Go UP! No Wait Go Down! Ahh Go Up!
Welcome to a dysfunctional market.
I don’t say this because I lost a couple of hundred bucks in gold today. I say this because of 3 factors that have become apparent within the last couple of days in gold trading.
1) The majority of 5M candlesticks today had a minimum range of $2 - $3 and many had ranges exceeding $5/ oz. This tells me liquidity has left the marketplace, with many traders having been destroyed; leaving a dealer community that jacks the price and spread at will.
2) Price spikes and drops exceeding $7 - $10 / oz., which have no follow through.
3) Last but not least, the absolute criminal behavior yesterday in the $50 / oz. + stop hunt sell-off. We all know gold, along with silver, is a manipulated market. Rumors floating around of government induced selling by JPM are rampant. So, when does the next shoe drop?
One of the biggest problems you face is one of risk management. Where do you put your stops? If you witnessed the trade today, there is no way you could trade gold with a $3 - $5 / oz. stop; you would have gotten whipsawed something fierce. So what do you do? Do you go to $10 stops, or $15 stops?
As I stated yesterday, this is “postal volatility”. We’ve gone from nothing to the speed of light in 2 days. If I had a nickel for every time gold rallied and broke $5 / oz. today, I could retire rich.
This is an invitation for a disaster. The algorithm isn’t going to do much good when conditions are dead or postal. You might get a decent signal with postal conditions, but what do you do when you get long and 15 minutes later it’s down $8? Now what? OK, so you sell; and in the next 25 minutes it’s up $15. You buy again; rinse and repeat. How long can your account take this?
Be very careful how you trade this animal.
Have a good day everyone.