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How To Survive This Week
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How To Survive This Week

by The MoleOctober 14, 2013

This is a special Evil Speculator update. I’m seeing an increasing amount of panic in the MSM and the bears are salivating at the prospect of a bond market default. Ignorant little buggers they are indeed – if that really happens your silly SPY puts are going to do you no good as the U.S. Dollar is going to drop headway into the dark abyss of ex-reserve currencies. Now I’m not going to sugar coat it for you either – the situation is grim and it’s quite possible that we’re going to see some nasty gyrations over the coming week. And that’s what I’d like to cover this morning: How to survive this week and not tell your grandchildren about any of it (it’s too embarrassing).

So this is what you’re going to do. Put on the tune above, lean back, and try to put your mind into a relaxed state. Maybe go full screen and mentally fly along with those dare-devil knuckleheads. Good – you’re still with me? Now, let’s cover a few basic rules:

  1. What everyone knows is not worth knowing.
  2. Do not worry about things outside your immediate control.
  3. Stay away from correlation trades.
  4. Emotional trades are losing trades.
  5. Don’t Panic!

Obviously everyone and their grandmother is expecting a market default at this point. Frankly I cannot tell you what the odds are for this to happen (I don’t bet on idiots) but what I do know is that there is absolutely zero edge in taking positions against an event that a large group of market participants is already expecting. Even if it happens the ‘boyz’ will find a way to cut your legs off before things take off for real. So attempting to somehow get in front of a market crash here is pretty futile. The best you can do right now is to keep your exposure limited and to stick with the charts at hand.

Worrying about a market default is useless. Why? Because its completely out of your control and if it really happens there is nothing you can do about to protect yourself. Markets all across would be halted and you would most likely be locked out of whatever paper profits you may have accrued while they’d find a way to screw over the bears, just like they did in 2008. Besides, as I mentioned above, the Dollar would probably plunge hard and since your profits are denominated in Dollars you still lose (just a little less – again, assuming you get to collect).

Correlation trades work until you need them the most. Just don’t. If you need any proof then look at the bonds all last week – or look at gold. Not much there to see given all that fear. Shouldn’t both be running sky high at the current time? Again, this relates to rule #1 – what everyone expects to happen probably won’t. Plus six sigma events are impossible to predict. It’s possible that we’ll see a last minute debt ceiling extension and then the market falls. That’s what happened last time after all.

There is a lot of fear out there and I’ve seen this script play out over and over in the past. I’m not saying that we should stick our collective heads into the sand but fear and strong emotions in general lead to bad trading decisions and although this may sound a bit academic to you right now I strongly suggest you don’t fall prey to the fear mongering that’s currently saturating the main stream media. Stick with a strict information diet and do not pollute your brain with useless information.

So what to do?

Nothing!

Well – if you’re active one thing: Keep your exposure limited. If you’re long from the bottom (courtesy of our Zero – snicker) then hold what you have but don’t add positions here either thinking you’re taking advantage as a smart-ass contrarian. We’re most likely going to see a lot of volatility here if the congressional stalemate pushes further ahead and that’s not a good recipe for us market plungers.

If you came here expecting some secret super trade that will tripe your account overnight, well – sorry to disappoint. Manufactured crisis are great opportunities for people on the inside – they usually hurt everyone on the outside. And that unfortunately is us – the hapless unwashed 99.9%.

The spoos are wanking sideways right now after an overnight gap lower. I mentioned on Sunday that the daily NLBL is where we should expect support -as of right now we’re still holding there. Things don’t get too serious until we breach that 100-day SMA near ES 1659.

A few tasty FX setups for my intrepid subs:

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • SS_JJ

    Hehehe, we have been warned

  • Peter Levchenko

    Hi guys, slightly unrelated. But since its a dead day today I’ve decided to run a backtest on smth Ivan has mentioned in the comments section before. Investigate Inside Periods (IPs).

    So i’ve run Daily candles from 14-Oct-2008 to 14-Oct-2013.

