Muppet Time!

It never fails. Despite all efforts to the contrary a handful of you retail rats accidentally find yourselves in the midst of a winning campaign. Invariably early withdrawal symptoms to your expired ADHD meds are starting to appear as the urge to do something (i.e. take profits now or otherwise ruin your odds of long term profitability) is growing by the hour. After all, winning is not something you are accustomed to and there’s no social media support network backing you up as everyone now hates your guts and hopes for an opportunity to urinate onto your shallow grave. For it is lonely at the top and you are on your own.

Now I have tried many times to drill this point into your rodent brains but apparently the reflexive Pavlovian response is tantamount to my childhood attempts of stacking snausages onto my dog’s snout. Very rarely do you get a to a count of three as Woofy simply can’t wrap his canine brain around the fact that the longer he is able to wait the bigger the pay-off. In the end all this boils down to the fact that the half-life time of your ability to sit still and do nothing is shorter than that of your average field mouse.

The-Muppets-1

Now, to answer the question on your mind: Yes, and no. It all depends on your trading style.

Oh, what was the question you ask?

Is it a good time to take profits here?

Well, obviously it’s a great opportunity to shake out the muppets. Look at the chart below and what I posted yesterday. If you got positioned when/where I told you to on Monday morning then you are an honorary member of the strong hands club right now (no secret decoder ring). And this grants you the rare luxury to do nothing and let things run its invariable course. For every time you are in an ongoing campaign there is only one equation you should be concerned about:

What is the ratio between opportunity and risk right now?

2014-10-22_spoos_briefing

Meaning, what are the odds the tape is going to advance (or drop) more than the odds for it to reverse and stop me out (wherever your stop is). This is not an easy answer and it depends on your trading style. For automated systems for example I painstakingly measure the average MFE and MAE of each system and then use those statistics to arrive at an optimum campaign management style.

For discretionary campaigns you employ a fuzzy logic approach based on your pertinent experience and again your trading style, which can be shifted as the campaign unfolds and new evidence is revealed. That however requires strict personal discipline and that right there discounts 90% of all participants. I know I know – the truth hurts – you can blame your Kindergarten teacher or some dramatic childhood experience if that makes you feel better. Believe it or not – I don’t come here to stomp on your fragile egos – no matter how tempting.

2014-10-22_1510

Now for me personally here right now I am more concerned about the possibility for the bears to have their faces ripped off. And the odds are about 50/50 that this will happen in the coming week. However we still cannot discount the the possibility that we may retest the lows or drop even lower. Plus today’s event schedule offers a ton of opportunity for monkey business across the board. The bears still have a prayer of a chance to turn the table as long as we remain below the 25-day SMA.

I for one am perfectly happy to endure a deep retrace because if this eventually continues higher I’ll be holding it all the way. And if it fails – well, I’m out at break/even. So my worst case sceneario is to lose nothing and the best case scenario is to smile all the way to the bank. Again. Remember the Dollar campaign two months back. Same idea and same approach.

2014-10-22_crude_briefing

On the setup side I really like crude this morning which seems to be gaining a bit ground. Besides everyone hates it right now which increases the odds of a little surprise squeeze. I’m putting half an R on long above the 25-hour SMA – stop below 82.


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Words to the wise:

The-Muppets-2

For some of you it is important to realize that trading is not a spectator sport. Invariably you will get the crap kicked out of you a few times and everyone processes that experience in different ways. Some simply walk away, others dust themselves up, learn their lessons and jump back into the ring. But there are many who cling onto the dream and at some point decide to become some sort of couch coach. A lot of self deception and pain avoidance is at play here but essentially it makes you feel as if you’re still part of the game. ZeroEdge is full of these people – the vast majority of them haven’t executed a trade in years.

Drawing lines on a chart and talking about it doesn’t make you a trader – only placing trades and accepting the invariable consequence of either winning or losing does that for you. Even if you’ve had a tough year and you may decide to sit things out for a while there will come the day when you have to get back on the horse. When you’re at that point we are here to help you and guide you along. But it’s unproductive to come here post some illustrious charts without intent to use them for trading. At best it’s a boring academic exercise and at worst it’s a waste of your and our time.

Cheers,

 

Not Business As Usual

The dynamics have changed and clearly we are not in the same type of market as we’ve become accustomed to in the past five years. We have seen a few banana peel slips since those lows in early 2009 but every step on the way it has always paid to give the bulls the benefit of the doubt. Contrast that type of market sentiment with what we have been observing over the past two months – instead of bullish surprises it’s been the bears who have been serving them up.

2014-10-14_spoos_briefing

Last night the E-Mini was were trading near a very important inflection point above the psychologically important 1900 mark. A bounce here was almost baked in – well, almost. As I had pointed out – should the bulls drop the ball here we are going quite a bit lower. It doesn’t matter if we suddenly drive higher from here – I wouldn’t be surprised to see a bounce now, after everyone has been faked out by yet another drop to the downside. But it’s immaterial as technical damage continues to accumulate after a solid weekly sell signal.

Bottom Line: Volatility continues to climb and a bounce can happen here at any time. However, if you are short right now there is no reason for you to take profits yet – you cannot ride a big move lower if you try to accommodate every small correction to the upside. Remember we are in SKEW month – and I’ve been warning you all that anything can happen in October. On average markets rarely fall apart during this month but when they do they do it in a spectacular fashion.

2014-10-14_USDZAR_briefing

Setups – talking about SKEW and tail risk – here’s a speculative one: USD/ZAR. It’s in a pretty good spot right now to throw 1/2R at a long with a stop a few pips below the 100-hour. Which is still dropping a little and that’s why I’m not playing a full position.

More below the fold – please step into my 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.

You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,

Friday Morning Briefing

Welcome to our morning briefing. Here we are reviewing short term setups ahead of the NYSE opening bell. If you are a scalper or swing trader then these setups may be of interest to you. As usual keep in mind that these are short term setups although they could be used as early entries for more longer term positions.

On the equities side we’ve been accumulating more and more context and it has now become apparent that the 100-hour SMA on the E-Mini has been respected in the past three sessions and is now acting as a barrier to the upside. On the daily panel we are seeing lower highs and lower lows. Obviously there is little appetite out there for being short which is why I am keeping my current positions in place with a firm (bid) stop at ES 1968.5.

The SPX is a mixed picture – yes, it’s been able to recover the quick spike to the downside but it’s still being lead lower by its own 25-day SMA. And that one is about to meet up with the 100-day SMA sometime today – which means I expect to see resolution of this situation either today or Monday at the latest.

GBP/JPY still pointing lower but thus far equities continue to resist gravity. Obviously we all have seen this play out over and over again over the past few years. We should be keenly aware of the fact that we are trading against the overall trend and the only reason we wagered into short positions in the first place is due the grace of an early entry courtesy of an hourly configuration across three major futures contracts (i.e. ES, NQ, and YM). Despite the bearish tape of the past few days however no significant bearish inflection point has been breached. Which is why I now expect a 65% chance that my short positions will be stopped out. However, due to the thin participation we have seen (holiday tape) any downside could trigger a cascade thus this remains to be low probability / high return campaign.

We have quite a few juicy setups this morning, starting with silver – here we actually have two nice entry opportunities. I would prefer the long side and with a bit of mojo that NLBL at 21.545 may just be breached. Bear in mind that we may see a fake breach first – it wouldn’t be unusual. It may be best to put 1/2R into this first and add another after 21.6 or 21.4.

More goodies below the fold for my intrepid subs:


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.

Today’s event schedule:


And here’s the spike controller for you Forex traders:

You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,




    Zero Indicator


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