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Avoiding Market Traps
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Avoiding Market Traps

by The MoleSeptember 26, 2019

Traditional technical analysis has we know it has been suffering over the past decade. In leu of legions of human participants who over the past century have attempted to predict future pice action via a geometric perspective based on price inflection points (i.e. ranges, break-outs, trends, reversals, candle patterns, retracements, etc.) markets are now effectively dominated by institutional quant trading farms. What does that mean for any remaining participants with a pulse?

It basically boils down to two options: A) Become a quant trader or B) start using fuzzy logic. Meaning, think more like a human! Instinct paired with experience continues to allow a small cadre of human traders to produce a consistent edge year after year. However let me clear that this does not give one license to trade just on a whim.

The proper approach is still strictly systemic and thus based on carefully honed trading rules, but it’s become equally important to know when NOT to take an entry that is simply looking a bit too perfect.

ZB is a wonderful example of just that. I mentioned this beautiful advance to my subscribers on Tuesday, and if you will forgive me for quoting myself:

“The short term panel on the 30-year bond futures are starting to paint a nice orderly LV advance (low vol given that the swings are on the hourly panel – so in reference to the daily) and I’m waiting for the next shoe to drop which hopefully gets us near that NLSL near 160.”

On Tuesday evening it looked like I had been horribly wrong (it happens) but on Wednesday the ZB took a quick turn to the downside. It hasn’t dropped to 160 just yet but the current pullback still looks too immature to enter into any long positions.

The take away from all this: Over the past decade this market has slowly evolved into one giant algorithmic trap geared toward drawing hapless participants into losing trades. If that describes you then you are not alone. The hedge fund industry continues to face record redemptions with momentum long/short equity funds among the biggest losers.

The silver lining of all this is that thinking like a human poker player may allow you to recognize a chart that just looks too good to be true. And this is not just academic:

Over the past few years I have increasingly narrowed down my entry requirements to the point where I only take break-out entries when everything else is pointing in my direction. In addition I shy away from setups that look a bit too polished – which I hate to admit brings a measure of discretion into the game. Where to exactly draw the line I’m still trying to figure out.

On the other having the odds in my favor means for example correlations on several time frames and perhaps vertical correlations as well, e.g. the Dollar threatening to break out before taking a short in the AUD or EUR.

Of course despite best efforts you often are forced to take a hit. After a long wait gold looked like it was finally ready to start burning the shorts but then ended up stopping me out at break/even this morning. Nobody – even the mighty market mole – gets a pass πŸ˜‰

Speaking of King Dollar and a possible break out. It’s actually looking we may just get that very scenario which has me pleased as punch. I am still dreaming of seeing the EUR at par one happy day but Christmas is approaching rapidly now and I may have to wait yet another year.

One more goodie below the fold 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 the usual social media waterholes.
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  • http://www.captainboom.com/ captainboom

    Speaking of poker, I’m currently reading Thinking in Bets by Annie Duke. Great book so far, and I recommend it.

    I’m also working my way through Mole’s system building course, and can recommend that. The discussion of volatility prompts me to post this site, with GARCH in all it’s glory. Poke around and you’ll find you can input individual stocks, etc.

    https://vlab.stern.nyu.edu

  • HD
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    1994 called. They want their book back. (Heady Days of possibility for me)
    https://www.amazon.com/Fuzzy-Thinking-New-Science-Logic/dp/078688021X

    apparently, fuzzy logic goes back even farther!
    https://en.wikipedia.org/wiki/Fuzzy_logic
    -GG

  • ridingwaves

    nice find Captain on second link…

  • ridingwaves

    XBI, fill the gap so I can avoid market traps….:)

  • HD

    2960 area, again….. who’s taking the bait this time?

  • ridingwaves

    Mole, the OPEX yesterday was good setup for gold shorts to put some fear in bulls…..and they did, October is busy gold contract

  • BKXtoZERO

    looking weak with fresh lows… maybe this is leading??

