherwise intelligent guys … over on ZH post articles with chart porn on how it’s impossible for the Dow30 or the SP500 to be where they are at cuz of these 20 charts and these 25 reasons, and that in a “sane” world everything would be 40% lower in value based on fun-der-men-tals. “Ok, whose fundamentals exactly”?

And you can almost feel during the day, that somewhere sits a guy that when the Dow30 upticks an index point, his big girl panties get tighter and tighter and, “how can it keep going up like this … OMG”! And yet it does. Which begs the question I asked yesterday in the comments section to one of these guys, “The inference of your premise is that I’m an idiot for buying stocks or stock indices; what am I supposed to do when my objective is to make money trading? Am I supposed to lose money by being wrong, but that’s OK cuz it makes you feel better? I fail to see why it matters to you what anything I do matters; I’m trading to make money, not make friends. If I want a friend, I’ll go get a puppy, OK”?

Like there is “virtue” in losing money but it’s OK, cuz it was for the “right” reason; “wait … what? Sure, let me run that by the Mrs. when she comes for the ATM card to go to the spa with her gal pals and I tell her there’s nothing there, but don’t worry, I lost it for the right reason”. And if you happen to be in the room on this hypothetical “not gonna happen” day, I suggest you slowly exit stage left ASAP so the shrapnel doesn’t hit you. And so it goes, market participants losing their collective minds and going full retard. I have always taken the attitude, learned from Bert many years ago, that losses are what you pay for valuable information; the key is to make the information worth more than you paid for it. If you examine properly, this will always be the case. 

Turning to today’s market … ECB full retard “Super Mario” presser before the open … big whoop … as he bores the entire world to death with “Yellen speak” cuz nobody has a clue what it means but sounds good. Meanwhile, plenty of short folks getting squeezed harder than a group of oranges at breakfast time; and the dirty little secret is, if the SP500 starts moving above 2401 – 2405, all hell is going to break loose from the hedge funds short option gamma in the May & June cycle; where said funds have massive 1X3 and 1X4 long short option spreads on with uncovered calls from 2425 – 2500 that the only way can be effectively neutralized is by buying futures … and then more futures as it goes ever skyward. At the same time volatility makes the uncovered shorts ever more valuable, thus making the pain when you’re wrong in this strategy more severe.

Outside of political and/or geo-political risk, I don’t see how the “hard and/or soft” economic data can get much worse, that’s going to make everybody all of a sudden turn bearish and want to dump the SP500 or the Dow30 stocks; the far greater risk is if the data starts to turn here, and along with the “oranges” from above, we could see a blow off melt up by the end of June. Not predictin’, just sayin’.

Ok, opening mess @ 13:30 out of the way … a little up, a little down … and crickets … first trade of the day not real excited about cuz it’s not low enough in price, but we did get a bullish engulfing pattern off the low … still, below the opening aqua line so treating it as a scalp up and until we get to lower levels below 20950 [if we can get there … the way the this stuff has been “bid”, I’m not so sure today, but we’ll see]; directly below the trade.

 

At some point in here, we have to start hitting the “tired longs” … we’ve made more than a few attempts to stay above 21000, and it can’t hold … looking for some political scare talk from President Trump on a possible gov’t shutdown tomorrow along with the usual Pie Holes in Congress to add their “2 cents”, and we could get some downdrafts later. The second bullish engulfing pattern @ 14:09, I skipped for 2 reasons; 1) if the high for the day is going to remain at 21015 [Turnkey], then the low below still awaits us at the 20900 – 20925 area most likely, so why get long now, and 2) market is below open aqua line and scalp is my best scenario outside of a reversal day which I don’t think likely. I’ve already had one scalp, and this second leg down should be a precursor for more down; I want something more inviting at lower levels.

The Dow30 is slightly weaker than the SP500 today; something to keep in mind going forward in the day. Although, we are slowly slipping in price, if I was short I wouldn’t be real happy with the pace the market is going, and if I’m long I don’t see the buy interest from the first 3 days of the week when France “saved the world” (snark). Market feels like there is more downside coming; question is will it be a fast “long execution” or more like a slow hanging? I’m wanting the former, especially if sell stops can shove the Dow30 into the lower SDEV line, which should make for a decent long trade.

Second leg down @14:56 got the market below 20950, but the reversal off the bottom wasn’t a signal; close but no cigar so to speak. It simply wasn’t a bullish engulfing pattern; bounce would have been an Ok scalp, but it’s a flip of a coin. Market still needs to go lower on another leg down; haven’t yet reached the “normal” range for the day in the Dow30 of at least around 100 points or so; unless the market suddenly reverses, that means further downside.

