Soylent Green And Orange

As I happily continue to trail this advance I cannot help but remind myself that it is a bit early in the season for a continued push higher. Far be it from me to second guess however and I am not one to look a gift horse in the mouth.


I would like however plant the seeds of objectivity early as to prepare you for the possibility of a second shake out that we may be heading into. In my experience in order for significant advances to occur we need to look out for attempts to frustrate and mislead the enemy. As we are currently in earshot of the old highs I propose two main scenarios in the coming week:

  • Soylent Green: We screw around a little more today but then bust higher and paint new highs. I could certainly do with a bit more X-Mas spending money (just kidding – I’m a crusty old Scrooge and I won’t buy much).
  • Soylent Orange: We bump our heads here today and then proceed back lower to retest at least 2041.5.
  • Soylent Red: I didn’t put that one on the map as the odds are very low – perhaps 15% max at this point. It’s the one where we turn and drop all the way. I just don’t see it any signs of that happening right now.

So there you go – if you’re still long right now as yours truly then do exactly nothing and let your trailing stop do the thinking for you. If you’re in cash then you do have a small opportunity for a short position here or in a few handles higher, but I would not risk more than 1/2R with a stop near 2110.


AUD/CAD Update – I’m moving my stop below that stack of Net-Lines now – my target is a few pips below 0.97. It’s been a profitable ride! Hope some of you got in.


Silver may be a long on a drop toward that diagonal I painted. Stop below that NLSL at 14.7.

More setups below the fold – we have a nice collection today:

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On a completely unrelated note, someone in the comment section asked Scott about the Rhonda knock out and I really enjoyed his analysis. Clearly Rhonda’s arrogance got the better of her as there was much talk about her allegedly being able to take down any male opponent. I won’t even go there but for me MA and professional fighting are often perfect showcases of what separates the 0.1% from all the rest of us. The sheer amount of hard work, dedication, and the threshold for pain it demands are not dissimilar to what we as traders face psychologically and mentally in the trading arena.

Just like in boxing there are millions of people out there who think they have what it takes to be great traders and often it only takes five seconds in a real fight when reality catches up with your hubris. As you know I have been training several arts myself for over 25 years and currently teach a rowdy group here in Valencia. However I would never dare to compare myself to a professional fighter who spends six hours per day training in the gym, facing up against other professionals under the guidance of seasoned trainers.

The same humility should be applied in trading on a daily basis as we are truly up against professionals who not only often have decades of experience but also much better tools than you, better information than you, faster access than you (e.g. HFTs), vastly more liquidity than you, and perhaps a much higher IQ than you (or access to people with advanced degrees and talent). That does not mean they are untouchable and we don’t have a chance but it’s good to always be aware of what we’re up against. Which in itself is an incentive to run like hell and never stop improving.

A final point I would like to offer is that trading, just like boxing, is an activity that requires constant practice and is not something you can learn out of a textbook. It’s great to know how to throw a basic punch, to jab, counter, hook, block, feint, etc. but in the ring or in the battle field you are operating under great amount of stress and often pain. The lessons learned right there and then will hone the type of skills you admire when watching professional fighters/warriors.

Scott said that “in that the boxing clinch/cover up is a good way to get grabbed and thrown by someone who knows judo.” Excellent point and this is what Bruce Lee called the ‘attack by immobilization’  which is part of the five ways of attack Bruce Lee describes in JKD:

  • Single Direct Attack
  • Attack By Combination
  • Attack by Immobilization
  • Progressive Indirect Attack
  • Attack by Drawing

By charging and overwhelming the defense Rousey manages to create her opening for her famous armbar as Scott points out. Floyd Mayweather also has mastered a loophole in boxing in that he reverses holding/hitting into hitting/holding (via his forearms and wrists). He then follows up with damaging blows as he was able to shift his opponent out of his rhythm/equilibrium. Another technique employed to break open a stubborn wall in boxing is to punch down the glove of the opponent and thus create an opening.

Which is why I enjoy very much training MA/systema as as soon an opponent clinches up I am able to get to work on his legs. I am also working on entering deeper into his attack which is something that wouldn’t work for boxers unfortunately.

