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A Trader’s Guide to Sipping Kool Aid
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A Trader’s Guide to Sipping Kool Aid

by MoleNovember 19, 2009

You’re red hot, trading your way to incremental riches, absolutely killing it in the market while leaving a slick grace of success in your wake.

Yeah, yeah – Get over it.

Michael Davey again

Kool Aid is a killer.

I’m serious. It doesn’t take a Dow Jonestown debacle to necessarily lay you to rest. Don’t drink the stuff – yours or anyone else’s.

Their Kool Aid: You will never be able to follow another trader with much success, if you don’t follow yourself first. Sure, if you never design a disciplined strategy and just wing whatever you feel on any given day (avoiding looking at account statements, have a penchant for tiny gains and not-so-tiny losses, etc.) then you might trade better in someone else’s wake. But we want to do better than that. We may as well excel, right? Yes, we can glean from others – we absolutely should! We’re not the greatest genius who has no need for outside information; not even close. But if you want to learn to maximize your own trading (your own account!), then you absolutely must listen to yourself first and incorporate the ideas of others somewhere down the line. 

Maybe you’re new at this and you could argue that you will only fail if you weigh yourself above others who know more than you. Good good good – you want to fail! Success, when you are new, is going to make your struggle so much worse down the road. That’s not actually a joke – experienced traders know it is absolutely true. Trade on paper if you cannot afford the losses (or vastly reduce the size, I recommend more; since you learn faster losing real money). But trade and learn. Incorporate ideas and learn. You think that losses are bad (perhaps), but losses are going to help you to improve; if you only let them. Most importantly then – develop your own strategy and discipline – your own set of rules for set-ups, stops, gains, etc…and (_____).

Learn While You Burn (Firewalking for the Rest of Us)

The bottom-line point is that you need to be the master of your discipline. You are only holding-back your progress by only-following everyone else.

Here’s where we mix it up a bit (I’m going to get fired for this, watch). There is a very respected trader, Kemal_1, who is commenting frequently these days on Hot Option Babe (the site that Mole shall not name ;). I won’t get into the history of Kemal (I know very little, though I have seen his comments on and off for over a year now; previously on Xtrends). The guy is a sharpie. Sharp enough that if I disagree, or am positioned on the other side of him, I re-examine my take (which I do like every hour anyway) and consider possibly adjusting. There are few traders I give that much respect.

But while I’m endorsing Kemal (kudos to you, tough guy!) I’m going to chide the many traders who are suddenly lapping at his punch-wake. The HOB-knob community is rabid for what Kemal, Anna, etc. will say next and that, my more popular friends, is not going to work in the long run. The gurus hold-back their performance for getting too guru and the followers hold-back their growth for being glued to someone else’s opinions (a little of this is fine, sure; I’m talking about habitual or excessive following). 

What happens when the trader you are following (the same guy or gal who should have been looking at the market instead of wiping your ass with helpful hints and compliments) suddenly changes their mind? Are you going to change right along with them? The proper answer is – yes, you had better – since you were only in that trade based on their recommendation anyway, right? WTF is the point of being the only chimp in the room when the lights go out? 

You see the problem?

Again, no disrespect. I bring this up because after selling the argument all day for a bounce, tonight Kemal re-evaluated and changed his mind (on the short term), suddenly saying “So sell longs NOW”. Yes, that is out of context, which is unfair, but I know the heart-rate of many skipped a beat when they read that – and that is what I want to talk about (for the record I’ve yet to see Kemal really drinking his own Kool Aid, ever. He is always modest and gracious; he has learned well everything I am talking about here; I suspect. I see nothing wrong either with looking and positioning one way and then changing to the polar opposite…I do it myself whenever I get the opportunity). 

If you were following blindly though, you’re in the popcorn machine right now. You were coming around the Sun alongside Venus and now you’re suddenly on a trajectory toward Saturn. With a dynamic as volatile as the markets, hot butter is going to send molecules in varying directions – sometimes all at once. I don’t know what they teach you in law school (jealous again) but I know you can’t really guide others on how to react to that and I suspect people are better served in the end by guiding themselves first. If you want to follow someone, then study; study what they are telling you. If you want to learn something, then study. Study study study, lose some money and go study. Make some money (now be careful Einstein) and continue to study.

Tonight’s homework: Study!

Look, some of you are going to be great traders. That’s just a fact. The rest of you (and me as well, since I can’t do this forever) are simply not. I think that’s fine to admit. I also think it is fine to copy someone else if that is all you want to do. But for the few here who are not yet – but will be one day great traders – don’t follow blindly, you’re only inhibiting your greatness. Use your resources, study your books, take your lumps…and learn. You have special weaknesses (we’re all special, eh?). As such, you cannot follow someone else because you are going to find your personal, individual way to mess it all up. I am not exaggerating when I say that I could tell 1000 traders exactly what will happen tomorrow (which I cannot) and more than half of them will find a way to lose money. Why this is true is really really interesting to me (and why I follow the anti-genius more than anyone who might be exceptionally brilliant). You need to plug-up your special weaknesses and that will only make you stronger. Most of us (including me) need to find another activity for down the road. We’ve got to accept that. Failing miserably is a blessing if you only learn how to respond; allow it to be a part of your growth, etc. For those of us who won’t be traders in 10 years, well, there is no reason we cannot be better at what we’re doing because of the lessons learned here.

