Riding This Beast Into The Sunset

Forget about equities – everyone and their mother is trying to sort out this gyrating stop sweeping mess. And yes, they are about to get interesting (see below), but I expect our chart of the month to be gold and not the spoos or the NQ.


Fortunately some of us rats managed to secure a seat on the bus just before it took off. I have to run the numbers as I scaled into a bit over an R between 2012 and 2018. Which gets me to roughly 10R at this point and I’m just getting warmed up. The weekly shows us approaching the 100-week SMA – our first major hurdle. However I’m going to keep my stop below 1272 for now in expectation of an obligatory shake out attempt.


The long term implications of this campaign are very promising and with a bit of finesse it’s possible that we’ll ride this sucker into the sunset. Which means somewhere around 1500 – you heard it here first.


Okay on to equities – which as I said are about to get extremely interesting. We currently are what I believe are the late stages of a limbo period (see my 2012 excerpt on market weather). However we are most likely facing long term implications here – this is not just another leg lower or higher. I repeatedly have pointed out the increase in intra-day volatility expressed here by long wicks and overlapping candles. Very very tough tape to get a read and even tougher to get a good entry. Which is exactly why most traders miss the early stages of a downside correction.


But let’s not count our chicken before they are hatched. Most likely it’s going to get worse before it gets better. The GBP/JPY correlation is pointing upward right now and I think short term it’s quite possible we’re going to stop out the current NQ short campaign (courtesy of Thor).


However there is conflicting evidence and in order to interpret the big picture we need to put it all into context. Now our UVOL/DVOL ratio today remains pretty negative despite the current push higher – could be indicative of slow accumulation especially as the Zero is donning a very flat signal (meaning little participation and quite a lot of monkey business).

A LOT more below the fold – not a post to miss – please meet me in the lair:

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Bonus chart:


CrazyIvan now at 77R – new all time highs since 1/1/2014. Who would have thunk? And it started to really get cracking when volatility was on the increase starting November/December. Seems like CrazyIvan is loving the IV and I hope to see more of this. Message to everyone who left during the summer: Watch the Nick Rage video again. This is a long term game, folks and instead of going with the program I watch you picking up pennies in front of bulldozers. Enough said.


Last Line Of Defense

Equity futures are dangling by a thread right now with the E-Mini trading below the 2k mark again – odds suggest that by the time you read this we may already have plunged lower. Looks like the proverbial shit just got real in equities. Let’s observe:


My E-Mini triptych panel (hour/daily/zoom) shows us below the 100-day SMA and now testing the last NLSL at 1995.75. If it goes then we will most likely take out the previous lows and the implications of that in turn would be a pretty extended move lower. As I said yesterday – strap on your helmets and make sure that your seat belt and safety bar is securely fastened – this could get very ugly and that quick. Suffice to say that the Thor NQ campaign which almost got stopped out yesterday is now starting to look solid.


The Singapore Dollar vs the USD – I think this may be the first time I’m showing this pair here. Nice resistance zone near 1.3365 – I want to be long above it with a stop below 1.335.


AUD/CAD – if it overcomes the hourly NLBL at 0.9746 then I’ll be long with a stop below 0.968. Low odds of it happening but if it does then we may just slice through that 100-day SMA and start a second squeeze.


A special welcome goes out to Bob The Horse – a long lost steel rat and great contributor many years ago who decided to return to the old lair. Great timing Bob and good to have you back. Things are going to be wild this year and your experience and insights would be most valuable in our eternal quest for market domination.

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.


Advanced Thor – Working Without A Net

Scott here. Judging by the emails Mole and I get there are a few of you trading Thor without a proper business plan to go with it.

Let’s be clear. Mole just sends you the signals, how you take them is always a matter for your system, and how position sizing limits work within your system needs to be defined right from the start. The problem for any system which trades more than one markets is correlation. Whatever you “think” the worst case correlation risk is on any given day, you can probably triple that.

Human beings are a smarter than usual species of apes. Monkey like banana, but monkey no count banana well. Always see potential banana and never see potential for banana to be taken away. Makes Scott ANGRY! Every setup look like many banana potential, even when setup marginal at best. Sometimes even see banana where no banana exist. Sometimes not see dangerous predator because too busy looking for banana. STUPID BANANA! But love banana so much, must keep chasing banana!