Here at Noon New York, here’s the question I have; “so, everybody gets to buy the bottom within 15 index points of the low over the last 90 minutes? Wait … what”? Exactly, lows aren’t lows if everybody can get in to them, especially if you have 90 minutes. However, having said that, the market is being jerked around by … jerks! … “yes, our old buddies in Congress who couldn’t find their collective asses with both hands if they had a Rand – NcNally road map to guide them”. Meaning any and all signals may just be “smoke”, as the rhetoric & BS come steaming and piling high over health care and the budget [gov’t shutdown] from Pie Holes looking for some TV time on cable to show the folks back home just how concerned they are about all of this don’tchaknow? “Excuse me while I puke”.

The market right now is locked into a tight range exactly because nobody … nobody … wants to do anything and then have some asshat like Chuck U. Schumer [Weasel, N.Y.] come along and say something that pulls the proverbial rug right out from underneath your feet. And you know, before we close today something “else” will happen. In my mind, if we don’t get a break to a new low this afternoon, I’d be looking for a lower opening tomorrow morning to buy into the weekend. We’ll see what happens, but I’m leery here of getting blindsided by some Pol; and still the day’s range is awfully tight.

But as is usually the case in quiet markets, especially the stock indices, the shorts are the first ones to always panic; and after sitting the last couple of hours in mind numbing chop that goes nowhere, somebody … short no doubt … absolutely couldn’t take another minute of this stuff not going down and hit the buy buttons, sending the Dow30 up 25 points or so in 9 minutes for his/her efforts. “Thanks, come again”!

Make no mistake folks … and believe me, I know … we have not seen, nor are we in what I consider anywhere near a “normal” Dow30 and/or SP500 market. And while the stock indices present discipline & patience issues, other markets on the MT4 aren’t faring any better while some are far worse. “And look, apparently we can all buy the low over a 90 minute period”!!

SP500 just hit a new high for today; this type of reversal happens less than 5% of the time of all trading days; as I said before Dow30 is weaker today, so it hasn’t hit a new high yet; it remains to be seen if this is just panic short covering on Pol “blah blah yada yada” that goes nowhere and invites the “Flying Wedge of Death” to the party, or if this means further new highs and a blast above 2400 later today and catches more shorts hurting from losses.

So what do we do now? Longs gotta be asking themselves this question, now that whoever puked their shorts in classic fashion has finished and we simply … sit here … doing nothing … ho hum … “another round of beers over here for the red eyes please”! … cuz outside of the person who stepped up to the plate and moved the market, nobody else wants to join them … and that has me skeptical of the move continuing higher yet again. Meanwhile, the apparatchiks at the Fed love this kind of action; anything that kills or maims retail spec accounts is “good” in their book. Once again today, we get nothing off the lows of the day in terms of a buy signal; zip! Granted, the range is tight [thank you Pols], but you’d think we could see something from one of the bottoms after the open that goes somewhere; not today.

And please note; the biggest rally of the day starts and exactly coincides with the HR1 [white line] momentum change from negative to positive. Chart directly below.

 

So, while we sit here waiting for something to happen, in other indices news the Russell 2000 hits a new all time cash high at the same time there are record shorts in the futures market; 72,212 short contracts to be specific … “clearly, this will end well”. Add to this the option hedge funds short call gamma in the SP500, and there simply is no shortage of gun powder to blow the lid off of everything in sight WHEN [not if] the shorts panic here between now and the end of June.

And if you’re in this mess, long or short at this point doesn’t matter, I sincerely hope you got a “Plan B”, cuz if you like flippin’ coins this market right now is for you; and if you’re wrong you got no chance of seeing any kind of movement that gets that loss back. “Double or triple up you say cuz it’s a tight range? Don’t even go there Skippy … don’t even go there”.

It’s a half hour until the close, and once again time to call it a day, with a single trade for the effort and a few pennies to the plus side; once again a pretty pathetic day action wise, with both longs and shorts not real happy with today’s outcome. It is what it is, and we simply move on to tomorrow and pick the action up again.

PAMM/MAM spreadsheet directly below.

 

Day’s officially over and “Fang” here thinks he’s gettin’ some of that smoked roast beef before we go to the beach … not so fast there Skippy.

“Whoa … whoa there Chief, I distinctly said roast beef … WTF is this”?

Now the dog’s really screamin’ at me! … Ok, here’s the roast beef… we’re outta here … until tomorrow.

Have a great day 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”!

 

  

WHERE’S YOUR BULLET?

“Welcome to trading!”