    Column 1: IPd (Inside Period with a black RB) with a close lower than the prior candle’s close
    Column 2: Occasions in which the next close is lower than the IP close.
    Column 3 = ratio of the two previous rows expressed in %
    Column 4: Occasions in which the next candle has a lower high and a lower low than the IP candle
    Column 5 = Col. 4 expressed as a percentage of Col. 1

    IPd
    EURUSD 94 36 38% 35 37%
    AUDUSD 89 49 55% 54 61%
    USDJPY 115 57 50% 56 49%
    GBPUSD 95 46 48% 47 49%
    SPX 72 29 40% 31 43%
    XAU 104 44 42% 49 47%

  • Peter Levchenko

    Similar results (Daily candles: 14-Oct-2008 to 14-Oct-2013) for IPu.

    Column 1: IPu (Inside Period with a white RB) with a close higher than the prior candle’s close
    Column 2: Occasions in which the next close is higher than the IP close.
    Column 3 = ratio of the two previous rows expressed in %
    Column 4: Occaions in which the next candle has a higher high and a higher low than the IP candle
    Column 5 = Col. 4 expressed as a percentage of Col. 1

    IPu
    EURUSD 81 47 58% 41 51%
    AUDUSD 84 51 61% 46 55%
    USDJPY 110 54 49% 51 46%
    GBPUSD 91 53 58% 57 63%
    SPX 78 42 54% 47 60%
    XAU 134 83 62% 78 58%

  • http://evilspeculator.com molecool

    Can you perhaps copy the data into a Google spreadsheet and share it?

  • Peter Levchenko

    cant access google spreadsheets from work sorry mate

  • http://evilspeculator.com molecool

    It’s difficult to interpret the way you’re posting it.

  • http://evilspeculator.com molecool

    that sucks…

    Perhaps email it to me then?

  • Peter Levchenko

    i’ll try to post a screenshot

  • http://evilspeculator.com molecool

    better than a kick in the shin

  • http://evilspeculator.com molecool

    Can you also run the numbers on how the prior candle affects this?

    Meaning – was the prior candle a lower or higher close?

  • Peter Levchenko

    i’ll email to admin at evil specualtor… got this is such a pain

  • Peter Levchenko

    by “prior” candle do you mean the candle BEFORE the inside period one?

  • http://evilspeculator.com molecool

    Got the email – good stuff!

  • http://evilspeculator.com molecool

    I may just build a system around this. We would also need to measure MFE and MAE to define a proper stop. BTW, have you tried this on the hourly or 480?

  • Peter Levchenko

    Well changing timeframe i can do easily and record these numbers with the way ive coded up the the backtest. Testing smth like the maximum excursion higher lets say after an IPu before a low of the inside period is broken would not be easily possible in my setup. would have to code it up in c# instead of bloomberg’s quick study language. But so far I do not see anything earth-shattering in the data, I mean basically whether the next close is higher or not, or whether it even makes a higher hihg/low, oscillates between around 45/65% percent, so there is no sign of a consistent edge above 50%. I guess we need to find out what the maximum favourable excursion is as a ratio of the IP’s high-to-low, that would give you an idea if the reward-to-risk ratio here outweighs 1 in which case we might have smth.

  • Peter Levchenko

    Here’s what a backtest looks like. So buy setup is defined once an IPu candle closes above prev. candle’s close. Entry on the break of the high of the IPu candle with a stop below its low, and a simple TSL mechanism. Similarly for the sell setup and IPd. There is no protect-R position logic. Here are the results for 480min charts.

  • Peter Levchenko

    This is for 1 year of data. 480min candles. Unfortunately this is an automatic backtester not one i use for my own more customised backtests, so it does not support complex PNL displays, simply the profit in actual dollars or what have you. I am assuming I am trading 10mil lots on each position as taht would be the minimum I would have on trading at the place where I am now.

  • BobbyLow

    Great Post Mole!

    It’s one thing to be swimming along with the normal amount of sharks in the water. But this current political turmoil is adding Toxic Waste to the Ocean.