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    dead quiet in here.
    BobbyLo, I did like I promised. Trailed the last third.

    yes, it’s mechanical. I can sense the virtual eye rolls.
    trader’s gotta trade.

    https://uploads.disquscdn.com/images/4fa64e961892419036ecb9f93060e978227d06211aa06c24200e20fc4d793a6e.png

  • Darkthirty

    2984.25 would be symmetrical

  • Julie 35 – 25 – 36

    Hi GG Were on the sidelines being patient. As stated in post yesterday watching the 5 ema
    JULIE

  • https://evilspeculator.com Sir Mole III

    I thought it was a pretty good post – maybe I should go on vacation….

  • https://evilspeculator.com Sir Mole III

    Yeah love that tool as well. Tony and I were actually thinking of building something not dissimilar for our systems, so this is very helpful.

  • BKXtoZERO

    I think I can beat these quant trading firms lying in bed trading on a laptop getting up 2 hours late. I just let them tire themselves out and when I wake up I just smack em in the face.

  • HD

    ha Agree. what an insult to think we are all morons and only the quants can figure shit out.

  • HD

    ping pong.

  • Julie 35 – 25 – 36

    HD There is a formula to ascertain the algos. I know the formula and it takes time to do. I have posted the algos before and guys here have used them day trading almost to a “T”
    JULIE

  • Julie 35 – 25 – 36

    Hi Chief It is a great post Thank You Chief
    JULIE

  • BKXtoZERO

    What I started doing was looking for standard set ups that fail… like EW patterns that are obvious and play them the other way. I also began just waiting on the highest bullish set ups that most think won’t be hit before I get excited.

  • HD

    agree, they even made it a little easier. The 10 handle rule is now 12-17 so you don’t have to be perfect. Plenty of algos. HWB still there almost weekly.

  • HD

    the quants are still crunching the numbers.

  • HD

    don’t get me wrong. I love Mole’s work. There are many ways to get the job done though. You can’t just dismiss how smart this market is now.

  • BKXtoZERO

    Right now I am long crude but I knew (no one wants me to say they) but the market always likes to prove itself in charge during crisis events so I figured the gap would be closed. Now small EW ABC up that anyone left looking at that stuff thinks is bearish….but we are at series of higher lows right here too so I like it as a long.

  • Julie 35 – 25 – 36

    BK USO It’s holding the lower trend line too
    JULIE

  • HD

    as long as 55 holds good luck

  • Julie 35 – 25 – 36

    HD The market is designed to pick the pockets of the unscrupulous and least informed. Also those on one side of the boat
    JULIE

  • http://www.captainboom.com/ captainboom

    ?? The market is RUN by the unscrupulous. πŸ™‚

  • https://evilspeculator.com Sir Mole III

    I often think that many people here have gotten all too used to being served a new market update almost every day – and much of it for free. It’s not going to last forever guys – so enjoy it while it lasts πŸ˜‰

  • Ronebadger

    YOU do what you want…it’s YOUR board…

  • Darkthirty

    I noticed they changed the program, some tricks I used have been compromised….go fish

  • BKXtoZERO

    Sir… I think it is more a function of market type that trades and discussions here slow. I would not take this personally. You said yourself that there are almost no set ups to be had that fit your criteria. When the market gets exciting you see more people here interested.

  • Ivan Hrusovsky
  • BKXtoZERO

    I also don’t think everyone is clamoring for a new post every day. I think we all realize that no new post means no change. It is appreciated everyday regardless as a great meeting place.

  • https://evilspeculator.com Sir Mole III

    Not sure if the subs would agree πŸ˜‰

  • https://evilspeculator.com Sir Mole III

    EXACTLY

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

    Mole was talking about pairs trading in his system building course, and said the word “eigenvalues”. Haven’t heard that since college πŸ™‚ Really good stuff Mole. I’m liking the course.

