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…

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!

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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.


How To Debug Your Brain

It’s super late over here in Spain – way past midnight – however I just caught up on a few comments in the prior thread and just couldn’t keep myself from writing this post. Damn you guys – I was supposed to catch up on some sleep! Anyway here is a nugget that is extremely crucial to your trading future and it is one I don’t recall ever being covered either here or anywhere else.


Apparently some of you regulars had a rough day riding the swings today and you’re probably not alone. One of you guys mentioned that crude had ‘saved his ass today’ and another responded that gold did the same for him. And then they both held hands and walked into the sunset together [cue romantic music]


Very careful with the wording here, my dear steel rats, as your own internal feedback mechanism may subconsciously sway you to look at crude or gold more favorably in the future. It’s not crude that was saving you ass today, grasshopper – it was YOUR ENTRY on an energy related symbol that resulted in the presumed rectal salvage operation. See the difference?

Two reasons why I’m such a stickler about these things. First up – I’m German – what the heck did you expect? Almost half of all Monty Python skids are based on either British or German anal retentiveness. However there is madness to my method as they say. Over the length of my twisted existence ample opportunity for self reflection has equipped me with a pretty good sense of how the human mind works hard to get itself into trouble further down the line. Almost compulsively it is constantly establishing new connections, new paths linking various regions comprised of ideas, emotions, smells, impressions, fears, desires, etc.

If you keep repeating certain behavioral patterns your brain will over time establish those patterns as learning experiences. Remember when you sat in the driver’s seat for the very first time, carefully testing out the paddles and hoping to not kill yourself and your instructor on the first round around the block? Now compare that with last Friday evening when you were racing down the freeway after work following the GPS whilst balancing a cup of coffee in one hand and a mobile phone on the other? Oh yeah and you had the boom box shatter the rear window whilst mentally practicing your twirking routine (that’s you tradingmom). The only reason why you’re able to perform all these things without thinking is because your brain is very good at memorizing and automating actions/activities over time. I don’t recall exactly but I think over 90% of all the things we do every day are automated. It’s crazy if you think about it but we’re literally running on cruise control most of the time.


Now back to trading. So if you keep thinking to yourself ‘crude saved my butt today’ then you are on a path that may lead to prejudice/bias further down the line. Positive experiences can over time condition you positively toward a particular instrument – I know that from personal experience. You may even get ‘lucky’ and catch a few good campaigns in a row on one particular symbol. Then you start taking bigger risks on that one perhaps because you ‘had such a good run’. When things go the other way you may even rationalize away trading mistakes like not observing your stop. Why? Because you have developed a personal relationship with crude/gold/natgas/EUR/USD – all your favorite symbols. How dare they treat you like that?

The opposite can also spell true – you may catch a few bad campaigns in a row on one symbol and then swear yourself to never touch that damn [fill in symbol of your choice] never ever again. Same mental misfire as the positive reinforcement – you may just have caught a bad period on that symbol. So just wait for a better opportunity and always remember that you don’t have to make back your lost money with that particular symbol. It doesn’t owe you anything – the market doesn’t either.

Positive Reinforcement

The best way to debug at least the trading regions of your brain (I’m kidding – there is no such thing) is to constantly have your debugger running. Watch what you say and what you think – establish positive habits instead of feeding the reptile part of your brain. So if you catch yourself saying ‘I hate this xxx’ then it’s time for some immediate refactoring. Perhaps talk to your trading buddy and reinforce the notion that it wasn’t the symbol that produced that loss – it was YOUR ENTRY. You owe that one, my friend – yup, it’s all you – nobody else’s fault or responsibility. Just like the winners, remember? Those you are always happy to own – aren’t you?

So in a nutshell: What you are saying and what you are thinking does make a difference. It is important that you always keep frame and that you immediately take corrective action when you realize that you are slipping. We are all TA members – Trader’s Anonymous – and every day is a new challenge. You will always be an addict of negative self reinforcements – you just cannot help it, it’s the way humans are wired (me as well – so relax). The good news is that we can also make ourselves addicted to positive actions – via positive reinforcements. A good example are people who regularly hit the gym, even if they don’t feel like it on a rainy day or a bad night. Overcoming resistance repeatedly programmed your brain to trigger peptides producing positive emotions associated with physical training. Except perhaps this guy:


Okay, Franz – just… just put the bar down. I swear I didn’t eat your damn protein bar. Please don’t hurt me?

Let’s face it people – deep inside we are all trading monkeys with bananas – on moonshine. Our brains are simply not wired to be doing this kind of thing. And financial Darwinism does a pretty good job of regulating the number of participants without compunction or mercy. The fact that you’re still here – reading this – means you may just be one of the drunk banana chomping monkeys that gets to meet Trixy, the hot new chimp in cage #3. But be careful, rumor has it she’s into banana options – or was it binary options… well, same difference.

Have fun 😉

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.


What Does It Take?