From the blog post a couple of days ago, you know I instituted with Bert [my mentor] a crude algorithm dealing with “risk models” for customer positions; I literally spent 90 minutes explaining to Bert how probability theory in trading can severely limit the chances of Mr. Market coming for you with “your bullet”. I took my work and over the next few days did the necessary research form his stockpile of data, and put the “plan” [as Bert called it] into action in lumber, cotton, & corn, the three markets he almost exclusively traded.

As far as I was concerned, putting the “plan” together was simply a trip down mathematical logic and simple probability; the main focus of me doing it in silver at the time [the market I traded very heavily way back in those days] was simply to state unequivocally to Mr. Market, “hey, people tell me you got a bullet with my name on it … just so ya know … fuck off, cuz I ain’t interested … there is no way on God’s green earth you can defeat me and force me from the ‘game’ … and even if you plan on trying to take that magic bullet you got for me and do me some harm … well … you’re gonna need a lot of bullets my friend!”

In essence, all I did for Bert back then was give him the probability breakdown of how much a market had to be profitable before you would carry it overnight; with the one steadfast rule that you never, ever take home a position overnight or over the weekend if it was showing a loss at the close; and I MEAN FUCKING NEVER. I told Bert during that infamous meeting all those years ago, “I don’t give a shit who you are; I don’t care if the Moon’s North Mode is making love to Mercury with its signals; when you take a losing position home overnight or into the weekend, the probability of that position ultimately being a loser SKY ROCKETS!” [Basically, in the markets he traded it broke down to about 70% ± a few percentage points in each individual market.]

Over the course of the last 6 months, just in Lumber, I told Bert, “Looking at the trades you lost money in; a total of 9 trades. If my plan had been in place, you would have lost 2, and 1 of those was basically a scratch trade, AND THE OTHER LOSER WAS THE SMALLEST OF THE NINE! You tell me Master, do you adopt this ‘plan’ or what’?” You know the rest.

So, fast forward to today; unlike back then when all markets closed for the day and then reopened the next business day morning, we got 24/5 markets in practically everything [excluding European stock indices] traded on the MT4 with nothing more than a brief 1 hour or less interlude between the New York session and the open of the Asian session, where everything settles and rollover occurs.

Even when I was on the floor and had millions of Dollars in my trading account, if I was in a 1 lot, and it was down $1.98, I was not liking it one damn bit, and more than likely I’d cut the trade loose and start over. “Understand me … I hate being down in a position … it pisses me off … and I have a very short leash for it or else it’s gone. I never, ever am like most traders who are comfortable in losses and scared to death of profits.”

In other words, every single day, the thought of Mr. Market looking for me with his sniper rifle crosses my mind; I know, cuz I developed it, the algorithm’s rules, signals, and procedures will shield me from his scope … but that doesn’t mean I can’t get nicked … and I don’t wanna get nicked, I want to make money …as a professional trader I got to perform day-in day-out … the only thing the Mrs. wants to know is “how much did you make today and when can I spend it? … “oh wait, did Mr. Market ruin your day? Poor baby NOT! You get your ass in there and give Mr. MARKET the ‘what’s what’ and point out to him ‘I got needs’!”

And that’s how that story goes, so now you know that when I “ring the register” on a trade, why I don’t really care where it goes from there; there’s always going to be opportunity … and I know following liquidation rules most of the time [vast majority] I’ll be getting close to max profit potential. And if I run into a situation where further trades could have made me more money, I don’t care about that either cuz I know the probabilities for signal success deteriorate in the later half of the day. In other words, my entire approach is one of telling Mr. Market to go find somebody else for their bullet!

I want you to THINK about what I’m going to say next: 1) you have the same profit goal as me which is $3 per Oz. per day, 2) you trade a 3 lot, and finally 3) you hit that average on a 3 lot over the course of the year. How much did you make that year? Well, 300*220*3 = $ 198,000.

“How many of you made 200K last year cash? Let me see the hands in the air. Hmmm, I’m not seein’ a hell of a lot of hands now am I? And this is with a 3 lot; if you did 1.5 lots it would still be 100K; and finally, even if you could only afford to start trading with 50 Oz. [1/2 lot], you’d still make about 33K [5K in your account to start your own business and within a very short time being making more money than you ever dreamed.]”

And this is capturing $3 per Oz. per day on average. So don’t sit there and be thinkin’, “$3, what’s 3 bucks? Hell man, I wanna make some money here.” MY RESPONSE: “Yea well, that measly $3 through all kinds of market conditions will make your ass rich; and in this market you can easily parlay your volume up to about 20-50 lots without upsetting the market and moving price. It simply doesn’t pay to look for every last penny of every move; it will cost you more than you know. That’s not to say your profit goal can’t be $4 or $5 or even $2; I just wouldn’t make it unrealistic with something like $15, which you won’t be able to hit without giving up plenty of money with the smaller winners to try and achieve. If you’re in your 20’s or 30’s, you got a lifetime of trading ahead of you; you got multiple millions waiting for you to pick up cuz it’s yours!!”