    Other than a couple of small Forex plays, I think I’m going to watch this thing play out from the beach. :)

  • Peter Levchenko

    Gold is showing up 25.3% on this simple backtest for same period, and AUDJPY a respectable 6.59% Obviously thhese are not practical results, ie one would have to incorporate slippage etc. But definitely better than 100s of backtests i do now and again which even on paper do not show an upward sloping pnl curve.

  • Wave_Surfer

    Really great advice Mole!
    Thanks for sharing!
    I have been trying to listen, so none of it was new to me, but the reminder has value during these highly emotional times.
    Thanks again.

  • http://ibergamot.blogspot.com/ i Bergamot

    Looking at long Bond.
    Thats a sizable move for a “closed” bond market
    I guess some have better access than others… he-he

  • http://evilspeculator.com molecool

    I know that’s probably NOT what folks want to hear. All the traffic today is going to the blogs that are making lofty assumptions/predictions. No matter that one week later none of those will probably have played out – so much energy and time is being attributed to rationalize various opinions.

    Had a few chats with Scott the other day about this. I could triple the traffic here if I would turn the place into a perma-bull or perma-bear place. You know – with Dow at xxx next year type predictions. Kind of what I did when I started – which was bullshit despite the fact that I made good calls.

    Selling what works over the long term is a tough gig. Most people don’t want to hear it – like butterflies they jump from one market guru to the next, just to be disappointed while their trading accounts slowly deplete. The fact that it takes hard work and a commitment to discipline and process is lost on most retail folks. They just want to see a chart pointing where AAPL will be three months from now.

    At least in the financial blogging game – bullshit talks and money walks – LOL :-)

  • ridingwaves

    Corn hasn’t seen these lows since 2010-11, farmers will not plant as much based off price margins so you would think price would move higher…but that is the big if..

    scaling into position for medium term move…

  • Skynard

    Full short now with that div on the 5 min, will chime in later in the week:)

  • SS_JJ

    I’m with you on that one

  • Skynard

    Viable play, took partial last week and today. That sure looks to be a complete wave and gravity should be in full force by the end of the week by the looks of it.

  • Wave_Surfer

    Very true and very sad.
    Although it is not popular, it is nice to have a place where we can talk about the markets and not drown in words that are poison to our mind.
    We just need enough people that are willing to be disciplined and more interested in useful info than in entertainment to make it financially worth your time to keep this site up.

    Speaking of searching for highs that will poison you, have you heard about the new drug hitting America? You take codeine pills and mix them with things like gasoline and paint thinner and then shoot it in your veins. I guess some Russians discovered it when the Credit Crisis hit and heroin addicts simply were not able to afford the heroin they ‘needed’.
    It gives a high similar but 3 times as strong as heroin but costs 1/3 as much. Which means for the same high, it costs 1/10. However, it turns out there are consequences to injecting gasoline and paint thinner into your veins. Your body decomposes from the inside out. You will die in less than 2 years but before that happens, you will reek from the smell of decomposing flesh and and your body will be covered with open sores, where you can look at the holes in your body and see muscle and bone. I guess they call it Krocodil or something like that because it gives you skin that looks like a crocodile.

    Similarly, if you drink the poison that is flowing over so much of the web, in less than 2 years you may lose all of your money that you put in a trading account.

  • ridingwaves

    The big boys must be playing the vix also as this is getting to easy…

  • ridingwaves

    I knew there was something behind all these Zombie apocalypse movies…

  • SS_JJ

    Such a fast and deep retest of the high is suspicious

  • http://ibergamot.blogspot.com/ i Bergamot

    Actually, I cautiously disagree.
    Based on my experience and talks with some people involved, It seems that an answer to lower margins and lower yields is to plant more. Makes no sense to me, but I am in minority.

    My whole Agriculture thesis is on hold right now, meaning I was stopped out of everything.

  • http://evilspeculator.com molecool

    You were stopped out of everything because you probably had a finely tuned opinion and in the markets they mean absolutely jack shit. I have seen this song and dance hundreds of times here on ES – folks have lofty ideas why futures or some forex pair must make a low or high right now and then they get taken to the woodshed.

    Remember, it doesn’t matter where it came from – what matters is where it’s going.