This is a brilliant video that shows some of this in spectacular detail:

It took quite a bit of effort to combine all these real life examples and if there is a warrior lurking deep inside you then I’m sure you will greatly enjoy this brilliant video :-)


Misses Mean Reversion 2015 Runner Ups

A few years back I wrote a post [1] in which I profiled one of the main deadly sins of retail trader ignominy – the ubiquitous and often almost fanatic anticipation of mean reversion. I am not going to regurgitate my point; if you are a culprit (and you know you are) then I strongly recommend you read my old post and perhaps also one of my more recent ones [2]. If you’re a noob here then you may also want to point your browser toward our all time favorites page [3]. The holidays are nigh and tis the season to debug your brain and start the new year fresh.


However book knowledge is one thing – seeing things play out in reality is quite another. Let me present to you Ms. Gold, our first runner up for our ‘Misses Mean Reversion 2015′ contest. She’s quite a tease, enjoys frustrating gold bugs for months in sideways ranges for months on end, only to finally slam them with a relentless sell off which counts eight consecutive lower lows (CLLs) followed by 7 CLLs.


Not to be outdone here’s Ms. Copper – she’s been popular since the bronze age, thrives in industrial production, but is particular fond of electric circuits. She managed to paint 11 consecutive lower lows this year and she doesn’t look she’s breaking a sweat just yet.


Last but not least here here’s Ms. Silver – she’s got a special shine and is particularly interested in jewelry and fancy cutlery. Most recently she managed to paint 15 consecutive lower lows and thus far is our official winner of the Misses Mean Reversion 2015 contest. Congratulations!!


Moral of the story – whatever you have been told about mean reversion is a lie and will fail you when you most expect it. This spells true in particular when it comes to trading the futures as well as forex. So next time someone suggests mean reversion to you – keep calm and just say no.


On the equities side we seem to be building a base on top of the 100-hour SMA after the initial short squeeze higher. So far so good…


I really like the context on the daily NQ futures which I have highlighted above.


EUR/CHF update – that was quite a ride in the past few days but it seems it’s finally ready to bust higher. Putting my stop below the current Net-Line Sell Level.


Soybeans update – that was one of yesterday’s setups. Moving my stop to break/even here.

More goodies below the fold…

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A bit of even risk later today when get the FOMC minutes, so I don’t expect too much activity before 2:00pm Eastern.


Coffee Is For Closers

Equities are firing on all six cylinders and overnight we’ve held the line near the magic ES 2100 mark. Given the momentum over the past few days (consistent and small) this suggests that institutional traders are milking this short squeeze for all it’s worth.


This is the S&P cash has us only ~10 handles away from our all time highs at 2134.71. There is no telling whether or not we breach it this week, but if we do then I’ll be keeping my eyes peeled for weakness starting the next.


On the volatility front we’re just about to head into more turbulent waters. As you can see we are now back in the lower range after a low volatility trending phase has recovered everything that was lost when equities fell off the plate in August. More volatility means we’re most likely heading into a shake out, which once again is in line with the scenario I have been pimping over the past few days, e.g. shake out due before X-Mas bear slaughter.

We’re actually a wee bit early and thus I would caution you guys against blindly taking out short positions next week. We may just paint one more exhaustion spike higher on the weekly – I strongly recommend you watch the Zero like a hawk. As long as it’s supportive (like yesterday) just bide your time and wait for your opportunity – it will come.


Crude Update – I didn’t catch that SOB yesterday as I was too stingy on the entry side. If you did however then good for you and I recommend you take at least partial profits as there’s a hurdle ahead on the daily panel.


But it’s time to roll up your sleeves ratlings as we’ve got setups crawling out of the woodwork this morning. Bonds – the 10-year futures are looking like a possible long position here – I’ll be playing it very safe and only take out 1/3R.


USD/JPY – also small position sizing on that one as we’re heading into a veritable brick wall of daily resistance. The play however is in anticipation of a surprise push through which should trigger a short squeeze. Low odds high rewards on this one.

Alright, are you getting warmed up? Time to join me in the lair:

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That ought to keep you guys busy for a while – have fun but keep it frosty.


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