And it all starts with the premise of keeping Mr. Market occupied with somebody else; the very premise of the algorithm!

Turning to gold today … Oyyyyyy … F-ing Chuckleheads Asians, what can you really say for yourself? … you rally it up to the highs from the close about $6, and here we are lower on the day coming into New York trading … how many times do you hit a donkey in the head with a board before he figures out what you want him to do? Apparently, you don’t seem to understand this analogy.

Ok, first trade directly below.

Out on the spike up cuz I don’t believe they can carry this thing up much higher; need the spike to get a good price. Captured a little over $1 for the trade.

Second trade directly below.

Not liking the trading action here one bit; way to choppy and uneven to go higher tight now. Out with a few pennies profit.

Well, that was quick; trade #3 directly below.

Out on the spike up almost to exhaustion, not quite; anybody see a pattern here besides me? At first, I’m not liking the acceleration off the signal; everything is a “struggle”… and I’m risking earlier profits … but equities weakness is helping here … caught the chart a little late after the trade cuz the lovely Christina [my latest and last protégé] is on chat with me telling me how she sold the spike up to this orange arrow high. “Way to go Christina!!! You are my fucking hero!!!!!!”

Captured about $2.30 on that trade and that puts me well over my profit goal of $3 for the day, and given the action I’m seeing on my screen, I doubt gold sees me again today. [Well actually, no way I’m back in this stuff no matter where they take it.]

Ok, dog is antsy, I need Vitamin C therapy, the water beckons, and most importantly to me … Christina made money and sold that high spike right along with me [independently, I didn’t tell her] and rang the register as well … “It’s a good day to be a trader!” I’m soooo outta here … until tomorrow.

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!”

CHOOSE THE FORM OF YOUR DESTRUCTION

“… for wide is the gate, and broad is the way, that lead to destruction …” Matthew 7:13 [KJV].

If you were inclined to learn the truth, and had the time to spend with me, I could literally tell you, just from my personal anecdotal experience, dozens upon dozens of stories of Chicago traders who now and forever will reside in the “Trader’s Cemetery”; it’s a very large place, with ornate headstones, well manicured grounds, and large reflecting pools with requisite stone benches for people to sit and reflect.

Obviously, genetics plays the key role in what we look like, but there are 2 factors that determine “who” you really are; 1) your environment [immediate family, where you grew up, family income, etc.], and most importantly 2) your “will”; i.e., to be metaphorically specific, “the engine inside of you that drives your life”.

“You hate your job? You hate where you live? You hate the fact your income isn’t as great as you would like? In other words, you don’t like the life you are leading & living now?”

“You can’t find a decent market to trade? Your trading account is too small and you bitch about it constantly? Profits are a total bitch to pocket & losses are almost on ‘cruise control’ most of the time?

LIFE IMITATES TRADING; TRADING IMITATES LIFE.

Many years ago [decades now] when I was a “20 something” and thought I “knew it all” and came to study trading under my mentor Bert, what “lit the fire under my ass” to go introduce myself to him when others who were new in the brokerage house wouldn’t, was my desire for change in my life cuz being a stock jockey cold calling people all day and getting harshly rejected 350 times out of 350 calls tends to be a “downer” in your life, producing exactly ZERO income.

Practically every day, Bert would pound into my head in some way, shape, or form [usually with the largest sledge hammer he could find] three essentials that he wanted tattooed on the inside of my eyelids so I’d always remember them; 1) have faith in a trading method and show discipline & patience in following it [and Newbies OMG!, do we not know how hard this is?], 2) maintain “balance”; i.e. never let profits blind you to your ultimate ambitions [“Oh, did you see that wonderful trade I just made and ‘killed it’? Yea, next trade I’m quadrupling my volume cuz I want a frickin’ Porsche NOW baby!!”], and never let small losses define you as a person [“Why has God forsaken me and led me to this loss?”], because trading any market is a binary non personal event, and 3) choose the form of your destruction.

The first two, I have written at length on various occasions and to varying degrees my long time readers/clients know how hard they can be to accept; the third, “choose the form of your destruction” will be the hardest for you to accept, ultimately appreciate, and finally adopt as your trading mantra! Given the absolute bloodbath we have seen on display this past week in the gold [and stock indices] market, not only in terms of price but also insane volatility at times, this seems like a very opportune time for me to share some of what I learned from Bert, my additional thoughts, and how this can translate into making you a more profitable trader.

