CHESS, GOLF, & TRADING

“Living life outside of a comfort zone.”

When I was a kid growing up in Northern Illinois, in the summertime my maternal grandparents used to take me to the public library almost every Saturday. I would pick up books for the week, and they would guide me towards subject areas, at that moment, that I didn’t find particularly interesting. My grandmother used to say to me; “learn to love the subjects you dislike … be stronger than your weaknesses and challenge yourself to learn as much as possible … do not rely on others, but develop a thirst for knowledge … and lastly, do not do the “easy things” but the “right things”.

And after I would read something, at lunch, dinner, or even on the porch watching the sunset, they would ask questions about what I read and learned; often I would hear, “if I wanted a book report I’d ask for one; I want to know what you think about it … what is the author really trying to say? … what is his/her premise”? And when I would attempt to answer with total bat guano, my grandmother would have none of it; “you’re talking like a 2 year old; speak correctly in sentences … get rid of the “umms, ands, like, etc.” and talk intelligently”. Some days, I felt like I was in prison; but I’ll tell you this. I was so far ahead of my friends when we all started first grade, you wouldn’t believe it. I remember getting “See Spot Run” as our first book and thinking, “seriously, is this a joke? You think I need help or can’t read this”?

All of which brings me to the present and my 3 greatest interests; 1) chess, 2) golf, and 3) trading. Chess is purely mental; golf is having a great time outdoors, getting some exercise, and controlling your emotions with the little white ball; trading is my profession. And what is it about all 3 that links them to each other? EASY PEEZEE: “they are simple but not easy; they require discipline & patience; and by constantly humbling you, you get to learn about yourself and how little you really know”. In other words, there is no “comfort zone” here, only constant challenges that make you want more. Partially, to that end, it’s why in the “Download Links” section over in the right-hand column, I include the link to “My Super Duper Chess Library”; over Labor Day I’ll be adding more books to the list and expanding it. You want a “mental challenge”? Dig into chess and you’ll never leave; drop the “couch potato” routine of mindlessly watching TV every night or over the weekend watching “meat sticks” play football, and start to expand your horizons.

Turning to today’s markets … a slew of reports coming out in the U.S. and late Europe to influence trading today and set the tone … very little in Asia and early Europe in terms of range in anything … I’ll be waiting for the ADP jobs report & GDP numbers at 8:30 before taking any position.

Well, that escalated quickly … and as soon as the dealers and other assorted LP scumbags clean out the order books on millisecond spikes after the ADP & GDP numbers are out… hello, it’s crickets time … simply almost impossible trading conditions exacerbated by horrible slippage and markets that are seeing the “Flying Wedge of Death” [FWD] (DAXX30), massive reversals (SP500), more reversals (EURJPY), and death on a stick (why, that would be USDJPY).

I’ve increased the volumes up to 400,000 in USDJPY, and quite frankly, for a market that pretends it’s the world’s most liquid, the slippage via the dealers and the stop running are atrocious. Tomorrow I’m having a “conversation” with Turnkey about the USDJPY LP, who quite simply, should be in jail. But enough of the “inside baseball” talk … all-in-all a slight losing scratch with commissions, considering the volumes, and truth be told the LP stole over $200 via slippage, so at least I can sleep tonight knowing we did our part in funding his mistress’s lipo-suction, his son’s drug rehab, and his daughter’s pony … Gosh, I just love a “feel good” story, don’t you?

And while I can accept losing money either when the algorithm is off, or when my timing is off, it frickin’ boils my blood when I lose any amount and I’m right about the market … sure, losing a collective couple of bucks today doesn’t matter; all told about a tenth of a percent or something like that, but it’s the “trading process” that the current “central bank trading paradigm” offers us, that is a problem; 1) speed of light trading … crickets, which is maddening, 2) LP dealer shenanigans when markets are slow and listless, and 3) the excessive running of stops [buy and sell] throughout the day and night on a daily basis that prevents decent short term trends from developing. Put it all together, and some days I feel like “superman” for collectively breaking even or losing less than $100 [no matter the volume].

And while the LP in USDJPY is bad [TBTF bank like Squid, Morgan, or HSBC], in other markets it’s worse; looking at a Dow30 M1 today for a little while, it’s simply a mess of gaps from one minute to the next, and in the DAX30 the spikes [up or down take your pick] will kill you. In EURJPY, while the spread is one of the best in the biz, that doesn’t help much when the bid/offer goes up/down 2 – 3 PIPS every second and you have absolutely no idea, if you click the buy or sell button, where you’re gonna get filled … but trust me, if you’re buying the LP will make damn sure you get filled at the top on a mystery spike, and on the low if you’re selling … that means you’re automatically down 1-3 PIPS before you’ve clicked the “OK” box for your fill. What the hell is that? And in markets like USDJPY, which is either exploding up/down, or dead in the water you can’t get 1 ½ PIPS move in 15 minutes dead, slippage like that makes making money very difficult.

