Tuesday, January 31, 2012


                                                   Uh Oh.

Sooner or later, you are going to face a market [or group of markets] that slows down and frustrates you to no end. You will want it to be like it was and not alter or change your trading strategy for fear of missing something.

After Reagan was elected president in 1980, the gold market was about to undergo a major shift in volatility and pricing. It went from daily ranges of $25 - $50 every day to $3 ranges per day within 3 years. For the next 20 years gold was for all trading purposes dead.

Now, do not misunderstand what I’m saying here; I’m not predicting this is going to happen. I don’t think there is even a 5% chance of this happening anytime soon. World political and economic events seem likely to keep gold volatile.

The point I want to emphasize is that you have to be vigilant in keeping track of volatility and shifting trading trends within a market. How is it trading? How are the highs and lows being put in? What hours is it active? Are we getting the necessary intra day volatility I need to make nice money? How are the banks [or in the case of metals the dealers] making a market; are the spreads good or are they deteriorating?

I knew many traders that got absolutely destroyed trading gold from about 1982 through the 1990’s through their individual lack of underestimating volatility in assessing a market. Your brain isn’t going to be enough to get you through.

One of the biggest problems people have is the continuing belief that a market will come back and be just like it was before when they made money. “If I just give it a little more time, it will come back – yea, things are OK.”

Errrrrrr no, they ain’t OK.

I saw once savvy market pros give back all they made during the heady days of gold trading in 1979 – 1981 and then some believing things would get better soon. It didn’t and they suffered mightily.

Basically, they kept buying the highs and selling the lows looking for breakouts in the range that never came. You have no idea how much money can be lost in a $4 daily range in gold.

The reason I bring all this to your attention is that my algorithm needs normal or above normal intra day volatility to be highly profitable and effective. Low volatility will not produce the results that I want as a trader.  Sure, we can usually make at least $1.50 / oz per day [on average], but that’s a minimum, not a goal.

I keep a very close eye on gold volatility to make sure my efforts are in the right place at the right time. When volatility is normal or above normal, there is no better market to make money. But, I won’t hesitate to move to other markets if gold starts to go “dead”.

Right now, I’m looking at my favorite currency pair AUDUSD, which trades the algorithm very well. Volatility in AUDUSD has remained at above normal levels versus historical norms for a while now. So, don’t be surprised if you see some AUD trades in the PAMM or if I have some comments regarding AUDUSD in the near future.

Vegas is not a one-trick pony.

Have a good day everyone!


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