The other day when I was at the beach, sitting there under the beach umbrella, the dog laying on the beach towel in the shade napping after a Beggin’ Strip & some cold water, and I’m sitting there hypnotized by the singing waves and the beauty of the white sand & turquoise water while engaging in some Vitamin C therapy [an ice cold Corona light with a fresh cut lime slice … “hey, I don’t want scurvy … not takin’ any chances here … it’s ‘medicinal’, Ok?”], and as sometimes happens when my thoughts turn to trading, I think of what Bert taught me.

I had just come back from the order desk, where the order clerk at the brokerage house 2 minutes prior had screamed out my name to pick up a fill from Bert’s managed account pool. Walking back to our desks in the back corner, I see Bert had sold 100 lumber futures contracts, and I’m thinking, “Hmmm, when did he do this? Is he getting short up here?”

I drop the order on Bert’s desk, and while he’s on the phone talking with somebody, I sit back down at my desk in front of his and resume my work. About ten minutes later, when he’s done, is when all this started.

“Kid, get your ass over here … we gotta talk … some really important stuff I have to teach you,” And I look up, and immediately roll my chair from my desk in front of him to back where he was and am looking at him intensely. “Ok, this is important … you paying attention?” And I’m like, “yea, I’m here and looking at you … yea, what?” And he shoots back, “Ok, you listening?” And I’m sittin’ there getting this incredulous look on my face, when I finally say to him, “You want me to sit in your fucking lap? … unbunch your panties for Christ’s sake … I’M RIGHT HERE … WHAT?”

I remember him chuckling a little and then saying, “yea, I know when you get like this you’re paying attention … sorry ... Ok, here’s the deal.”

“Kid, you been doing great … I know you are tradin’ these other markets I don’t completely understand … gold & silver I get, but interest rates and currencies? … how the fuck do you trade an interest rate? … why should anybody give a shit about the Japanese Yen? Christ, a few years ago we kicked their ass in WWII and now we trade their currency? … anyway … you been doin’ great, and I like some of the new theories you got using probability and some of that other higher math I don’t have a great understanding of … but there’s gonna come a day kid … and here’s the deal … you got to CHOOSE THE FORM OF YOUR DESTRUCTION!”

And I’m sittin’ there and hear this, and my first thought is, “Bert, WTF are you talkin’ about”, but say to him, “Ok, I’m not sure I understand where you’re comin’ from, so please explain this concept to me further and why it matters.”

“Kid, you know we pursue the ‘Holy Grail’ of trading; trying to find those things that bring us perfection to our trading model … I know that you know it’s an impossible task … but in the pursuit, in the journey, we learn valuable lessons about markets and about ourselves … that make us better traders and hopefully better people … we choose as traders to stare into the abyss and demand answers … often times those answers we don’t like … kid, now listen to me … you need to first think about, really think about, how A MARKET CAN KILL YOU; END YOUR CAREER BY DESTROYING YOUR PHYSICAL CAPITAL & YOUR EMOTIONAL CAPITAL … in other words, you need to figure out and CHOOSE THE FORM OF YOUR DESTRUCTION! … then develop a solution to defeat it … Oh, and I’m giving you 5 days to think about it, develop counter measures to it, and then lay out for me your ‘battle plan’ first thing Monday morning when we come in; I’ll be here at 7 A.M. to see what you got; any questions?”

And I’m thinkin’ at this instant, “Oh fuck yea, sure … anything else, like maybe world hunger you want me to solve, or cancer … shit, is this all you got?” And I remember saying to him in my most serious of tones and posture, “Nope, got it. I’ll be here at 6:30 A.M. waiting for your ass, and not only will I have what you call a ‘battle plan’, I will blow your mind with what I ultimately show you. And he looks at me not really knowing what to say; part of him knows I’m dead serious, and another part of him is wondering what I got “up my sleeve” that he doesn’t know. Finally he says, “Ok, can’t wait to see it.”, and that’s that.

This was on a Wednesday, and for the next 2 days into the weekend, we didn’t say much to each other, other than me getting some of his orders filled in corn and general comments about the other 2 markets he traded heavily; lumber & cotton. On his way out the door on Friday, he simply said, “Ok kid, see ya bright and early Monday morning”, and then walked off and out the door.