Today, for example … yesterday was the “explosion” kind of day … market waits all night and early today for ADP & GDP numbers at 8:15 & 8:30; market explodes up in a millisecond, and then goes into the slow drift down and then sideways routine for 4-5 hours … you couldn’t get a 10 PIP move to save your life … the “special indicator” 2 EMA’S hugging each other for hours … and then BOOM! … here we go on a romp to the high, where now the LP starts to hand out slippage so bad on buys they should be locked up. And when the market can’t make it higher, it’s “speed of light” down 5-7 PIPS in less than a minute; what took 20-30 minutes to go up, takes 30 seconds to give it all back and then some … everybody who’s long out at the low, and then the dealers bid it back up cuz now they’re long … rinse, repeat, and you get the idea.

Add to this what I said yesterday … “is there a market in New York that actually trades, or is it simply a charade; cuz from where I’m sittin’, it’s either the “Plunge Protection Team” ramping stocks, or the “Rally Protection Team” pummeling gold”?

In any event, the ‘special indictor” is working very well, and although we had mindless “chop” for the vast majority of the trading day, which doesn’t help us in terms of profit, it is late August and markets have a tendency to be thin at this time of year. “With all that’s on the docket, both economic and political, in the coming couple of weeks, … OH, won’t September be fun and profitable”!

PAMM spreadsheet I’ll have tomorrow, as the “Open Office” upgrade didn’t work for some reason and has “bottlenecked” the spreadsheet … I’ll figure it out tonight and everything will be current by the end of tomorrow [hopefully]. Onward & Upward!

Time for the beach … the “Ice Cream King” [the dog] & I are 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”!

DON’T LET YOUR EYES DECEIVE YOU

“It’s why God gave you a brain.”

It’s tough sometimes, knowing that what you see with your own 2 eyes might be deceptive. Today, a classic example in USDJPY with a buy signal early this morning directly below.

On the surface, everything lines up; both aqua and white are sloping up with white over aqua, and the market corrects down to the “tunnel”; question is, why isn’t this a “buy”? SHORT ANSWER: “the market has lost upward momentum cuz it took 21 minutes to go 10 PIPS; the chart deceives because the MT4 fills the price to the screen, regardless of how tiny the price moves. It should have only taken 3 or 4 minutes, tops, to go down 10 PIPS NOT 21. By taking 21 minutes, it tells me sellers are “lined up”, and any subsequent rally has a very high probability of being short-lived”. Not that I’m thinking the market is a sell; hell, this stuff can’t go 10 PIPS to save its life; while gold, EURJPY, and EURUSD are moving, Yen is sitting … it’s the weak link in the EURJPY chain, and the strong correlation with gold is lost today.

And so it goes in markets that move very little; today’s Yen caught between conflicting moves in the SP500, EURJPY, & gold … what to do, what to do? … well, that’s easy, do nothing except “chop”. Today being a perfect example of what I wrote in the weekend update; situational awareness and how to respond to it correctly, cuz when things don’t make sense, simply back away from the table and come back later.

I counted 3 great algorithm moves today in EURJPY … not so in USDJPY and the stock indices, who have decided to sit today out for some reason … I’m left wondering, how many more days USDJPY is going to sit in the 109.20’s and/or 30’s before it moves somewhere significant? The number of times over the last week the market has tried to rally and just got slammed quickly, leads me to believe the next big move is lower in USDJPY. Sub 109, and then 108.610 and the sell stops will accumulate from the longs. We’ll certainly see in the days ahead. USDJPY today, exhibiting the kind of “terror” I have written before, where in 2 minutes when spot gold exploded above $1300, the market gives up in 2 minutes everything it had gained the prior 23 hours … and so we go with “speed of light … crickets” that we are all used to by now. And I’ll say again, if you got caught in that move long, how do you make it back today? [Hint: you don’t]

Meanwhile, over in the U.S. stock indices, it’s feed the chipmunks at the open, go straight down a tad, and now sit in a tight range doing “nada”; the Dow30 locked in a numbing 29 point range the last 4 hours, trading like its proxy USDJPY. Welcome to late August in financial markets, where the world is basically on vacation this week, the institutional desks are manned by the most recent MBA’s while the bigwigs are out in the Hamptons, and strange happenings are the norm.

“Tease, tease, & more tease” … this is USDJPY & the Dow30 today; realizing in the last 10 trading days, USDJPY hasn’t moved 100 PIPS. And with that tease comes our old bud the “Flying Wedge of Death” [FWD], where today we see 1) set the high in Asia, 2) move to low in early Europe, 3) rally to new high in U.S. session to clean out buy stops above 109.40, 4) go almost to another new low down around 109.04, and now 5) as I write rally back to the middle to yet again trap more traders in this clusterfark that simply will not end, in a pathetic 30-ish PIP range. And if you’ve never been caught in the FWD, you’re either a very new trader or not one at all, cuz it’s an account killer.