  • http://evilspeculator.com molecool

    “However, it turns out there are consequences to injecting gasoline and paint thinner into your veins.”

    That frankly comes as a complete surprise to me….

  • http://evilspeculator.com molecool

    I dunno – have you been driving through some of those fly-over states? Just go to a local Walmart and you feel like in a scene of The Walking Dead 😉

  • Skynard

    Watch for a break of that 5 min wedge, that is bearish.

  • http://evilspeculator.com molecool

    Peter Brandt once said that he would love to just get charts without a symbol and then tell his guys to take the trades and how. Because people develop opinions and habits with certain symbols. I never care about what I trade – as a matter of fact the less I know about it the better and the better are my trades.

  • ridingwaves

    in California all you have to do is head to little appalachia..otherwise known as the central valley…Merced’s UE is 42%…its a bit scarier than NW Arkansas as you see more without all the green overgrowth around…

  • BobbyLow

    Gee, and I thought injecting gasoline and paint thinner into your veins might have some kind of theraputic results. :)

  • SS_JJ

    I am ready for the Wile E. Coyote moment

  • http://ibergamot.blogspot.com/ i Bergamot

    You are partly correct.

    My opinion (Bergamot ducks) is based on my favorable views on Farming and Agriculture in general, and based on my own, real life experience.

    For example, I am trying to buy a farm for almost a year now. Still no luck. Either prices too high, or what for sale is not the farm – just a land. This business is very hard to get into from outside, while its populated with great many ignorant, lazy and old people. Competition is easy, even on my, very small scale.

    As far as trading, I made more on couple of trades of TSCO, than I lost in JJG.
    JJG is all-grain ETF, I tried to buy at various supports, fib retracements and moving averages – stopped out every time with small loss. It was an educated guess, and the fact that it failed (so far) doesn’t mean it was a bad idea.

    Not all of my ideas work, TA helps to control losses and let me sleep at night.

    (I have to go to meeting. Will checxk back later)

  • Jake_38

    So True

  • Sean

    I’ve been watching the trend day alerts and the composition of the ticks early in the day and thought this was interesting… last time we had a high prob down trend day alert I noted that the negative ticks increased (negative acceleration) into the first hour and the trend was confirmed… this time we have a moderate prob down trend day alert but the tick acceleration appeared to be positive at the time of the alert and this was followed by a turn higher (my “blew their load” hypothesis)… still anecdotal, but might be something interesting to keep an eye on…

  • captainboom

    Looking for something like this?

  • Skynard

    That pattern was begging:)

  • Skynard

    If that was super cycle W2 it is very possible. Has all the characteristics anyhow.

  • SS_JJ

    Oh, I’ll be happy with a 2-3 days short trade for now. Long term I have no clue what’s next. But I’ll leave some lottery tickets in case we get a very low prob event.

  • http://evilspeculator.com molecool

    Definitely something to look at. There are obviously many ways the post open tick data can be interpreted. Bear in mind that this is one single observation – you would have to go back and look at a minimum of 100 days to come to even a preliminary conclusion.

    it’s very easy to fall prey to recency bias – yes, today this may make total sense – but it may fail on other occasions. So I suggest you pull up some charts and start logging 😉

  • saltwaterdog

    IPs on GC, SI, CL, and CT (a double IP) today to name a few, and an OP on Corn.

  • SS_JJ

    :-)

  • http://dartht.blogspot.com/ Heisen_Gerb

    ah, back from a mountain top. nothing like 12,000 feet to clear the brain.
    Spoos, that’s no V move. it’s very familiar to the New Year’s blow-up.

    anyway, Fibonacci 23% retracement hit. (1705)
    http://s24.postimg.org/rd9z73gdh/no_V.png

  • newbfxtrader
  • newbfxtrader

    You would get a similar effect with co2 springs.

  • newbfxtrader

    Tin is breaking out on weekly. Sugar on the daily.

  • convictscott

    Tick 1min is not good enough for this, really has to be tick on a 1 tick chart. It’s not a proper demand/supply chart so it jumps all over the place. In a trend day it is typical for pullbacks below the line to be under 30 seconds.