Stay alive and thrive.

Anyway, I’ve certainly stepped on my foot by now, made new enemies and taken up too much of your time (your fault!). But your mentors are only as good as you can make them. It’s your challenge to figure out how.

Your Own Kool Aid: Ok, this half is no joke, especially if you need to make money. First and foremost, trading is no popularity contest. That’s easy for me to accept, since I’ve lost in the popularity department my entire life (some people are born with all the luck). I’ve been very lucky to be loved by few since pretty much day-1 (like a hundred years ago).

And questioned by many.

I’m serious though, you can try to be popular, but it comes at the expense of performance. Right away now you should be questioning me for coming on here to say all of this. Very good, you’re a sharp student. One day I might get into this, but let’s just leave it at me admitting I’m not trading forever for the moment. These posts do cost me money, certainly in the short run. Fortunately there are some positive side effects like organizing my thoughts, forcing me to keep to my discipline, since I am touting it publicly, things like that. But if you told me I had to gain 100% in the next 3 months or it’s game over for me, I would most certainly not start talking about it. I’d just get busy and trade. Screw all of you in that case.

When I examine my biggest historical draw-downs, I learn all kinds of things. One pattern that won’t surprise many of you is that the biggest losing periods have originated on the heels of a strong phase of success (note the term phase!). Especially dangerous, it turns out, is getting a little too confident in your ability and beginning to believe you are printing money or something. Now, this might be my personal pitfall (my ghost) and yours may be something else (doubt it!). But for myself, I’ve never maximized future results by throwing a party in my honor. The moment I swagger out-loud about how well I am trading, even if to the dog, is the moment I’ve endangered ongoing gains and invited punishing losses instead. I’ve got numbers to back this up.

As it turns out, I would have been so much better had I never considered my positive results (negative results must always be examined). Positive results have a way of relaxing something, something important if you want to perform. Keep aware of this, especially when you are on a roll. Keep that side of you in check.

It’s not fair, I know – that you can never really be satisfied – never lift your glass in a toast of your obscene prowess. But you don’t want to be punished for it the next day (months!). As I’ve gotten older (I’m just this side of ancient now), I’ve learned to take my chips off the table and head-off quietly for some thump-hump retreat; getting far away from the market before risking anything like…fulfillment.

This is why I’m such a freak, I suppose; at least on the job (when I’m pumping hole-saws into melting ice-caps I’m really quite a decent fellow). As long as you are in the market, you remain in battle; period. It doesn’t matter that you’ve knocked the cover off the ball the previous 6-to-56 weeks – you better not tell anybody about it and get feeling good about yourself, because you will get run over. In fact: and this is the meat of the matter, it is precisely when you’ve run like god, and hearty, sick gains act like a floating mood-spring, that you (you!) need to be most aware of this twisted little phenomenon. If you don’t know what I am saying, then either I cannot write or you are new to trading (either way, you’d be excused). But traders with salt in their bones know fool well what I’m getting at. Your guard is down when you hail yourself the king. A little self-doubt in this line of work is mandatory. You’ve go to maintain some self-disrespect (no self-loathing though); especially when you’ve been rocking only-higher, outperforming peers and identifying potential entry and exit points like Santa can identify a good lap-dance.

By all means – when you’re hot, keep trading. I’m not telling you to stop. But know that if you absolutely must take pride (silly creature), then take your marbles out of the ring and scurry-off before making speeches on your behalf.

Trading is an animal thing. You are on one side of a trade and someone or some bot is on the other. If you were truly the alpha dog here, you wouldn’t be bragging. Your life is no picnic. There is an endless line of foes looking to bite your ass and overtake your darling little spoils. How can you relax and feel fuzzy about how you dominated the last juvenile to come around when you’ve expended energy to keep your claim and now the next set of teeth is waiting for you to let your guard down so he can strike. The top-dog gets the girls, sure. But he doesn’t get to flaunt it much since that would only inspire future defeat.

Look, it’s no life – this being a trader. You’re holding a steady state of pent-up energy – an even stream of kill-keel and never allowing yourself to get too high, nor too low, and certainly not hung-up on yourself; only to fight endlessly day and 24-hour-trading night in order that you’re biting someone else’s ass instead of the other way around. Who wants to live like that?

Well, you do apparently, as I see you have read along this far. Which is the first and foremost reason not to go around bragging about it!

Nothing left here but to close this. I’m not going to question your career (I’ve got my own career to question!), but I will suggest you watch what you drink. You’re a great trader – I like that. But unless you’re en-route to Aroma Bora and you have zero positions on your book, then let go the beauty contests and keep your head in the market.

Don’t take any bows – they cost too much.

Beast out

Previously in this series:
Losing Like a Winner: A Trader’s Guide
A Trader’s Guide to Secondary Offerings (Part 2)
A Trader’s Guide to Secondary Offerings (Part 1)
A Trader’s Guide (Introduction)
A Trader’s Guide to Chasing Ambulances
A Trader’s Guide to Exhaustion


About The Author
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.