What he didn’t know was that I had already done a tremendous amount of statistical work on silver [my favorite market at that time for trading], with some work done on gold and the 30 year T-Bond, and that I had developed a somewhat crude trading algorithm already that dealt with risk of customer positions. I didn’t call it “choose the form of your destruction”, but Bert’s term aptly fit into what this phrase ultimately means; we can never completely avoid losses in trading, and as traders this is “our destruction”; however, having said that, we can minimize their impact [i.e. choose the form] on our account by making sure they are always small compared to our overall account equity and never really hurt us. And what should be readily apparent to you is, why all these years and decades later, my volatility algorithm’s rules & signals ALWAYS have as their first and highest priority to “KEEP YOUR ASS OUT OF TROUBLE”. When that objective is met, you can then ponder profits; you turn this on its ass, and it isn’t a question of “if”, it’s a question of “when” your next gig is asking people, “Would you like to super-size that order?”

Ok, Monday morning comes and I lay it all out for Bert; takes about 90 minutes. He is blown away; after I finish he says to me, “kid, this is fucking genius level shit … seriously, this is better than good … sometime this week, let’s implement this in lumber, cotton, & corn … good job, now don’t get cocky.” And that’s that; gets up and starts walking up to the order desk while asking ‘got an opening call in lumber?', cuz nobody is at the floor desk in Chicago answering the direct line.

And now, interrupting the narrative for a moment, I find myself laughing out loud in my beach chair, the dog looking up at me “hey, I’m tryin’ to nap here! … frickin’ humans… they’re nuts!” And what has me laughing is what I remember from that moment all those years ago, of what was my immediate reaction to all of this; part joy, part what the fuck? “Ok, yippee I did a good job … errr, wait … what? … cocky? …  Who’s gettin’cocky? … couldn’t you just leave it at ‘fucking genius level shit’ and then STFU and sit down and smile? Hey, don’t walk away from me while I’m …”

Here’s what I didn’t know at the time all this was unfolding, and why Bert was so adamant in pounding this relentlessly into my head … of course, knowing because he was/is/always will be my “Master” mentor … looking into the future and knowing I would be there [and by default someday he wouldn’t] … trading something he most likely knew he had no concept of except it was “trading” … and knowing I would face … unbelievable cataclysmic market moves … up or down, they will be there … nobody will believe what they see happening … cycles forever in the past; cycles forever in the future … “kid, I have to prepare you.”

Up into that Wednesday, for over a week, Bert had not traded lumber; it was locked limit up for over 10 days in a row [$10.00 per front month futures contract per day, and $10.00 = ± $1,000 per 1 lot depending on your position.] I didn’t know he was long; when he got into the position, I was busy at the same time with a silver trade, so he went and put the order in himself. After that following Monday, after I showed him my ‘battle plan’ and the market closed for the day, he called me over and showed me what had happened when I layed that fill on his desk on Wednesday. He showed me the “signal” that got him long and then all the data leading up to his sell order; “kid, everything I follow lined up perfectly 1 day before; North Mode Moon versus Mercury in this Planetary Aspect [I think it was in Mars] … looking back there were always huge moves associated with this on the upside … happens every 5 years or so … and now, at first it started moving up to news of that idiot Carter thinking about imposing import tariffs on Canadian Pine [at the time, mid-late 1970’s, it was the most popular and widely used grade of lumber that was deliverable against the futures contract] … now we got a union strike at the biggest lumber mill in Canada which limits available supply … BOOM! … that order you got earlier, that was me getting’ out of the 100 contracts I was long from $108 ago!” I just sat there, simply fucking stunned in amazement; Bert had just “rung the register” for $108,000 in this one lumber trade, and for 3 trading days plus the weekend in between he didn’t tell me Mr. Jack Shit. When I stupidly asked him why he didn’t tell me on Wednesday, he glances at me with that look of annoyance he always had when I fucked up somehow and just stared at me; finally I say, “Oh yea …balance?”

He stands up from his desk and shouts to the entire room of brokers in a loud voice, “Who says the kid here is a ‘fucking idiot’? C’mon now, I know I heard somebody thinkin’ it!” I look around; all the newer traders are in shock, while the older guys who knew Bert are laughing their collective asses silly looking at me. I see what’s happening and I stand up and take a bow and accept their ridicule cuz I know it’s all in good clean trader fun. When it’s over, Bert grabs me and puts his arm around my neck in a mock choke hold and whispers to me, “You did really good kid, now you got to take a little shit.” And when he’s done laughing and fooling around with the others he knows well, he grabs his coat to go home, and as he’s walking away, he stops and turns around and says to me, “Oh, by the way, that 100 lot sell order? Yea, I told Betty [the order clerk] beforehand to give you credit for that order. See ya tomorrow kid!”  I’m sitting at my desk, and I want to pee my pants cuz we’re talkin’ about $5500 in commissions for me next week from just this one order. But when I look up a few other brokers have heard what Bert said to me and I remember what Bert told me before about things like this; “Kid, act like you’ve been here before and are gonna return a million more times; you earned it, you deserve it, now expect it! Balance, my boy, balance!”