  • convictscott

    did you really say “super cycle wave 2?” Bro, thats for your “inside voice”!

  • SW6

    “However, it turns out there are consequences to injecting gasoline and paint thinner into your veins.”

    You always had a penchant for commentary that was at once dry and engaging all at the same time. :)

  • http://evilspeculator.com molecool

    This place is going to the dogs!!

  • http://dartht.blogspot.com/ Heisen_Gerb

    ‘SPX 20’
    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p18894037899

    1710.14/1710.82 = 99.960%
    acceptable. 😉

  • Sean

    Unfortunately 1min is the lowest level of detail I have access to at the moment, so I am going to have to work with that for now, and if anything interesting comes out of it I can go back and see if it holds when looking at 1 tick data when I have access to that data… but if this year is any indication then it looks like we get ~90 trend days a year, so it will be a while before I have any useful data.

  • Sean

    Just started… I have 9 instances so far and can’t look back any further, so I have to wait for new trend days to log the data… so it looks like I’ll be checking back in on this topic around this time next year :-)

  • http://ibergamot.blogspot.com/ i Bergamot

    One more point, so not to confuse anybody.
    My interest in agri-business in general is a long term affair. If i am correct, this trend is just starting and will last for decades. Doesn’t mean I will be always long or in a market all the time. As for intraday fluctuations of Corn – I am completely clueless, but it doesn’t mean that money can not be made on a 30-minute chart. Just not by me

  • http://dartht.blogspot.com/ Heisen_Gerb

    the New Year chart. Mole was in Paris.
    [/ES]
    http://s7.postimg.org/h0tw08bcb/paris_revised.png

  • convictscott

    There is definitely not 90 trend days in any single year on any market. You need to tighten up your definition of trend day to one where it is an actual trend, start to finish, open at the lows, close at the highs, way larger than normal range

  • Sean

    Sorry, I misspoke, I was referring to the trend day alerts we receive per year of >70% above/below the zero line…

  • convictscott

    Should be 90%. 70% has no meaning at all IMO

  • convictscott

    TICK can be used in the following ways… most of which the zero is good for. It’s like a budget zero that requires more skill and thought to use.

    – When price makes new high with a new daily tick high, it is bullish and vice versa. When it does this at the start of a move, if you see other bullish signs (many consecutive bullish closes, small upper tails, pullbacks lasting single bars, microgaps) you can start to reasonably think about 10 bars + 2 legs of move. In context the first pullback will most likely fail, and any buy setup after a 2 legged pullback is a decent buy. This is especially so if the pullback is accompanied by positive TICK divergence.
    – When TICK makes an extreme reading (in context of the extreme readings over the last month or so) it is a sign of exhaustion. See the chart below for what is an extreme reading right now.
    – When price makes a new high not confirmed by TICK, then the rally is not broad based, and any technical reason for a pullback is likely to paint a scalpers profit opportunity. This means that at least a pullback to moving averages/prior support
    – Consistent above or below zero readings at the start of the day (and I couldn’t be clearer, using the TICK on a 1min chart for this is a complete waste of time, you may as well not bother) give advance warning that one side or the other is going to dominate at least half, and possibly the whole session.
    – Using a daily SPX chart with daily TICK on it, looking for an extreme reading then a divergence to catch tops/bottoms

  • convictscott

    It is time well spent. When I was younger and had the enthusiasm and stamina to trade the emini on 5 min charts (starting at midnight australia time) I banked at least 5R on every trend day I had early enough recognition on. You can build a very high reliability method for 5 min charts just on trend days. The basic idea is to get a small position on early and pyramid up on pullbacks around a reasonably chosen moving average.

  • convictscott

    How did your soul searching go?

  • convictscott

    I remember the first day I had in a decade free from shooting up drugs. It really really sucked ass. I was in a supermax facility sharing a cell with 9 people, waiting for between a week and 28 days before we got allocated a bed in prison. This was seriously hard time, 23.5 hr/day lockdown, no TV or books, 9 men to a large cell with a 3/4 size vinyl mattress, no sheets, no changes of clothes, no smoking, no personal belongings allowed. Lots of changing faces every day so every day lots of violence. Lots of agitated people. Getting back to maximum security prison after this was like a holiday resort.