  • http://epiccallonfate.blogspot.com/ Dr Livesey

    Great Guide(s) Michael!!!

    OPEX day tomorrow – I put together an analysis of EW and OI – looks like the trend and range is very obvious for tomorrow.
    Here is the story: http://epiccallonfate.blogspot.com/2009/11/whos

  • http://trading-to-win.blogspot.com/ DavidDT

    Michael – thank you…from all who still does not understand that “fishing” is more important than “fish”

  • http://epiccallonfate.blogspot.com/ Dr Livesey

    Michael – hard but true, and helpful – thanks very much for your post!!!!

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    hey, that's it. the journey is the teacher
    …the process , etc.
    …thx

    (i fixed a bunch of typo's now, but my retinas are burning. like Mole will be when he reads this 🙂

  • Tronacate

    That hits home. The minute I started crowing about the money I was making last year…….it all came apart. Now, either way, I keep my big mouth shut……generally nobody wants you to succeed anyways except for the spouse. Generally, people want others to fail…….as some sick boost to their own ego.

  • momac

    damn, that is an excellent post. Thank you for writing about this. 🙂

  • clutchshorter

    I can definitely relate. I had a string of profits and everytime I brag about how much I made, I lose it just as fast. I will just stay humble.

  • http://trading-to-win.blogspot.com/ DavidDT

    thought some might be interested in watching this video by yours truly

    http://www.screencast.com/t/NjVjZWIyOT

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    those people are losers
    so generally, you are saying people are generally losers 😉

  • http://epiccallonfate.blogspot.com/ Dr Livesey

    😀 😀 😀

    nave a nice evening, I have 4am and still reading blogs

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    wow – get some sleep before performing surgery!

    …thanks

  • Tronacate

    Well…….I just speak from the gossip people seem to thrive upon…….gloating over people's weaknesses. Sad, but true.
    So I guess the generalization holds.
    How many true friends does a person have that can be confided in?
    One or two if lucky.

  • Tronacate

    Now we can brag about our new found humbleness :)…….lol

  • TransworldDepravity

    don't forget about Progression. enjoy the snark and unapologetic nature of your writings. discipline is a bitch. got to be calm like a bomb.

  • TransworldDepravity

    those people have a lack of confidence in themselves and in what they are doing. no sense of accomplishment so they must downplay others.

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    agree

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    tell me what you mean about progression – thx

  • TransworldDepravity

    To be never be too comfortable or satisfied with a particular goal you have accomplished. Keep moving forward and roll that experience and knowledge into something new or more challenging.

    If you cannot develop your own trading strategy style then you fail. I agree, because trading is a lonely game. It is great to develop a process for one goal, but it may not be enough the next time around. Adapt and evolve.

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Ok thanks. never heard the term before

  • ds2

    Great post. I am new to this and I have been fortunate enough to learn all of the above in no time at all. Now I just have to find the disipline to trust myself more and follow others less.

  • crush1618

    Once again. Great post CD! Without faith in ones own judgment no man (person) can go very far in this game.

  • TransworldDepravity

    like playing a musical instrument. you never only learn just one chord (progression) do you? unless you're some sort of wannabe pop nobody.

  • gregn

    If I hadn't been reading your posts for a while now, I would be completely blown away rather than just partially. If you choose a different profession, you should consider writing or motivational speaking. Ego has killed me in the past, everytime that I have felt on top of the world, I was brought back down — hard. Emotions have no place in trading — that is half of the battle. Really appreciate your post.

  • molecool

    Boy CD – you just pissed off 500 people over at the blog which shall remain unspoken.

    Good show old chap! 😉

  • PRSGuitars

    Just a quick 133 of 133 for SPX: Yes, it's come to this. Extensions of extensions.

    http://screencast.com/t/MmFkZjI5N

    Just capped it so discussion may follow later — still charting away. Good luck overnighters…

  • moneyfarm

    Great post Michael! In retrospect, I found myself getting too complacent after having my two most profitable periods last Fall and in March.

  • http://ethicalcheating.blogspot.com/ The_Grim_Reaper

    I wrote up some reasons why I think EVERY trader should have a blog.

    Why All Traders Should Have Blogs
    In my first few weeks blogging about my trading system, I've found a number of benefits that directly impact my ability to trade. I encourage every trader to start a blog, even if no one reads it (I assume no one is reading this). Think of it as a trading journal.

    1) Accountability: When I have to post my trades, I am a little more careful and conservative about entries, because I know that if I'm wrong, it will reflect poorly on me as a trader. As long as traders keep their “dirty little secrets” (bad trades) that they never talk about, they won't improve or learn from the mistakes as easily. I am 100% honest on my site. It would be counter-productive to lie about my performance.

    2) Organization: I like having all my thoughts compiled in one place that I can re-read if I need a pep talk. Having something in writing reinforces the idea in my head and forces me to construct a logial plan of attack. For example, if I say on the blog that I'm going to sell if XYZ happens, then I'm more likely to do it if I put it in writing and have that reinforced. How many times have you said you would do something and then never did it, even after the conditions were met for the trading action?

    3) Tracking: Track your trades visually. Record how many wins vs losses. It's something many don't do. Can you tell me right now what your win/loss ratio is? Can you tell me the average return of a trade you enter, and how long you stayed in the trade?