About an hour to go in New York before the close, and the 2 markets I’m watching are the deadest bodies on the block; the real movers today being EURUSD, EURJPY, and of course spot gold, breaking above $1300 for the first time in almost 10 months. I’m not really surprised at the lack of interest and volume in USDJPY and the stock indices simply because after this week we get into September, and the docket here is full of earth shattering potential moves from a plethora of events. So, why would anybody want to make a major investment move now, with so little information about what is to happen regarding the debt ceiling, and all G3 members having important interest rate meetings? So, keeping things in perspective, late August isn’t exactly the busiest time of the year, or even close to normal trading activity.

So, no trades today simply because there isn’t anything to do … I don’t really want to be in EURJPY at the moment, preferring instead to be in our main stock index proxy USDJPY. Trust me, the very low volatility and small daily ranges will quickly change when the market gets wind of the debt ceiling situation, and word out about the impending interest rate meetings.

As I said earlier, some great algorithm “special indicator” moves in EURJPY today; this is what it looks like when markets exhibit “normal” intraday volatility. Scroll back on your MT4 and check them out, after you read the manual. All we need now are stock indices & USDJPY that moves somewhere, instead of sitting in abnormally low intraday volatility where there isn’t anything but “chop”.  I’ll see what happens in Asia tonight, and if the occasion warrants it, tomorrow I may go into EURJPY as our secondary stock index proxy. About a half hour to the NY close, and it’s time to give up on this crap for today in terms of any kind of move. We’ll see what tomorrow brings. Onward & Upward!

The PAMM spreadsheet directly below.

Time for the beach … the dog & I are 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”!

SPECIAL SUNDAY UPDATE: SPECIAL INDICATOR FOR “THE TUNNEL METHOD”

“Following directions to the letter!”

The “special indicator” for “The Tunnel Method” has been added to the manual starting on page 11; for a full explanation, simply go over in the right-hand column to “Download Links” and view or download the PDF; it’s completely free, in Adobe PDF, and is available from my shared files box at box.com. It’s simple [nothing is ever easy], straightforward, and for you “Newbies” out there, if you successfully passed 2^nd grade, you won’t have any problems getting everything up and running; the manual has full instructions that have been “Grandma Tested”. So, enjoy!

I will repeat what I wrote in the addendum; “situational awareness” is critical for success in using this indicator of the 2 EMA’S that are added to “The Tunnel Method”. “Chop” as everyone who has traded for longer than 5 minutes knows, is the “killer” limitation anytime EMA’S [exponential moving averages] or MA’S [simple moving averages] are used in a trading method or algorithm; that’s the bad news. The good news is that “chop” is somewhat predictable, and that when the market slows, or refuses to expand a daily range during the trading day [especially early], you can pull back and avoid the “chop”. Markets go places eventually, so patience and discipline are always needed when using MA’S of any type, form, or duration.

A good indication of potential “chop” is the range of the EMA’S in the M1; if they are tiny [less than 2 PIPS], clustered around a price, it’s a good time to ask yourself if “chop” has taken over trading for the moment; also, please be aware of the slopes of the critical white & aqua lines in “The Tunnel Method”, cuz they are your clues to the probabilities of the market going up or down.

Remember that probabilities are simply that; not guarantees. The power of the “special indicator” is its generation of winning trades over a series of trades within a trend, which until the trend changes will generate 80%+ winning trades. That doesn’t mean the first or second trade MUST BE A WINNER, simply that out of 5 trades, 4 should be winners, if the trend holds. This necessitates low to medium leverage, so don’t make the mistake that any trade MUST be “the home run” everybody is hoping for but never seem to get.

Finally, also remember that any MA’S or EMA’S are “mean reversion” indicators; meaning, they must eventually fail on crossover signals or else the market would be at “0” or infinity. So far, I don’t see either anywhere. Just from anecdotal evidence over my career, once you get past the third or fourth winning “special indicator” signal, the probabilities appear to diminish drastically for further profit moves, unless of course there is over-riding news to warrant some type of tsunami type move. Here is where “situational awareness” is critical and a knowledge of what is typical for a daily range under normal circumstances. For example, if stock indices are rallying and USDJPY is rallying in correlation, and the typical range for the day for USDJPY is 100 PIPS, and you get another “buy” signal when the range is at 140 PIPS, the question is, is it wise to take the position?

Of course, the dirty little secret is, nobody knows; whatever algorithm rules you dream up, the market will foil you cuz it simply must. On a probability distribution curve, every time this scenario comes up, the solution will be randomly distributed around a mean that “usually” occurs … so where are you now? The solution lies in 1) common sense, and 2) your individual risk profile, and what you are willing to risk finding out. Some will, some won’t, but there isn’t any solution to the problem or question.

The greatest asset “The Tunnel Method” with “special indicator” provides traders is the fact that its greatest limitation is in plain view to see and avoid, and if you miss a move it doesn’t matter cuz there will be infinitely more in the future. Given a day or two looking at the market through the lens of the algorithm, you’ll start to develop a “feel” for the turns and the various lines, and also develop a “feel” for impending “chop”. And even a very tiny, partial victory in that regards puts you way ahead in the trading game. So enjoy everybody, and if you have comments/questions please email me.

Have a great rest of your 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”!