Did Gold Really Just Do That?
Of course, nobody consulted with me before hand, but the symbol for spot gold trading really should be FUBAR. I mean, it makes so much sense so much of the time; like today for instance.
So many teachable moments from today, I spent 10 minutes writing down subject matter for future blog posts; I got, at the very least, a dozen things that really need discussion in more detail.
A few days ago I got an email from a reader who wanted to know why he couldn’t just put buy and sell stops, above and below the market respectively, for entry on an initial position from the weekly open. I responded by saying that 1) you have no guarantee your stop prices will be honored at your prices, 2) the algorithm yellow/plum lines as well as the exhaustion lines might not be setup properly to take a position for your entry, and 3) please reread #1.
He emailed me back; “Aw c’mon man, how often does that happen? It still seems reasonable to me to do it this way.”
Wait ‘till She Finds Out What You Did Today
As today’s action attests, all 3 points I made were extremely important. As I’m sitting there watching my screen, gold is 1317.50 Bid – 1317.96 Offered and then blink your eyes and it is 1326 something Bid. A buy stop at 1319 or 1320 gets you 1) filled $6 or $7 dollars higher, 2) long at the moment the market is at the aqua and red exhaustion lines, and finally 3) left wondering where you put that sell stop.
Well, no need to worry there Bunky because no matter where you put it, it gets filled in the next 15 – 20 minutes. If you got stupid [gee, traders don’t ever do that] and either placed your stop far away [so you could have an even bigger loss] or doubled or tripled up on the way down with a stop sub 1300 things got ugly pretty quickly.
Add to that, some traders [who took a bath by being long] not content with getting whacked once, will now get short sub 1300 looking for that big move down to get them even. Swing batter swing! Errrrr, strike three, your out!
Nothing says FUBAR better than putting the weekly high and low prices [on a Thursday] within 40 minutes of each other.
“Mommy, Mommy can I go out and play with gold today?”
And your Mom, if she had any sense, said to you the following:
“OK honey, but only if you stay in the yard, keep out of trouble, and play nice.”
In sooooooooo many ways, everything I learned as a kid applies to trading.
What can we learn from today? Well, for one thing, the order book [resting buy/sell stops] got taken out and shot in the head. Talk about getting cleaned out; nothing but empty space as we head for Friday and the NFP report.
Listen Carefully Little One
Our main priority is to stay out of trouble. After we accomplish that objective [through the algorithm which is why we follow it] we can then turn our attention to making money. Without the first, there can be NO second.
Trouble, simply put is this; NOT EVER getting whacked. That doesn’t mean losing $2 on a 1 lot; it means losing $8, $10, or even more by being stupid and ignoring the algorithm.
Let’s review for a sec shall we? The open this week was 1313.84; that sets up our long positions above approximately1319 and short positions approximately below 1308. The yellow/plum crossover should be happening at that moment or they should have already happened recently and are in the proper territory. Emergency stops are always placed no farther than $4 - $5 from entry, but a reversal crossover of the yellow/plum line should occur before then if the market reverses.
The algo was not setup properly for today’s FUBAR; I’m not getting long at the upper aqua and red line exhaustion lines; I’m not getting short at the lower aqua and red line exhaustion lines; especially when they are within about 40 minutes of each other.
It is very atypical to be this deep into the week [Thursday] and have price very near the open from Monday with an extremely tight range. To get both price levels violated on such nasty spikes forces us to back away.
Somebody’s wife, who was attending with her husband at one of my speaking engagements in September, asked me “who I was as a trader.”
“I’m the guy sitting next to you at a blackjack table in Las Vegas. Every hand I have 2 Queens showing against the dealer; every single hand.”
After a while you say to me, “Hey, I want to be like you; you always get a 20 AGAINST the dealer; you have to win in the long run”.
“I play because the odds are always in my favor. It doesn’t mean I win every hand; I could easily lose 2, 3, 4, or maybe even 5 hands in a row; but that is countered when I win 15 in a row because I have the probabilities in my favor. I bet small $$ amounts and stay within my bankroll because I’m letting the probabilities make me money; NOT LUCK on a particular single hand that I could lose. If I see something at a table I don’t like, I’ll get up and move; there is always a game somewhere else I can play. If you can do this, then yea, you can be me.”
Fund Manager In Pain
Somewhere in the world, a very large trader [perhaps a fund manager], is contemplating today’s action in gold and the whoooooop-asssssssssss he got. Buying a few thousand contracts above 1320 and then pouring gas all over himself before striking the match and then getting out sub 1300 within the hour would make you want to suck your thumb. It happens all the time, though really it never should. Some people you can never teach.
Have a great day everyone.