    4) Help for others: Don't assume that your thoughts are useless to other traders. There are many starting out who don't know much, and even experienced traders don't know everything there is to know. Throwing your strategies out onto the web might enlighten a curious wanderer. It's a way to give back. Hey, if you're a really bad trader like me, someone might even benefit from fading you! (heh heh)

  • pacpac

    I never wrote here though I quite often read the blog and I have decided to comment for the first time to to congratulate you for your post. I wish I was told those things many years ago. Amazing post.

    Seriously.

    I never have any bias anymore after reading any blog and if sometimes I still visit them it is to learn what kind of technical tools other traders use, and not looking for any answers. You need to understand very well the decisions to make the trade to keep the discipline, so mirroring other traders' bet is a mistake.

    No bias, trade the flow, trade what you see.

    I agree that teaching others is full filling and also helps to make you better in certain areas, clearing concepts but at some point it can hit your performance.

    I also suffered from the same stages of “I am the master of the universe” and then the market reminds who is the boss to show me I am insinificant and a leaf in the wind.

    But I learned that you grow stronger after failures and once achieve consistency and finally patience , things calm down and see all of that as part of the game. You only loose when you give up.

    I hope that at some point I will have the wisdom to retire as a winner before becaming a looser.

    Thanks for your post.
    Kind regards
    Pacpac

  • PRSGuitars

    SPX Three drives pattern?

    http://screencast.com/t/MDg0NTFkM

  • bobthehorse

    Opex today and frankly, not before time. The only good thing is that I thought we would mess around until opex and that has duly occurred so we have not wasted any money. The most open interest is at 1100 but the max pain point is down at 1065. You never know which is the stronger magnet until you get there but risk reward probably skewed to the downside.

    Our positioning is as I have stated before: flat delta with some Dec 1050 puts. I am bullish on the fundamentals at the moment as momentum is quite strong (although some areas such as employment and housing need to start coming through sooner rather than later) but the technicals look bearish as many people on this blog have noted.

    It all points to what we currently have. Intermediate trend is clearly up so not conducive to a large short position but there is a decent chance of an impulsive move lower so OTM puts (bought at 1090 with VIX low 20's) were good value.

    I think there is a chance of a move to 920 eventually which should set us up for a HUGE bull market. We will get longer than any fund in the world at that point. That is a promise.

    Good points made above by Michael above. I have trained myself to have zero emotion about trading positions. Doesn't stop me being happy when things go well and vice versa but I constantly try to assess what the risk-reward is of a position and we place bets accordingly. But I don't confuse good risk-reward with certainty. Once the trade is on, I divorce myself emotionally from the outcome as that is not in my control – if it goes in my favour that's great but if not, I don't beat myself up over it – that's simply how it works.

    It's like playing poker. If you are sitting on a flush, Ace high and someone draws a full house on the river to beat you, does that make you an idiot for being all in on the turn? No – it's still the right bet even if the outcome was poor.

    Same with our current positioning – I know the risk-reward is good. Will the market correct? I have no idea but I have enough analysis backing me up to know there is a very good chance. And I have a low cost ticket to a win if it does. If the market simply goes up, will that make us bad traders? No – it's just time to reassess and move on to the next one.

  • CorporalCarrot

    Great post Michael, it rings so true.

    Bob,

    What is the greatest factor in you considering that we might have some downside here? (aside from the fact that even if you blindly accept that this is a bull and fundamentals are wonderful, we are long overdue a pullback considering the run-up of the last 6 months)

    Is it the S&P divergence? Sure, it made a new high, but barely………the Dow has (in my opinion) made bulls somewhat complacent and given a false impression that momentum continues unabated.

    Forgive my pathetic charting, but if you think the Dow is respecting the 3 drives pattern, and thus far it has respected the upper bollinger and rising expanded wedge perfectly as per this chart. As you know I shorted more above 10,400 and believe we could have some downside to 10,100 or therabouts next week, where I will re-assess.

    http://stockcharts.com/h-sc/ui?s=$INDU&p=D&b=5&

    In this chart, this move over the last 10 days looks to be accelerating slightly compared with the Aug/Sept/Oct moves.

    However, looking at the S&P, it barely made new highs, and simple kid with a ruler trendlines joining tops make it loook like momentum is definitely waning, despite the euphoria about the Dow.

    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g

    I haven't drawn it but its easy to imagine a nice rounded top here (at least in the interim).

    So I think this and RUT are really suggesting the broader market is waning in momentum, and if the Dow had made similar % gains in the drive since the start of November people would not be so complacent now. But this silly index of 30 stocks has captured all the limelight, is making people feel the market has advanced further than it actually has, and ironically has a lot of people in a state of bullish complacency thats probably necessary for a decent pullback.

    Once this occurs of course, that may be a medium term buying opportunity……I really don't know when this overall uptrend will end.

  • tradejane

    Thank you for caring enough to say these things, Michael. Many people don't.

    DAX opened above today's pivot of 5.727 and is currently trading at 5.744. First resistance is seen at 5.766. First support is expected at 5.663. (Though round numbers like 5700 can also act as a support.) The banks are weak.