The greatest games have always been dominated by the masters of obfuscation, misdirection, misinformation, if not outright deceit. Of course the financial game is no exception and the price of admission to be paid every single day differs depending on personality, cunning, intelligence, fortitude, discipline, greed, market type, market cycle, liquidity, etc. Although we are all trading the very same market, the hurdles we encounter in our respective journey are a product of exogenic and endogenous factors.

Long term participation and success therefore has always been limited to a very select minority. To quote Jesse Livermore: The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor. 


Most of us would list intelligence for instance as a cardinal predicate to becoming a successful trader. But like with many things in life the real picture is a bit more complicated. Because if it was just a matter of intelligence then why don’t we see more billionaire mathematicians or scientists? Many of them die poor and are often considered social outcasts. As I mentioned above, we all must face our own personal hurdles and challenges. Very gifted people don’t get a pass here as intelligence comes with a price. Former software engineers for example are more often than not inspired by complex models and convoluted solutions. Their own intelligence and ability becomes the drivers of their endeavor as they assume that the key to success lies in cracking some secret code hidden inside the market’s gyrations. The fact that chaos rules the day is an inconvenient truth equally ignored by the smart and those with lesser neuron counts. As such a smart but righteous or misguided individual may be no different to someone of lower ability who ventures nomadically from one trading site to the next or absorbs dozens of trading books in hopes of finding that one system that beats them all.

The motivations may be different but the eventual outcome will be the same as the underlying premise feeding ones action is identical. One that is inspired by an assumption that we may one day overcome some final hurdle and from then on it’ll be easy time. Make no mistake – as soon as you overcome that last hurdle there magically will appear a brand new one. Because as human beings we are wired in a certain way that assures an unlimited supply of hare brained cognitive biases and misconceptions – no matter how smart or talented we are individually. In other words – intelligence or talent doesn’t offer us a free pass. Your journey will simply be a different one and success is not guaranteed. As a matter of fact all of the most successful traders I have come across are or were a lot more street smart than brilliant. Of course there is a baseline on the IQ front and I would hazard to put it somewhere around the 120 mark. But that’s not exactly a high bar and I have met traders dumber than that who did just fine pressing that one button that they somehow figured out works on a long term basis. As such success is a side product resulting from a series of positive choices. In fact this place was created years ago to aid us all on a daily basis.

Some of you may wonder why I often crack the whip early when I see signs of decay, impulsiveness, or an abandon of some of the prime directives we all aspire to abide to here at Evil Speculator. Naturally the dynamics of a virtual community, whilst permitting global collaboration and instant communication, also serve a certain bubble mentality with little to no personal consequences. For one we seek information that already supports our current view and we are quick to dismiss anything that at the surface violates any of our core beliefs. But there is also a social aspect to this. In the past the guidance of a mentor or group of peers came with implications and personal responsibilities. Your seat at the table had to be earned (with significant hurdles to entry) and cutting and running was frowned upon and may cost you your career. At the same time success and especially failure were exposed to the people around you and there was no easy way of hiding them either.

In a digital world we are however free to simply extract ourselves in periods of discord and thus avoid personal consequences of actions, decisions, or personal behavior. Stomping your foot and running off is a character trait mostly exhibited by children but online it seems to have become the norm these days, often after angry insults have been exchanged. It takes quite a bit of discipline to overcome the temptation of avoiding negative experiences and stress but I believe cutting and running to be a cowardly choice with long term implications. Successful people are never the product of easy choices and a careless upbringing. Like a good sword the friction of life, e.g. personal strife, being forced to overcome personal limitations, creates a person who is able to face challenges with easy that would quickly thwart others.

Money is just the result of being successful. You can chase simply money but drug dealers and career criminals do that a lot more effectively than the rest of us. Personal growth however bestows wisdom and experience which will lead you to new challenges you didn’t even know existed. And that my dear steel rats is what we really should aspire to as it is the real key to happiness and a successful life. Not one of convenience and easy answers. If you seek those, well – there are plenty of people selling that out there and I’m afraid you’ve come to the wrong place for that.

And there’s your answer – I crack the whip early because you need it. We all do – nobody gets a free pass. You may curse me today but you’ll thank me later (one hopes).


Alright, let’s get to work. I’m tempted to grab a long here as the tape is getting ready for a big move. Directionally this could go either way but I don’t see anything bearish just yet so I’ll stick with the long side – for now. Watch the Zero for a hawk today and tomorrow – something’s going to give here soon.


EUR/CAD – very small short here on a bounce higher. I do like the daily panel and the idea here is a ride lower to the 100-day SMA. The trend has been to the upside until recently and until now I expected a sharp push higher. However we have accumulated quite a bit of resistance now and I think the upside will be plastered with hurdles.


Gold – things are coiling up here and this chart is starting to look pretty bullish. But we can always be easily fooled and thus we should not relent to directional thinking. For now the long side looks good but only with a small position. I would actually like to see a drop lower near that NLSL at 1129.6 – that would be a wonderful long opportunity given the current context.

A few more symbols below 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.


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