MANIPULATION THEORY: PART I

                                          A Stain On Trading 

“Gosh vegas, is there really manipulation going on?”

For those of you still in denial, there isn’t anything I can do for you; you probably still believe in the tooth fairy.

I mentioned in an earlier post some of the hallmarks of successful manipulation. I’m going to address the 3^rd issue first: make sure the manipulation counts.

Aside from the front-running at the JPM proprietary trading desk [prop desk], which is another story for another day, you need a financial firm that can handle the orders and give you cover. What better firm than JPM, which continues unabated every single day violating CFTC position limits and is defendant in a number of Federal lawsuits alleging manipulation?

“Hey, you play ball, we make all these other problems go away; sound good to you guys?”

Ok, you now got the quid pro quo that allows you total access to the financial markets without revealing your identity. We let you front-run; we get anonymity.

“So sorry, we don’t comment on customer activity.”

Next on the list are the “wink wink nod nod” conversations and communications that don’t exist. This allows the front-running to be successful on JPM’s part because they trade in front of the orders and use the size of the manipulators orders to their advantage.

“C’mon man, there’s gotta be something in this for us?”

Besides that, they are privy to when the large sell orders are going to hit the market, so they can position themselves to cover short positions on the way down for their own account. This is borne out by CFTC COT data which shows “commercials” as the biggest buyers on big down days.

Gosh Mr. Regulator, it wasn’t us. Why, we were buying all day long. Anything else we can do to help?”

So, in effect they execute one order and the market does the rest. They get all the chartists and traders rushing in their orders to take advantage of the “new direction”, only they have been had. This explains why the “Lemmings in Asia” [LIA] have disappeared in the last 4 to 6 weeks; they’ve wised up. They now wait and buy the breaks.

Ask yourself this question: why do practically all of the big spikes and drops happen in the U.S. trading session? Easy peezee when you get what’s going on day to day.

This is the new paradigm for gold trading; manipulation on a scale that, up until now, is unprecedented. Get used to it, it’s only going to get worse and more blatant; all in the interests of national security or some such pap they will spin.

Why should you, as a trader, be allowed to profit off the government and their stupidity? I can see the puppets in the media spinning this already. Why not, Chalky Soetero has already declared war on oil traders?

I revised the algorithm to take advantage of these manipulations; it’s available free of charge for traders at the “Get It For Free” at the link.

Have a good day everyone.

-vegas

THE FLYING WEDGE OF DEATH

                            Kinda Like Trading Sometimes Isn’t It?

Over the last several weeks, I have either mentioned directly or indirectly the single biggest killer of trading accounts since stone-age Neanderthals traded Wooly Mammoth bones. I am of course referring to what I affectionately call “The Flying Wedge of Death.” [FWD]

Every single trading day of my life, since I started trading professionally back in the day, starts with a worry that today may be the day the FWD shows up and pays a visit. I have seen more traders destroyed by this than any other single market event.

Lately, meaning the last couple of months, the FWD has shown up more than usual, and so today I have decided to spell it out in more detail.

Below is today’s 5M candlestick of spot gold from about 1 A.M. to 11 A.M. [Chicago time]. The highlighted blue squares are new highs or new lows [or test of the low] for the approximate 10 hour period. The red trend line on either side forms “The Flying Wedge of Death.”

What makes this type of trading so hard, is the fact that you have two competing camps [bulls and bears] slugging it out via prices, and neither one is winning. You get caught up in this, and don’t recognize it for what it is, you run the very high risk of constantly losing trades and in the process watching your stops get hit and then reversing smartly.

You have a profit for about 10 seconds, and then the market reverses swiftly and goes to your stop. Having cleared out stops, and becoming convinced the market is now headed the other way, you flip from buy to sell [or vice versa] and within 15 – 30 minutes you get hit again. Rinse and repeat, and now you have real losses that have clocked your account by anywhere from 20% - 50%. Having fun yet?

So, how can we steer clear of this type of trading? What conditions exist that allow this type of trading?

Well, one never knows with 100% certainty, but my radar went up with the late after hours rally yesterday. Add to that the usual ‘Lemmings in Asia” a few hours later, and you just had a stealth rally of about $15 during the lightest volume part of the day.

What it means is that when the “meaty” part of the day commences [Hint: Europe & U.S. sessions] you’re going to have traders on both sides of the market who can’t wait to “take advantage” of their particular bullish or bearish view of the market. Welcome to “The Flying Wedge of Death”, where neither new highs or new lows will have any follow through and will swiftly reverse course to the middle range.