    I've initiated positions in a couple of ultrashort ETF's as a longer term trade. (Yes, we have them too, they are nice, time decay is not as bad as in some of the American ones so they aren't very good daytrading vehicles either.)

  • PRSGuitars

    Repost since it's such a slow night…thoughts anyone?

    Just a quick 133 of 133 for SPX: Yes, it's come to this. Extensions of extensions.

    http://screencast.com/t/MmFkZjI5N

    Just capped it so discussion may follow later — still charting away. Good luck overnighters…

    and SPX Three drives pattern?

    http://screencast.com/t/MDg0NTFkM

  • bobthehorse

    Without getting too verbose, we operate in a fiat money system, built on debt. The glue within that system is confidence – confidence in money, confidence that there will be rising nominal incomes to reduce the real value of that debt, confidence that asset prices backing that debt will rise in nominal terms. The more debt there is, the more unstable that system becomes. Last year, we looked into the foundations of that system and had a collective shit-fit.

    Now, we are going through a process where faith in QE, etc. is making people believe that the system can re-stabilise. But higher confidence is bringing new risks, i.e. political pressure to remove the stimulus that has taken us to this point. In order to generate the political support for a further debasement of fiat money (which equities respond positively to), we need a set-back.

    What can force that set-back – it has to be a resumption of systemic fears and given the transfer of debt from the private to the public sector, it should manifest itself in the sovereign bond market. I have pointed out before that there are the first signs of trouble there in Greece and Japan. The process would begin with rising yields there, bring about a $ rally and take equities lower.

    The technicals in Equities are showing negative momentum which may give people more confidence to chase it lower if we break supports. But the key has always been that we have to see some negative price action to be confident of any prospect of a material correction. Equally, that would have to be supported by price action in other asset classes. Equities merely exist within a system, not in isolation. That is why I was so bullish on this blog down at 1025 – the signals were there for all to see. Equities were the outlier.

  • Scoops

    That was utterly brilliant. Completely and utterly brilliant.

  • PRSGuitars

    And this, DirectTV owners beware…

    http://www.screencast.com/t/ODNlNTk4YmQ

  • tradejane

    >Three drives pattern?

    Well, it sure looks harmonic enough. 🙂

    I wish I could say more about it but my TA abilities are pitiful. All I know is this boat is going down.

  • mrBozo

    What's up with BGU and TNA down 11%?

  • ultra

    yeah I have puts on this baby that I bought straight after earnings expecting a double-quick tank.

    unfortunately they expire today.

    bah.

  • amokta

    'fiat currency' – i thought fiat made cars (admittedly not very good ones)

  • ultra

    133 squared – like it, like it

    and fujisan has been hawking the 3 drives thing for ages. basically if we don't get a fifth today, then that makes an abc and in elliott world indicates a new high.

    probably.

  • ultra

    mike, great stuff again. especially loved going back to read the anti-genius post – interesting to see how that one played out – I see that they did indeed get a little bit more of a pullback on the monday and it stuck a toe through the 50 ma – take it you were still jumping in at this point?

    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=20

  • tradejane

    By the way, this article has been going around the past couple of days:

    http://www.telegraph.co.uk/finance/economics/65

    Now, I'm not very smart (and I mean this very seriously) so I was properly impressed but still, I had to smile at the recommendations:

    “SocGen advises bears to sell the dollar and to “short” cyclical equities such as technology, auto, and travel to avoid being caught in the “inherent deflationary spiral”. Emerging markets would not be spared. (…) Farm commodities would hold up well, led by sugar.”

    Why do I get the feeling that something close to what they describe will play out but their customers will either lose and/or not make the money they could have made if they follow that advice?

    PS. German market tanking beautifully. Commerzbank hit the last support – 7.67 nothing but much air if it loses that, imho.

  • CorporalCarrot

    My greatest fear for the bears is this pattern that seems to be repeating in EURUSD. I don't know if I am squinting too much to make this fit, but the last months action seems eerily similar to August.

    http://i9.photobucket.com/albums/a77/M3Mick/eur

    Now the fundamental bear case at the moment seems to be predicated on the USD being oversold, the trades too crowded etc etc which could lead to a short covering rally, which would be bad for equities.

    But to me its starting to look like if the dollar doesn't get this done soon, this is merely a consolidation pattern before we potentially break higher, possibly to re-test the old high in the 1.55 area. This would tie in nicely with a Santa Clause rally to 11k dow, and then a significant retracement in 2010.

  • bobthehorse

    Ignore SocGen – they are permabears and care more about being in the papers than helping people make money.

  • rangefinder

    Good post! That is the second route that I've encountered that leads to gold at mega levels. Never been a gold bug but I always happy to follow the trend.

  • ultra

    bob – what do you make of the 3 month t-bill action yesterday?

  • tradejane

    Thanks. I ignore them anyway because (shhh) one of my accounts are with them.

    Commerzbank lost 6.67 and not by two millicents either. Bob are you hearing anything in that front? I don't know what's wrong with the banks, I guess we'll find out tonight (or perhaps Sunday?;) but it must be bad…

  • fuw

    I agree that it is looking similar, and we are definately painting a triangle/bull flag. However, we have also started to test/break some important trend lines, which is better news for bears. So in my eyes “undecided” is a good bet right now.

