Tuesday, November 15, 2011

Are You Dumb Enough To Be Rich?

                               The Dreaded Double Face-Palm

Yeah, we’ve all been there, and I don’t mean just in trading. It’s more than a feeling; call it a realization. Things are about to go OUT. OF. CONTROL..

                              When Trading, This Can’t Be You.

Thinking is for doctors, lawyers, teachers, etc. We are traders; by necessity we can’t think when we trade, otherwise our brains get in the way. For every market, every day and all day, I can give you 10 reasons to be long and 10 reasons to be short. All equally valid.

Hey Jean Luc Picard, if you thought commanding Starship Diversity  was tough, try figuring out which way gold goes today!!”

When the thinking chimp takes over your mind, you hesitate, and from there it only gets worse. Know what happens next?

                  Faster and More Expensive Than You Can Dream.

What traders need first is a philosophical framework to base their trades; then and only then an algorithm that incorporates this philosophy into it.

Some time ago, in an effort to help newer traders, I made available on the internet the philosophical framework that underlies my personal trading. It’s called “The Marble Game”, and it is available free at the link in the “File Download Links” section on the right. Give it a read and see if your trading plan fits into this philosophical framework.

                                          Clarity of Purpose

When you put together an algorithm that mirrors your trading philosophy, you get clarity of purpose in the sense you now know what to do, without thinking while you trade. Your model is to follow the algorithm, not guess which way you think some market is going to trend today. Let the algorithm tell you; that’s why it exists.

Today’s Action and Wrap Up

                                  Long or Short? Hmmmmmm.

When I came in this morning, the algorithm was totally neutral, meaning it had no preference for taking a position long or short. Everyone who follows the algorithm can see this on the screen.

Put a gun to my head, and given a choice, I will always opt for being long gold over being short, everything else being equal. I admit I have a bias in that regard.

However, if you somehow decided to follow the short signals today, you would be justified in doing that. In today’s trade, being short, on the signal, would have produced about an early $ 3 / oz. gain. Later in the day, a short position would have netted another $ 6 / oz.

Now, with the algorithm being in neutral, you would logically expect that either position [long or short] would show profits upon its conclusion. With no overriding trend for the day, the expectation of profit for either one should be about equal.

So, with the algorithm neutral, I chose to wait for the buy signal. For the aggressive trader, the first buy signal came about 3:30 AM [Chicago time] which I didn’t take because I wasn’t in the market. [It’s called sleep people.] If you were there and took the trade, you got long at about 1765. The stop was never hit below the market.

At approximately 6:55 AM [Chicago time] the second buy signal was initiated. It too was at approximately 1765. The stop never came into play as the market moved higher immediately.

At 9:15 AM [Chicago time] the algorithm gave a double confirmation top and our long position was liquidated at 1783.

Game, set, and match. See you tomorrow market!

A very nice $ 18 / oz gain on the day. [And if you look at a chart, you know what happened next. Open trap-door to 1761 area and then rally. Wonder what the chimp thinks now?]

              Everybody Is A Happy Camper When They Make Money

Was it me? Am I a market genius “guru”? Sadly, no. I can’t even predict if the sun will come up tomorrow. So, I ask you?

Are you dumb enough to be rich?

Have a nice day everyone,


No comments:

Post a Comment