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.


Time To Pay Attention (Again)

Most market participants suffer from chronic recency bias in that they weigh recent data or experience more than earlier data or experience. In particular retail traders more often than not expect more of the same, which actually is correct most of the time. Except for when it matters the most. Come again?


If you have come here for a while then you have seen me use the word ‘inflection point’ on various occasions. I use that term rather deliberately as it succinctly expresses a moment in time in which an equilibrium between potential outcomes can be shifted rapidly by comparatively small movements in price. Say again?

Back in my wave wanking days this is a typical situation I would refer to as the 1-2 conundrum. Meaning – do we push higher and then fall into our graves, or do we drop from here and then ramp higher and continue the long term bullish trend of the past few years. The implication of that would be that down actually would be short term bearish but long term bullish – whilst a move up would set up the bulls for an even bigger correction.

Since then I have come to accept that these are all valid scenarios but that there is quite a bit of a gray zone in between. And without boring you to tears let’s just jump to the conclusion which is that there is a myriad of ways this one could play out. But that is exactly the part we need to focus on. What matters the most right now is what happens in the coming days, starting today! If we push higher on quite a bit of participation (you are a Zero sub, right?) then the bulls have a good thing going and may be able to defend continued attempts to draw the tape down.

Interest hike be damned – whether or not it comes in September or next year or in 2020 – I suggest you watch the tape as it will give you all the information you need. But let me be crystal clear about one thing. If you are a bull then this is most likely the most important moment of the year. On the other hand if you are a bear then this is most likely the most important moment of the year. And if you are neutral – like me – then…. well, I guess you got the point.

By the way, in case you are curious. I am still holding the remainder of my long positions as I have not seen the need to pull them (i.e. my trail has not been touched). I have however advanced it to near the bullish Maginot Line, which in my mind is near 1940. If that one goes then we probably correct quite a bit lower.


Gold is actually in a similar spot and I just took a small long position here with a stop below 1127. However it could easily resolve the other way and drop quite a bit lower. The price pattern allows for either scenario which often annoys traders. In my book however this is where the benefit to risk ratio is the largest – in that I can apply deterministic rules within a small price range whilst expecting increasingly larger price moves the further we advance from said price range (up or down).

The majority of people feel uncomfortable embracing uncertainty and perhaps a long time I was one of them. One day however I realized that this is where the real opportunities are and it is probably the one take away I am still thankful for having studied Elliot Wave Theory. However when it comes to predicting future price movements EWT is absolutely useless. There is simply no predicting future price movements – many people smarter than you have tried and all of them have failed. What you can predict however (sort of) is volatility – but that is a topic for another day 😉

Alright, quite a few setups waiting below the fold – please join me in the lair…

More charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don't waste time and sign up here. And if you are a Zero subscriber you get free access to all Gold posts, which gives you double the bang for your buck!

Please login or subscribe here to see the remainder of this post.

In case you guys need a good tune to get you in the spirit of things:

Alright, if nothing else this is what I need you to take away from this post.  Pay attention now and bank coin all the way into December/January. I mean it.


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