A MARKET IN SEARCH OF ITSELF

                                    Houston, We Got A Problem

 Did you realize that 80% of today’s gold range came on 3 five minute candlesticks spaced apart by 45 minutes to an hour? If gold were a person it would be making an appointment for stress counseling.

Again, like most days in February, the Asian session is completely dead, followed by a slow, lethargic European opening. By the time we get half way or better through the day, we are stuck with something around $8 - $11 daily range with no hint of what is to come.

Then, somebody panics, and we are off to the races in a spike [or drop] that convinces you we got a huge move ahead of us; errrrr, not so fast.

As I have written before, this is classic low volatility trading. Gold is behaving as if it doesn’t know who or what it is. It’s trying very hard to find a trend, it’s just not doing a very good job of it.

The algorithm will not do very well in guiding your trading when ranges are this tight and the market makes most of its daily move in a couple of candlesticks. In order to make the most of this kind of trading, you have to go in an entirely different direction; one that happens about 6% of all trading days.

You have to give up something in order to get a high return; we give up low volatility. Let’s hope gold finds itself and the shrink can help him interpret the manual and land the plane.

Have a good day everyone.

-vegas

REALITY BITES

                                                   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!

-vegas

PROFESSIONAL CANNONBALL DODGER

               Waiting For Your Account Since Before You Were Born

Making money from a free trade is easy; I could put a chimp in charge of that and he would probably do a fine job. After all, by its very definition, you’re up money and have no capital at risk in the trade. But alas, not every trade finds itself in a profit position that allows you to adopt the “free trade” scenario.

I used to live next to a surgeon and in the summer we used to barbecue steaks and stuff a couple of times a month. I enjoyed his intelligent company and dry wit. What I found interesting was his attitude towards medicine; he hated medicine and always wanted me to teach him how to trade.

“Ohhhh vegas man, you got it made in the shade; medicine? Agghhhhhhh !! Medicine is boring stuff. Always the same crap day after day. You on the other hand are living the dream. C’mon man, teach me to trade!!”

He used to tell me how boring medicine was, and that with a few weeks training I could do 99% of what he did.

“Errrrr, what about the other 1% of the time?”

“Well yea, that’s why you go to medical school for 4 years, do a residency for 4 years, then apprentice a specialty and take AMA Board Exams for another 4 years; to handle the 1% that would otherwise DIE.”

“Maybe I get 1 case every couple of years that fall into that category, but day-in-day-out it’s a grind; boring assembly line medicine stuff. YOU on the other hand; in there swinging toe-to-toe with the big guys doing all that James Bond financial stuff; yea, that’s where the real action is. Vegas man, you got it made.”

I wonder how many people would think that what he does is “boring”?

Back in the day when I started trading, old timers would “take stock” of young traders and determine rather quickly if they had what it took to even get their attention. Slowly, they would impart life’s lessons on you in ways that if you didn’t remember it for the rest of your life, you were and are a trading idiot.

“We aren’t traders!! We are Professional Cannonball Dodgers. Each and every day, we stand in here and dodge bullets and cannon fire that can tear our account into shreds.”

Anybody can read a book on trading; anybody can look at a chart; anybody can say “up or down”; in short, anybody can do this. But not everybody can dodge cannon fire or know what to look for when actual trading starts. And that mi amigos is the heart of the nut.

In a low volatility environment, if you start to lose money, there simply is no way to win it back. Volatility is the lifeblood of a trader; it allows us the capacity to get what we want in the shortest time possible due to the clueless trading activity of others.

Every algorithm man can dream has at least 1 weakness; every single one without exception. Add however many millions of lines of code you want for “special circumstances” or your bias. The problem most traders find themselves in is that IN FACT their trading algorithm has MORE THAN 1 weakness and they aren’t aware of it.

“Hi losses, it’s very NOT nice to meet you. Don’t go away mad, just go away, OK?”

What do I do for a living?

“That’s easyyyyyyyyyy; I’m a Professional Cannonball Dodger.”

Have a good day everyone!

-vegas

P.S. Don’t forget to catch my comments on today’s trading at my PAMM website: http://vegaspamm.blogspot.com