  • tradejane

    Re: banks

    I wonder if the following might have something to do with their weakness

    http://www.reuters.com/article/companyNewsAndPR

    Some more information:

    http://www.reuters.com/article/marketsNews/idUS

  • CorporalCarrot

    1.4850 seems a real problem area for the Dollar atm. Being staunchly defended…….a decisive break here and we will be at 1.4820 in seconds I think, which I think people have mentioned as a major options level.

  • CorporalCarrot

    Yup here we go!!!!

  • http://iberianviews.blogspot.com/ catracho

    yes .. but also worth keeping eye on currencies like NZDUSD and AUDUSD as these have been beneficiaries of weak dollar..and teh charts look like they are turning ie topping out…
    http://www.screencast.com/t/NDExNGQ2Y

  • ultra

    Longer term view – http://screencast.com/t/YjE0Mjk1

    We are coming up on s/t resistance at 1.4937. My best estimate of an Elliott count has us in (ii) of c of C (or Y if you prefer) down. This means more downside below 1.48 from here, probably starting Monday if gmak's double no touch option rumour has legs. But we are tracing an ABC down, which is bullish, so very compatible with a new high as per the longer term fib view.

  • CorporalCarrot

    Today is going to be volatile folks, EURUSD just went through 1.4820 like a hot knife through butter. No resistance at all.

  • PRSGuitars

    Any idea what happened to cause all this?

  • http://gemstowear.etsy.com Jan

    yikes! what just happened!

  • CorporalCarrot

    Trying to climb back up now, lets see if 1.4820 support becomes resistance.

  • jacksoo

    DX raced to 82.18 and then fell like a stone – what the hell just happened – this is too much.

  • PRSGuitars

    Wait — another fat finger on the DX it looks like. Spiked to near 82 and then dropped right back into range. Sure it's near its 20 daily sma… we'll see…

  • jacksoo

    just crazy – that changed the whole ES price but its not corrected alongside DX

  • http://www.flickr.com/photos/dabasia/sets/ Croozer

    There's little doubt that we're going to go down from here, less of a chance of a fast reversal IMO…….the question is (for the EWers) was the wave down yesterday a 1 down or a 3rd down with the 1 being the fall earlier in the week (marked at link).

    http://i619.photobucket.com/albums/tt275/ddabas

    If we have a 3 to come, judging by the size of the 1, the entire move down will fairly easily take us down close to 10K. I yesterday was the 3 then a slower move down unless 5 extends.

    Also useful to be mindful of the bounce that will come after the 5 is complete but when ?!!

  • ultra

    yesterday was a nailed on 3 – question to me is was it iii of wave c of abc down (meaning that completed abc for wave A and the rally for the rest of the day was wave B or something, could go on for longer, before another 5 down wave C – and then onwards to new highs or at least sideways) or was it, as you and I currently have it marked, genuinely 1,2,3 of a 5 down.

    Have to wait and see.

  • K.I.M.

    very speculating, but we could just finish head on spx on hourly

  • Schwerepunkt

    What happened? Was that because of Trichet?

  • ultra

    good vid, cheers – interesting to get the TD perspective. btw, have you been gargling gravel by any chance?

  • bobthehorse

    frankly, it tells me there is too much cash around and people are still shitting themselves.

  • bobthehorse

    Banks are over owned on the buy-side. things like comedybank have been bought for the risk trade but now there are concerns over capital requirements so bit of a shake-out going on.

  • CorporalCarrot

    Considering the topic of Michael's post, there are going to be a ton of people on HOB shitting themselves right now. 2 days ago Kemal was all-in short, then he went long, yesterday into the close people were salivating and then he went short again. I am sure most of the followers didn't get positioned for this.

  • CorporalCarrot

    Bob

    Are you seeing any impact from the changing margin requirements on the forex this weekend or is that just a red-herring?

  • Bonanza36

    Yeah Kernal lost me two trades back. I stayed short when he went long, calling for 1150. Maybe we get there, but we are down for at least a few more days.

  • Bonanza36

    Did the DXY trade at 82 get DK'd?

    Who could make such a mistake. Or was that just a probe? It did get some of the shorts to cover it looks.

  • CorporalCarrot

    Don't get me wrong, this is not a critcism of him personally. As Michael pointed out and we discussed yesterday, like any good trader he reserves the right to completely do an about face at any time. I just suspect a lot of the followers stay in the trades or miss a post and can't move as quickly. This is not his fault, but is the danger of trading off other peoples recommendations without DYODD!!!!

  • CorporalCarrot

    I heard it was a fat finger error.

  • Bonanza36

    Kernal is either nimble as hell or as crazy as Lester with his position changes. You are right DYODD.

  • bobthehorse

    I am not in FX so not sure. FWIW, I think we will rally. There has been a spurious rumour about Ukraine defaulting but it has turned out to be a Ukrainian railway. Not exactly a systemic event, may have sparked some stop triggering.

  • http://trading-to-win.blogspot.com/ DavidDT

    yes…they did… doggie style

  • CorporalCarrot

    What will rally? Equities, Euro or Dollar?