And at once you just instinctively know … “he’s not telling me, he’s showing me; no need for talk … balance … did you see him dancing on top of his desk? … nope, same old Bert; giving me shit and expecting me to understand these concepts so I can carry them forward … Thank you ‘Master’, thank you.”

Understand dear readers, this is the late 1970’s we’re talkin’ about here; new cars cost about $4,000 or so; nice new houses in the best neighborhoods of Madison, WI. run about $80,000 - $100,000; we’re talkin’ about some real money here. But that was just the beginning of me “being amazed”; when I asked why he got out at “limit up”, his answer was that the data showed tomorrow would be the end of the up move and he didn’t want to risk getting caught in a “limit down” move and not be able to get out, so with the sizeable gain why not be a little early and “nail it down” right now? Gets no argument from me, that’s for sure.

Next day, as we approached the open of lumber, I called our desk on the floor [Bert had a direct line to the floor installed per his wishes being directed to the brokerage house CEO, who simply said, “Whatever you want Bert.”] about 15 minutes before the open to get an “opening call”. Guy there simply says “limit up”, and I’m thinkin’, “Hmmm, well maybe later it comes off? … hell, what do I know? … let’s see what happens here.” Market opens “unchanged” from the day before, and within 30 seconds it’s limit down. [Note: After I picked myself up off the floor, I remember it fluctuated widely after that move, eventually closing the day lower, but not limit down.] Looking back at a chart a couple of weeks later, that was the high of the move, and incidentally looking back a full decade later when I was on the floor it was still the high that had not been taken out or seen since.

I want you all to realize the scope of what I presented here today; for me, and for you also if you abide by algorithm rules & procedures, choosing the form of our destruction is simply forcing the market to adopt trading behavior that is nearly impossible given present day market conditions TO DEFEAT US. I didn’t say it was impossible, I said it was “nearly” impossible.

And what are those conditions? Simply, 1) intraday volatility so small you can hardly measure it, and 2) a market that consistently makes small moves that set off algorithm buy signals [gold] before reversing into condition #1 above. Given the fact, not my opinion, that these markets trade upwards of $7 trillion Dollars notional value every single day, you tell me how high the risks are in getting “slapped around”?

That’s not to say on any given day things can’t be slow; most assuredly they can and we’ve seen this in gold at times in September & October; why do you think some days I leave this market alone? And maybe you now understand why you can’t be a “one trick pony”? I’m in my 4^th decade of trading [even though I’m still in my 20’s; never been able to figure this out], and from where I sit, I simply don’t know of another algorithm or trading method that has lower risk. And so, when I tell people to send me info on another method if they think it has better risk management, and they laugh at me and say, “Sure!”, I’m being serious and they think I’m trying to be funny or something; I’m not.

And so, automatically built into the volatility algorithms for each market the great question of “what is the form of my destruction”, has already been thought about, addressed, and implemented via the rules & signals; after 4 decades and millions of dollars from trading, I’m still standin’ strong as ever. And while I wish I could claim credit for all of this and proclaim myself “genius”, whatever I do is built upon the work and direction of Gann and mostly my mentor Bert, and I simply took the ball and ran with it. Yea Ok, I’ve had some original insights and creative work [exhaustion lines] that gives me my “trading Ph.D.” [besides the money] and benefits those who understand and see the results in their own accounts, but I certainly don’t view myself as some kind of trading genius.

More importantly to me, throughout my trading career, I have maintained the “fire inside me” to learn more, try and think outside conventional boxes, and maintain that delicate “balance” I wrote about earlier. What motivates me to follow the rules & signals isn’t “genius”; it’s freedom in all its shapes, and a lifestyle free from corporate hassle and harassment. Money from trading buys that. I have no desire to be enshrined in the “trader’s graveyard”, where people can walk by and say ’Oh yea, I remember him … great trader … until …’ and then you can fill in the blanks.

Ultimately, as a trader you have to 1) face the demons, and 2) stare into the abyss; these weighty questions and problems we face primarily come to you as simply “flowery words” until you open an account and think your brains can get you out of any trouble you get into. In most cases, all those trader’s who I remember went “belly up” had uttered at least 2 things before it was over; 1) “this time it’s different”, and 2) “this can’t be happening”. Well, it ain’t different, and it most definitely can happen and does repeatedly.

