Let Me Ride!

Some of the hardest mental disciplines for retail traders to acquire is one that got drilled into my head during my trend trading days: Cut your losers short – let your winners run. Unfortunately our brains are ill wired to deal with the cognitive strains involved in trading the markets. So we often wind up doing the exact opposite – we find excuses to let our losers run and to take profits as soon as we see a bit of green blinking in our trading console.

I enjoy covering trading related concepts via real-world examples. And gold is a perfect one at the current time – if you recall we were following that sideways triangle as it was coiling up, expecting it to pick up a direction and then take off. Which is exactly what happened and if you took that entry near the bottom diagonal then your account should be making you smile right now.

Of course I know what you’re thinking. After such a move wouldn’t it make sense to take profits? Yes – and no 🙂

It all depends – let me explain. If it was just a daily setup then I would probably start scaling out right now. However there are other considerations that come to mind – in particular the weekly and monthly panels. The weekly just dropped through some might support level that has been holding up most of last year. And the monthly has gold touching a NLSL for the first time since early 2011.

IF (and of course only if) gold continues downward from here and triggers a monthly sell signal the implications could be significant. A monthly close below 1586.3 would raise the odds that we’re going to visit the 1400 mark and perhaps much much lower. So if you ask me if it’s time to take profits – sure, take partial profits, that’s fine. But I think the long term potential here justifies keeping a few lottery tickets in the running. We got a good entry and we banked coin – which means we can afford to ride out a little snap back if it happens. Should we get stopped out via a snapback higher – well, that’s part of the game.

You will never be able to look at a monthly chart and say – ‘damn, I wrote this sucker all the way doooown’ (or up) if you aren’t able to sit tight and do absolutely nothing. So in the words of the good Doctor – let ‘er ride!

Crude is painting an outside period (OP) and is kissing its 25-day SMA. Interesting and as long as it holds I think I want to be long here for the following reason:

See the weekly panel – we’re right at the 100-week SMA and it’s got decent odds of holding. Also, that sideways triangle looks incomplete and IMNSHO it would make the most sense for a touch of the upper line to complete before we turn back down. If you take a short position on a breach of the 25-day SMA then recall that there’s support waiting near the 85 mark.

The greenback is holding up nicely but it’s got quite a few hurdles lurking ahead:

The weekly is looking fine but the monthly has it right below its 100-month SMA – and that one has been a party pooper for the past few years now. I would love to see it make it above 82.5 but until we get there call me hopeful but very skeptical.

Bonds – we got a little spike higher on the ZB front but it fell back below our diagonal. I think the hourly is a great way to keep in the game right now as the 100-hour SMA lines up nicely with that diagonal near 143’07.

I’m not taking on any positions before Tuesday but the CAD/JPY is looking interesting right now and I recommend you keep an eye on that 25-day SMA which is lining up with an expiring NLSL. If you want to be long here then mind that 25-hour which now needs to hold up.

Public Service Announcement: Monday is Washington’s Birthday (Presidents Day) 2013, and the NYSE will be closed. My next post will be on Tuesday morning – I plan to spend the long weekend working on my new trading system.

Cheers,