  • http://www.captainboom.com/ captainboom
  • http://gerb-reloaded.blogspot.com gold_gerb

    like I’ve been saying “Zimbabwe B!tchez”
    πŸ˜‰

  • http://gerb-reloaded.blogspot.com gold_gerb
  • http://ibergamot.blogspot.com/ i Bergamot

    @ Molecool
    Maaan, you struck a nerve with this missive on technical analysis. You probably don’t remember, but we had an open discussion about it here, years ago. It actually served as a turning point in my thinking about investing and speculations.

    For example:
    One of methods I use is a “dynamic rotational portfolio”, where a new position is selected randomly from list of approved candidates, and then the whole portfolio managed for gains and losses – sell biggest looser first, if there is no big loser then sell biggest winner, if everything is flat or ripping tits then wait.
    No technical analysis at all. But fuzzy?… yes

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

    yes the banks will try , and there is a new generation that believes in free money – and people extrapolate – the worst thing to do – but an innate human trait

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

    lol
    I found it.

    Thank you for talking to me – you are a true mentor
    Ignore last passage, i think I was drunk by that point

    http://ibergamot.blogspot.com/2014/02/the-map-is-not-territory.html

  • https://evilspeculator.com Sir Mole III

    Long time no see – and of course I remember you! What have you been up to ever since? Still in the game?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    The prodigal son returns.
    Dibs on the ‘fatted calf’.

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

    I’ve been lurking here quietly, love to read you, but don’t comment because I’m in stocks and on longer time frame – don’t want to clash with the flow here.
    In the game, and bigger than ever… but in the shadows

  • https://evilspeculator.com Sir Mole III

    Understood. Glad you’re still dropping by.

  • Ronebadger

    What’s the date of this article?

    “We are currently in year 6 of the current secular bull market”???? I thought we were in year 10???

  • BKXtoZERO

    L TVIX 13.68 on pullback. See…. Right when I get up ;/

  • BKXtoZERO

    Then they didn’t read your list of trading rules carefully. ONLY EXPOSE YOURSELF WHEN YOU SEE AN EDGE. OF course I enjoy exposing myself all the time :/

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    I have rarely seen such a mess on all three panels. Frustrating for pretty much any system out there – with the exception of perhaps the most cunning ST swing traders/scalpers.

  • Mark Shinnick

    Yes, this a perfect fuzzy logic opportunity !!!

  • Mark Shinnick

    drv 27.20 appears required to demonstrate a relative local breakout.

  • Mark Shinnick

    Oh…the Dark Web.

  • BKXtoZERO

    Just smack em! He he he he

  • Julie 35 – 25 – 36

    USO holding lower trend line. No positions either 401K’s or stocks. Patience is golden
    JULIE

  • ridingwaves

    I think we are in year 9, 14 years is usual secular market length….

  • Mark Shinnick

    “Fuzzy logic” might not wait for that hard number, however. I haven’t, been size soxs since yesterday.

  • Mark Shinnick

    For a long time now, debt and equity markets have been “FED” crazy liquidity by the truly unscrupulous seeking to bypass natural market cycles. The consequences of this has always been much greater pain and suffereing for much longer than would have otherwise have been.

  • https://evilspeculator.com Sir Mole III

    I think that’s where my fuzzy logic hits the wall.

  • https://evilspeculator.com Sir Mole III

    Agrrrrrreeed…

  • Mark Shinnick

    Your Teutonic Bias?

  • BKXtoZERO

    Market analysis……..

    1) the slide into oblivion 2) the Death Spiral 3) getting sucked into a toilet

    https://uploads.disquscdn.com/images/7cbbdc0a465414c69895114a654fdc2bd9793970fc9593cf213bc8f4dd3796f5.png I

  • Julie 35 – 25 – 36

    Chief SPX cash 2957 an important support to hold
    JULIE

  • BKXtoZERO

    he he he he. Just smack em Sir!