First and foremost, Friday’s bloodbath lower in gold holds for many of you important trader lessons regardless of whether you made money or not; 1) don’t ever say never when it comes to thinking markets can’t do something, 2) probability is just that; it’s not a guarantee, and 3) situational awareness (which I wrote about earlier) is something every trader has to develop. Having said this, how likely were the third and fourth lower exhaustion moves in gold due to commercials stopping out retail specs getting long gold cuz they thought it couldn’t possibly go any lower on the day [until it did]?

Ok, trading Ph.D. seminar dismissed for the day; time to trade.

Turning to gold today … well, what can you say after Friday? … needless to say, the Asians took it lower right out of the starting gate to 1213 … only to see it rally in Europe off the lows [“Hmmm, I wonder who could have ever seen this coming?], and here we are at in the mid 1220’s. Some days [in fact most days] I look at the action from Asia, and when I think of the literal Chuckleheads they got running trading desks over there, I can’t help but think of Walter Slobchak [John Goodman] from ‘The Big Lebowski’ in the immortal, hilarious scene where he smashes what he thinks is “little Larry’s” car cuz Walter thinks he stole their money, cuz they found his homework in the car where the money was and it ain't there anymore. The clip link courtesy of You Tube directly below. Take 3 minutes out of your life and get a decent laugh. [“Your welcome.”]

https://www.youtube.com/watch?v=PztgWdMEJdg

And thinking of these Asian traders consistently getting stiffed day-after-day, week-after-week, on and on over the years … you do realize gold would be at $10,000 per Oz. if it wasn’t for New York trading, right? … and ultimately, they’re like Walter … mad as hell, and can’t figure out how to stem the losses …. So what do they do … why buy more every night until they … SELL MORTIMER SELL! … AND THEN IT CAN RALLY!! Nice job Walter, really nice.

So, here we are at the New York open and my gut feel is that there should be a move lower first to see where support [if any] actually is and if it can hold commercial selling pressure; if we start climbing up early, then later in the day I would expect to see them “monkey hammer “ it again lower. Because of the very nasty downside action of last week, the only waterfalls I’ll be buying [for the next week or so] below the white line will be at the exhaustion levels; preferably RM=1 will/should hold, but if that first waterfall doesn’t hold I’ll be switching to RM=2.

At this point, the gains in the stock indices is starting to get frothy; I would expect some lower price action either today or tomorrow, and with that it should support gold; how much support I haven’t a clue.

Ok, that didn’t take long; trade #1 directly below.

We’ve been in a nasty downtrend folks, how excited do you think I am holding a long position for any serious length of time? Exactly; not very. Buy signal on plum slope change above the white line; and when the trade becomes profitable and I’m up over a buck, my mental stop gets lifted to break even on the trade; equities weakness should support and see gold go up some, and as long as I can show profit on the trade [and just as importantly we are above the white line] I’ll hang on; we get another little lift in price that almost sees the upper exhaustion line, and now my thinking changes to one of if I see the first red M1 I’m liquidating [close enough to exhaustion line for government work]; sure enough this spike up proceeding the orange arrow didn’t hold, and when the M1 turned red [orange arrow] I liquidated capturing about $3.50.

Quite frankly, I don’t care where they take it now, the only way I step back into this is if they test the lows and somehow hit RM=1 or preferably RM=2, other plum line slope changes be damned after this first one; my profit goal has been hit and there is for sure no need or desire to chase this stuff higher on signals if that is what happens. Early rallies in this stuff are gonna get sold by the commercials, and if you’re looking for some kind of extended rally to start early and then continue for the day during this week, you don’t know or understand how gold trades; when you get long, it’s mandatory you sell the rallies and not care where it goes after that!

An hour into this and now we’re seeing a steady erosion of price, where the little 2-3 minute micro-bursts of buying get slammed; am seriously wondering if today the bullion banks go for the 1200 level for stops if the day’s low gets taken out. If in fact U.S. equities go lower today from here, and gold can’t rally, look out below in the days to come.

Ok, 2 hours into this mess, and I can see the mild inverse correlation with the SP500 and no real buy interest from anybody except those that are short; we may in fact go lower, but I’m no longer interested in buying a lower exhaustion line hit, if in fact we get one. Adios gold for the day.

I’m almost done with the DOW30 manual; should have it up sometime in the next 48 hours. Almost finished it last night, but parts of it I wasn’t happy with what I wrote, so I’m doing an edit and will be finished shortly. Sincerely hope all of you "got something" to take away from today's post. The dog sees I’m done and is going nuts, and we’re outta here until tomorrow.

Have a great day everybody!

-vegas

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