  • Schwerepunkt

    Pretty sensitive markets here either side of SPX 1100. Do you see anything magical about this level?

  • rangefinder

    Hope so TJ.

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    I'm late for lunch, BUT

    either it breaks HARD (zigzag, B going to 0.82 possibly) or it goes to 1.2 or beyond right from here (flat ABC with B=.38A)

    http://www.uploadgeek.com/share-68C8_4B0684F0.html

  • bobthehorse

    well, there is a lot of open interest so chances of getting pinned there for the close shouldn't be ignored. I did just buy some futures for a day trade. Still have the dec 1050's though and would look to sell them on any squeeze into cash open.

  • bobthehorse

    equities.

  • blues

    anyone here know why TNA trading so low? I check their website it seems there's no distribution either.

  • http://www.flickr.com/photos/dabasia/sets/ Croozer

    Good point about the abc scenario……I'm mindful of that too…..I guess the conclusion to be drawn from this is that it'ss best to take any gains from a drop and then stand on the sideline for confirmation of what happpens next before playing again.

  • ultra

    Not exactly what you'd call an impulsive decline, though.. wlt see the zoomed-in charts from 2000

  • http://iberianviews.blogspot.com/ catracho

    EURO looks to be at critical point..http://www.screencast.com/t/NGZhMzUx

  • fuw

    Euro/usd (daily):

    http://www.screencast.com/users/fuw/folders/Jin

    We are once again testing the larger uptrend, and are really close to the final straw (for the main uptrend since March), so a bounce here wouldn't be unexpected. The triangle is still in play as well, and a restest of the upper line is in the cards.

  • bobthehorse

    sorry, to be clearer. bought some futures at 1085. would sell those on a squeeze, not my puts.

  • ultra

    Ambrose EP usually worth reading in the Telegraph, I find – never fails to pander to my current bearishness – this one on china and the farkedness of the fundamentals

    http://www.telegraph.co.uk/finance/comment/ambr

  • gmak

    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    they didn't get jack for further pullback. that has played out so many times, when a market starts steam rolling one way or the other and everyone believes the move but they decide to wait for a reasonable re-tracement – it's then (when so many want the same thing) that I know either a). they wont get it or b). i don't want it any longer if they do get it.

    hey, thx for the comment

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Many thanks. Your comment tells me I got these points across and at least two of us agree they have merit. I didn't mention that some of my best gaining periods followed my worst (best) lessons; so it works both ways. The point (in life perhaps, but definitely in trading) is to make the most out of any and everything – the big set-backs are painful, demoralizing, etc., but they are also opportunities to learn how not to do things (a hot stove works this way!). Over time you either blow yourself up or you get better; or else you are more interested in self-destruction. Modesty and humility are learned – respect the stove!

  • vision_invisible

    All in short to all in long in a matter of a day? I would have no confidence in a trade plan that requires me to be so right, so nimble, in such a short timeframe, about something which I have no fundamental understanding (the market as a whole!)

  • centerline

    I know there is a new post. Just stopped here for posterity to say that again, CD, a great post. Mad writing skills my friend. Can't argue a single thing here. It is 100% spot on.

  • octospider

    great, great post man. now, walking the walk is something else entirely…. but i can try!

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Hope it is useful – thanks for the comment

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    good enough, a v and then we'll see

  • jacksoo

    DX raced to 82.18 and then fell like a stone – what the hell just happened – this is too much.

  • PRSGuitars

    Wait — another fat finger on the DX it looks like. Spiked to near 82 and then dropped right back into range. Sure it's near its 20 daily sma… we'll see…

  • jacksoo

    just crazy – that changed the whole ES price but its not corrected alongside DX

  • http://www.flickr.com/photos/dabasia/sets/ Croozer

    There's little doubt that we're going to go down from here, less of a chance of a fast reversal IMO…….the question is (for the EWers) was the wave down yesterday a 1 down or a 3rd down with the 1 being the fall earlier in the week (marked at link).

    http://i619.photobucket.com/albums/tt275/ddabas

    If we have a 3 to come, judging by the size of the 1, the entire move down will fairly easily take us down close to 10K. I yesterday was the 3 then a slower move down unless 5 extends.

    Also useful to be mindful of the bounce that will come after the 5 is complete but when ?!!

  • http://chartsandthat.blogspot.com/ ultra

    yesterday was a nailed on 3 – question to me is was it iii of wave c of abc down (meaning that completed abc for wave A and the rally for the rest of the day was wave B or something, could go on for longer, before another 5 down wave C – and then onwards to new highs or at least sideways) or was it, as you and I currently have it marked, genuinely 1,2,3 of a 5 down.

    Have to wait and see.

    /edit – or the other option, that was it and we melt straight from here to new highs

  • K.I.M.

    very speculating, but we could just finish head on spx on hourly

  • Schwerepunkt

    What happened? Was that because of Trichet?

    Edit: He is saying some of the emergency measures need to be removed to avoid inflation. Took the wind out of the European markets and the EURO.

  • http://chartsandthat.blogspot.com/ ultra

    good vid, cheers – interesting to get the TD perspective. btw, have you been gargling gravel by any chance?

  • bobthehorse

    frankly, it tells me there is too much cash around and people are still shitting themselves.