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    I should have known. Survivor came out Spring 2000. Kill or be killed.

    https://www.youtube.com/watch?v=C9XCIrfXG_Y

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    ERY,
    no one’s looking at the 5 ema.
    well – most no one. https://uploads.disquscdn.com/images/e167de02680b7e53a73f2ee2ca5a7ee777ecf4981514c962f4757bb282cfd125.png
    πŸ˜‰

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • BKXtoZERO

    Out of most of large day position TVIX + 1$ 13.68 to 14.68. Holding a bunch daily position still.

  • Mark Shinnick

    Yeah….pretty damn important “lines” right in here right now…

  • Mark Shinnick

    If this is for real, those daily’s get easily recovered. There obviously a lot of pent-up energy.

  • Cyd

    GG That photo is similar to me in college
    JULIE and Cyd

  • Cyd
  • Cyd

    My disqus is messing up so having lunch with Cyd

    JULIE

  • BKXtoZERO
  • Mark Shinnick

    I’m whipping your ass a little today with that soxs….opps..a vix pop….its been amusing to watch these horses trading places.

  • Mark Shinnick

    Ok…drv 27.15 getting close to real.

  • BKXtoZERO

    Jumped in 27.10 DRV.

  • BKXtoZERO

    Going long Vaping stocks via 5X ETF. VAPE

  • Mark Shinnick

    Yeah, saw that .1987 print. Very edge stuff in here. Its a lot more genuine looking than the past months…there still enough time in the day for this….except the fear thing isn’t taking as much hold with increasing slopes.

  • Mark Shinnick

    From 50 to .0004 wow.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Go Baylor!

  • Mark Shinnick

    …never really cut it today….y know?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Time Check.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    https://media.giphy.com/media/tIwqmLZDYSaZyEEslc/giphy.gif
    kinda like Cyd when she’s bullish, LOL.

  • Mark Shinnick

    HY basically held support today even with a new local low.

  • Cyd

    Mr G Julie unable to access blog LOL Tomorrow we are going hunting archery and we will be in the snow.We will be wearing our whites head to toe.Opening weekend Sept 7 we saw both elk and deer but unable to get close enough for a decent shot. I shot once but missed a nice bull I really like hunting in the snow as it’s quiet and easier to track You have a nice weekend Mr G
    Cyd

  • Cyd

    Julie’s husband won’t let us be more than 10 yards away from him in archery.Rifle season we have to be right next to him and our rifles must have an empty chamber
    JULIE and Cyd

  • Cyd

    GG Grizz means it too ! Yes Sir lol
    JULIE

  • Cyd

    $SPX 2957 very important support. Breaks below watch 2922
    JULIE and Cyd

  • http://gerb-reloaded.blogspot.com gold_gerb

    did I ever mention Grizz was a wise man?
    ;-D

  • http://gerb-reloaded.blogspot.com gold_gerb

    NONSENSE.
    2863, everything else, is a bouncing ball.
    πŸ™‚
    https://uploads.disquscdn.com/images/3071a774084f71a0db6c9c12be1a53fb0a200afd7a516c83f3b90fd780288033.jpg

    ps. Feed those pigs, snow this weekend.

  • Cyd

    Mr G I am spending the night at Julie’e so we get an early morning start Also we have 2878 as a level to watch if 2922 is busted
    JULIE and Cyd

  • http://gerb-reloaded.blogspot.com gold_gerb
  • http://gerb-reloaded.blogspot.com gold_gerb

    WooHoo – pillow fight!!

  • http://gerb-reloaded.blogspot.com gold_gerb

    I’ve been told those zigzags in Aug actually create a zone of support.

  • Cyd

    Mountains forecast to get 3 feet We love it as it’s great for hunting’ The ski lodges will open early this year
    JULIE and Cyd

  • Cyd

    BLT’s with avocado ! Yum !
    JULIE and Cyd

  • http://gerb-reloaded.blogspot.com gold_gerb
  • Cyd

    In the valley snow always by Halloween It’s going to be early in the valley this year
    JULIE and Cyd

  • http://gerb-reloaded.blogspot.com gold_gerb

    You truly are – Cougar.