    These two Vietnamese heroin addicts got shoved in the holding cells with us, and one of them had his ass stuffed with prison contraband to trade when he got there. He was getting sick from withdrawal and was constipated (addicts get that) so he needed help getting his half sized syringe and drugs out of his ass, where they were stuck solid. This turned into a massive production that took 3 different people trying to remove this guy’s stash out of his ass.

    Eventually they got it out, and out of the 9 people in that cell 6 of them shared the same needle and shot up their drugs mixed with toilet water, while the rest of us stood in front of the cameras and kept watch. This wasn’t heroin/coke/meth, this was suboxone and bupemorpheine, budget drugs that a rich drug user like myself wouldn’t touch.

    As disgusting as it was, I couldn’t remember anything looking so good in my life. When it was my turn and I said no, I literally cried myself to sleep with the longing for it. That was my first day clean, nearly 8 years ago.

  • http://dartht.blogspot.com/ Heisen_Gerb

    productive.
    I have several scarring memories of past loss which I believe started me into
    this whole arena circa 2000. It’s not that I wanted to make money, I just didn’t want to lose any more. Being a control freak, the bearish fears of 2009/2010 was actually a good thing in that I got to experience how the mind while satisfied in it’s own bias, can drain the account. In 2012 I discovered the concept of detachment and ‘letting go’ which helped tremendously.
    I’ve given up any dreams of day-trading, and plan to be a swing-trade investor. Though in the end, it’s likely I’ll just be corizined or herded into a FEMA camp.

  • convictscott

    Productive indeed. Well done!

  • convictscott

    There is a whole breed of very rich guys who do exactly what you are doing – take a big picture fundamental view and try and fit technicals around that. The majority of global macro hedge fund operators do exactly that – who am I to say it’s wrong? FWIW there is plenty of evidence to fit your view about agriculture, I remember reading Jim Rogers book in 2007 and being blown away by his whole thesis. I have a close friend who trades that way (ignores timing) in small cap mining shares and his trading account is over 20 million now (from virtually scratch). I’ve tried to replicate what he does, and even followed him profitably into a few trades, but it’s just not my game. His win rate is around 15%, but he has the balls and the conviction to hold for 50R winners when he is right.

    Could I do that? Not in a million years! You need to find an approach which fits you like a glove. Jim Roger’s argument is that the fundamentals are his stop loss. Doesn’t work for me, but I can’t argue with his account balance.

    Just because that approach doesn’t suit Mole or myself (fundamentals confuse fuck out of me and make me biased) doesn’t mean that it is not valid. Because we are trading our beliefs about the market and not really the market there is nothing more pointless than someone trying to tell you your beliefs are wrong. We can have that argument all day, and just annoy each other.

  • http://ibergamot.blogspot.com/ i Bergamot

    I have mixed opinion of Jim Rogers – his books are fine, but his investments are a bloody disaster (if he really put his money where his mouth is, which i doubt).

    I have a friend who always tells me: “Invest like your grandmother would…” (add a thick Indian accent).

    I don’t need to wait for Wallmart’s earnings release to know that their sales suck – I see their parking lot every day on a way from work. Its been half-empty for months. Would I short WMT based on that? No. Why? Here is weekly chart with 72ish support

    This type of reasoning would be meaningless for a day-trader, and will result in disaster if using margin and/or options.

    My goal is not to catch 10ticks before lunch. I am looking for next TSLA. Remember, I was trying to get into Tesla all thru last year. Not because I “knew” it will go parabolic. Not in my wildest dreams. I had my reasons, and I knew(!) that if i am correct – I will find myself in free trade (10%+ above entry); but I had to get positioned right in order to control losses. It took 4 stop-outs until it worked.

    Its not an isolated incident either, but TSLA really stands out, because there was no indications in a chart a year ago (and mostly everybody were ridiculing me for trading an “opinion”). Variant perception.

  • http://evilspeculator.com molecool

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