Of course, it is easy in hindsight to see this; not so easy as it unfolds in real time. When it ends, and one of the camps throws in the towel, you get what happened between 11:30 A.M. and 1:00 P.M.; a $20 straight up rally.

If you got chopped up in the FWD, you needed the $20 rally in 90 minutes to make back the money you lost in the previous 10 hours. No thanks.

If I were to place the algorithm over the above chart, extremely rapid price changes basically negate the effectiveness of the signals. In the 10 hour chart above, gold had 11 5m candlestick bars $3 or greater with only an approximate $12 range AT ITS WIDEST!

Given the above conditions, waiting for signals is not the way to go; you have to bale at the slightest hint of a price correction. Remember, you have the dealer spread to deal with along with slippage when they don’t really want to take the other side.

There were plenty of days on the trading floor where it felt like you couldn’t get an uptick to save your life. The market closed for the day and you would go home thinking gold was toast. You walk in the next day and it’s called $15 higher on the open, and you want to go out and stand blindfolded on the Eisenhower Expressway.

It happens, and what you have to do is not take it personally or think some higher life force sitting in the nearest galaxy is getting a big chuckle.

Going forward, given the fact the market is putting in moves in off hours, I may trade these hours. The downside of course is that you might be in a position for hours at a time if things slow down. If it happens, just deal with it.

I hope this helps some of you and that no matter if you use my algorithm or not, you can keep an eye out for this particular type of trouble.

Have a good day everyone.

-vegas

MEANWHILE, THE NEXT DAY

                           Couldn’t Find The Rally Button Either

A rather disappointing start to the week; even the “Lemmings in Asia” [LIA] did what I wanted. Seems the marching turtles couldn’t find the rally button.

The algorithm had 5 buy signals today; the first few came in the Asian session and allowed me to set up “free trades”. Unfortunately, the small rallies couldn’t hold and the market moved lower for most of the day.

I was somewhat surprised of 2 things today; 1) no attempt on the highs after the open, and 2) the depth of the decline to the 1692 level. Deflationary forces, early dollar strength, and a general “risk off” attitude today towards the metals, and you have the “$10 flying wedge of death” chart pattern in the U.S. session.

The range was decent but once the U.S. session opened there wasn’t much left of the bull case for the day. Are we gonna have 2 back-to-back huge reversal days? We did get a $10 rally off the low, but like recent days it came so fast it left the algorithm lagging on the buy signal.

This is the kind of day that leaves both bulls and bears somewhat happy. For the bears, there was no follow through of Friday’s massive reversal. For the bulls, the sell off got rid of weak longs and the market still looks set to close the day above 1700.

So far, it looks like the market is congesting the massive sell off we saw on February 29, backing and filling and trying to find a level from which the bull case can resume. Before we can get back above the 1725 – 1750 level, the market is going to need some more time.

Have a good day everyone.

-vegas

ANOTHER DAY TO REMEMBER

                                        Gold Did What Today?

It’s been a very long time since gold put in a reversal day after putting in a $30 / oz. range. “Ohhhhh, the humanity!”

This is of course the most despised day of the month. Not only do we have to put up with government lies regarding employment, we also got a shortened trading day. Besides the LIA’s [Lemmings in Asia] we put up with every day, now we got cross currents of a Friday to boot. Did I ever mention just how much I hate NFP Friday?

The algorithm actually gave a good buy signal on the move back up at 1685-1686. The problem is that this is about $10 off the low. After the buy signal, gold broke about $5 before starting a monstrous rally.

Those of you that have the algorithm know that it is pretty responsive on a short term basis. Using a 5M candlestick, the most responsive buy signals [when conditions are right] happen, the vast majority of the time, within $2 - $4 of the most current low [or the day’s low]. The other buy signal usually happens within $3 - $6 of the most current low [or the day’s low].

Conditions were right for the fastest buy signal and it was $10 off the low. When the other buy signal happened the market price was about $17 off the low. Considering we already had a $30 / oz. range in the books, if I buy it, where do I put my stop?

If I put the stop $15 under my buy, if it gets hit, now what do I do? The fact is it’s a Friday in the U.S. session and I now have a $15 / oz. loss; how do I make this back?

Sure, in hindsight, it’s easy to say just get long. But for every one day like this there are 9999 where you would be kicking yourself in the head. Remember, it’s a probability distribution you should care about..

Yea, I eventually got long and made a couple of bucks after a small retracement, but what I am most happy about today is 2 things; 1) the algorithm performed well, which is why I am back to normal trading Sunday night, and 2) another NFP day is over.

Have a good weekend everyone.

-vegas