  • http://gerb-reloaded.blogspot.com gold_gerb

    solar Minimum. Mole’s on my side.

  • Cyd

    10 pm Time for pillow fight Good night Mr G

    JULIE and Cyd

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    A dated conversation from Spring, but an interesting chit-chat with John Hempton.
    https://www.youtube.com/watch?v=EDvl8qR08Cg

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • https://evilspeculator.com Sir Mole III

    Becuz global warming! πŸ˜‰

  • https://evilspeculator.com Sir Mole III

    I’m with you mate. That’s actually my main concern with moving to a place like ID, MT, or WY – it’ll be a rough up there during winter in the decades to come.

  • https://evilspeculator.com Sir Mole III

    Then again – it keeps a lot of the idiots away. Forces people to collaborate and rely on their neighbors.

  • Julie 35 – 25 – 36

    Testing … Testing … Trouble with disqus
    JULIE

  • Julie 35 – 25 – 36

    GG Yesterday we got back in time to go to the MSU – NAU Football Game. I mean really… You would have thought that your team the Lumberjacks would have put up a better showing against the Bobcats ! I mean Really ! ! !
    JULIE.

  • Darkthirty

    Would you also assume that southern California will get more precipitation?

  • Darkthirty

    He doesn’t appear to be 240# yet. They’re not “real cute” then….

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    The Bobcats earned it.

    ” Travis Jonsen ran for 105 yards and two touchdowns to lead Montana State back from a 21-0 first-half deficit to a 49-31 win over Northern Arizona in a Big Sky Conference opener on Saturday.”

    “The Bobcats methodically got on track in the third quarter and they still trailed by 10 at the start of the fourth but exploded for 28 points, including 14 points in an 18-second span after NAU fumbled on a kickoff return.”

    I do think they should check Travis for doping.
    =P

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Amen.

  • Darkthirty

    You oughta give a hand when it’s time to turn em into barrows…..

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://www.captainboom.com/ captainboom

    The date is right in the heading: Sep 26, 2019

  • http://www.captainboom.com/ captainboom

    If the weather gets too nasty, just stay inside and engage in indoor sports. The skiing will be great when the weather lets up.

  • http://www.captainboom.com/ captainboom

    Thanks for that blast from the past. Good stuff.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Another Atlantic CAT 5? you’ve got to be kidding me.

    Mole, cancel your trip to the Azores.
    πŸ˜‰

    https://s.w-x.co/wu/trop-storm-force-winds-lorenzo-0Z-9.29.19-835px.jpg

  • Darkthirty

    Is that stuart smalley?

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • https://evilspeculator.com Sir Mole III

    That’s what they call nature’s BREXIT – LOL πŸ™‚

  • http://www.quemango.com Herb InCebu

    He’s wrong about Elon Musk. Musk is a full on fraud. His bio is bullshit that does not hold up, Spacex launching the Tesla into space was clearly fake (fraud since they claimed the blew $100 million just for fun), Landing Rockets are also a fraud CGI and I guess they stole the money they say the “project” cost..
    Wikipedia page and bio reads like a red flag; straight up BS from top to bottom. I could go on with Zip2, PayPal with stories that don’t make sense or in PayPal’s case owned by Confinity and already profitable before Musk and PayPal had big investors like Deutsche Bank so He could not have been involved with the founding of PayPal. He is a fraud!

  • http://www.captainboom.com/ captainboom

    Well, an engineer from JPL has a site that tracks the roadster. He’s not affiliated with Tesla, et al. Here’s an article with a link:

    https://www.businessinsider.com/where-is-elon-musk-tesla-roadster-in-space-2018-2

  • http://www.quemango.com Herb InCebu

    I did not know about that but JPL, Jack Parson, protege of Aleister Crowley. I am not surprised that they support that bullshit.

  • http://www.quemango.com Herb InCebu

    Should also mention that putting satellites in orbit is internationally regulated to avoid collisions and such and also to limit debris that will mess up other satellites.