  • bobthehorse

    Banks are over owned on the buy-side. things like comedybank have been bought for the risk trade but now there are concerns over capital requirements so bit of a shake-out going on.

  • CorporalCarrot

    Considering the topic of Michael's post, there are going to be a ton of people on HOB shitting themselves right now. 2 days ago Kemal was all-in short, then he went long, yesterday into the close people were salivating and then he went short again. I am sure most of the followers didn't get positioned for this.

  • CorporalCarrot

    Bob

    Are you seeing any impact from the changing margin requirements on the forex this weekend or is that just a red-herring?

  • Bonanza36

    Yeah Kernal lost me two trades back. I stayed short when he went long, calling for 1150. Maybe we get there, but we are down for at least a few more days.

  • Bonanza36

    Did the DXY trade at 82 get DK'd?

    Who could make such a mistake. Or was that just a probe? It did get some of the shorts to cover it looks.

  • CorporalCarrot

    Don't get me wrong, this is not a critcism of him personally. As Michael pointed out and we discussed yesterday, like any good trader he reserves the right to completely do an about face at any time. I just suspect a lot of the followers stay in the trades or miss a post and can't move as quickly. This is not his fault, but is the danger of trading off other peoples recommendations without DYODD!!!!

  • CorporalCarrot

    I heard it was a fat finger error.

  • Bonanza36

    Kernal is either nimble as hell or as crazy as Lester with his position changes. You are right DYODD.

  • bobthehorse

    I am not in FX so not sure. FWIW, I think we will rally. There has been a spurious rumour about Ukraine defaulting but it has turned out to be a Ukrainian railway. Not exactly a systemic event, may have sparked some stop triggering.

  • http://trading-to-win.blogspot.com/ DavidDT

    yes…they did… doggie style

  • CorporalCarrot

    What will rally? Equities, Euro or Dollar?

  • Schwerepunkt

    Pretty sensitive markets here either side of SPX 1100. Do you see anything magical about this level?

  • rangefinder

    Hope so TJ.

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    I'm late for lunch, BUT

    either it breaks HARD (zigzag, B going to 0.82 possibly) or it goes to 1.2 or beyond right from here (flat ABC with B=.38A)

    http://www.uploadgeek.com/share-68C8_4B0684F0.html

  • bobthehorse

    well, there is a lot of open interest so chances of getting pinned there for the close shouldn't be ignored. I did just buy some futures for a day trade. Still have the dec 1050's though and would look to sell them on any squeeze into cash open.

  • bobthehorse

    equities.

  • blues

    anyone here know why TNA trading so low? I check their website it seems there's no distribution either.

  • http://www.flickr.com/photos/dabasia/sets/ Croozer

    Good point about the abc scenario……I'm mindful of that too…..I guess the conclusion to be drawn from this is that it'ss best to take any gains from a drop and then stand on the sideline for confirmation of what happpens next before playing again.

  • http://chartsandthat.blogspot.com/ ultra

    Not exactly what you'd call an impulsive decline, though.. wlt see the zoomed-in charts from 2000

  • http://iberianviews.blogspot.com/ catracho

    EURO looks to be at critical point..http://www.screencast.com/t/NGZhMzUx

  • fuw

    Euro/usd (daily):

    http://www.screencast.com/users/fuw/folders/Jin

    We are once again testing the larger uptrend, and are really close to the final straw (for the main uptrend since March), so a bounce here wouldn't be unexpected. The triangle is still in play as well, and a restest of the upper line is in the cards.

  • bobthehorse

    sorry, to be clearer. bought some futures at 1085. would sell those on a squeeze, not my puts.

  • http://chartsandthat.blogspot.com/ ultra

    Ambrose EP usually worth reading in the Telegraph, I find – never fails to pander to my current bearishness – this one on china and the farkedness of the fundamentals

    http://www.telegraph.co.uk/finance/comment/ambr

  • gmak

    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    they didn't get jack for further pullback. that has played out so many times, when a market starts steam rolling one way or the other and everyone believes the move but they decide to wait for a reasonable re-tracement – it's then (when so many want the same thing) that I know either a). they wont get it or b). i don't want it any longer if they do get it.

    hey, thx for the comment

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Many thanks. Your comment tells me I got these points across and at least two of us agree they have merit. I didn't mention that some of my best gaining periods followed my worst (best) lessons; so it works both ways. The point (in life perhaps, but definitely in trading) is to make the most out of any and everything – the big set-backs are painful, demoralizing, etc., but they are also opportunities to learn how not to do things (a hot stove works this way!). Over time you either blow yourself up or you get better; or else you are more interested in self-destruction. Modesty and humility are learned – respect the stove!

  • vision_invisible

    All in short to all in long in a matter of a day? I would have no confidence in a trade plan that requires me to be so right, so nimble, in such a short timeframe, about something which I have no fundamental understanding (the market as a whole!)

  • centerline

    I know there is a new post. Just stopped here for posterity to say that again, CD, a great post. Mad writing skills my friend. Can't argue a single thing here. It is 100% spot on.

  • octospider

    great, great post man. now, walking the walk is something else entirely…. but i can try!

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Hope it is useful – thanks for the comment

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    good enough, a v and then we'll see