Technically any setup which is entered at roughly the same time will be correlated to some degree. (read that again it is very important) Every setup measured in USD (gold, copper, soybeans, bonds) is correlated in some degree. Every setup which is a “risk off” asset or “risk on” asset is correlated to some degree. Obviously all the JPY crosses are correlated, all the CAD crosses, etc. All the bonds, all the grains. But GBPJPY is correlated with ES futures, no doubt at all. So you need to apply some intelligent rules of your own design here.

One solution is to trade a tiny subset of markets. Some people take this to the extreme and trade only a single market. I’m a firm believer that this is suboptimal, however if you have different market beliefs (we after all only trade our beliefs) that may not be true for you. To be clear I would never take a potential setup simultaneously in Gold and Silver, ES and YM, AUDJPY and GBPJPY, etc. That should most definitely be explicitly in your rules.

HOWEVER. There is a big difference being stopped out on a long held winner (which is actually what you want) and stopped out day one for a big ass loss. Let’s say you have a winner running for a few weeks in Wheat and get a setup in the same direction in Corn. Would you take it? My personal rules tell me to take it. You might be uncomfortable with effectively pyramiding like that, or you might not. Your rules need to cover it.

Thor has an unusual characteristic in that around 50% of the 1R stopouts happen on the first day, and the big winners are often held for 3-4 weeks. So you accumulate positions like a junk hoarder. Right now in my main account I have 9 positions open, all risking 1.5% of equity, which is about normal. The more positions you have open the more opportunity for human error, market fuckery, mechanical problems where things trigger in a short space of time placing you under pressure. I have someone paid to check my work, which works very well and holds me accountable. This is my current open positions with open profit (in USD) and you can see of the 9 open positions 8 are in profit to some degree or other. This is a pretty typical day, equity was down about 1.1R overnight, a LOT of those positions still have the potential to fuck me over (stops not at breakeven)

real account

What I suggest is to have a risk profile that suits YOU. If you are relatively risk averse I would suggest a limit of 4 POSITIONS WHERE THE STOP IS NOT AT BREAKEVEN OR BETTER. If you are trading high R values 3 positions might be appropriate. Possibly also a maximum % of account used in margin.

In my main account to calculate position sizing I also assume that any position with a stop not at breakeven will potentially stop me out, so I calculate the 1.5% based on equity less 1R for every position not at breakeven. This is sensible to ME, but may not work for you.

I trade 2 accounts, a real account with lots of money in it and a “cracker account” which I trade at high R value and every time I get a little money in I pull some out and live off it. I try and leave the cracker at between 40 and 50K and pull out 10K increments to live off. Except for paying taxes and the like I don’t really touch the big account, but I’ve learned (from Ivan actually) the value of taking profits out to “make it real” even though this is mathematically suboptimal. I very much like the cracker account/real account dichotemy. The cracker account is a small enough portion of my total equity that if it is totally wiped out it won’t make any difference to me, and I find it emotionally satisfying on a deep level to “eat what I kill” and pull $10K out now and again and treat myself to a nice holiday or something I want.

For instance in my cracker account which I trade for income at 4% R value (significant and real risk of ruin)  I hit margin limits very quickly. I cherry pick the best setups and by necessity cannot take every setup. This is the current state of the account, which started trading Thor in August (switched from my previous systems) at $28000 and have pulled out $20,000 along the way. This is a 5 month return of 230% and an annualized return of over 500%. However even though this account is at fresh equity highs, it has endured peak/valley drawdowns of 30%  - not for the feint hearted.

open positions


You can see it is using 47K out of 61K in available margin, and I have only 4 positions open. So one more position would max me out, and if those positions move against me (multiple positions have the annoying habit of moving in lockstep one way or the other) have me getting nasty margin call phone calls from the broker. So trading the cracker account for 4% R value involves me cherry picking the “best” setups - which brings in subjective elements which makes life hard/stressful/confusing. This is a difficult approach. Of COURSE it is difficult, shooting for over 400% / year SHOULD be difficult, right?


Anyway, I hope this gives you some ideas.

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Scott Phillips

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