Muppet Time!

It never fails. Despite all efforts to the contrary a handful of you retail rats accidentally find yourselves in the midst of a winning campaign. Invariably early withdrawal symptoms to your expired ADHD meds are starting to appear as the urge to do something (i.e. take profits now or otherwise ruin your odds of long term profitability) is growing by the hour. After all, winning is not something you are accustomed to and there’s no social media support network backing you up as everyone now hates your guts and hopes for an opportunity to urinate onto your shallow grave. For it is lonely at the top and you are on your own.

Now I have tried many times to drill this point into your rodent brains but apparently the reflexive Pavlovian response is tantamount to my childhood attempts of stacking snausages onto my dog’s snout. Very rarely do you get a to a count of three as Woofy simply can’t wrap his canine brain around the fact that the longer he is able to wait the bigger the pay-off. In the end all this boils down to the fact that the half-life time of your ability to sit still and do nothing is shorter than that of your average field mouse.

Now, to answer the question on your mind: Yes, and no. It all depends on your trading style.

Oh, what was the question you ask?

Is it a good time to take profits here?

Well, obviously it’s a great opportunity to shake out the muppets. Look at the chart below and what I posted yesterday. If you got positioned when/where I told you to on Monday morning then you are an honorary member of the strong hands club right now (no secret decoder ring). And this grants you the rare luxury to do nothing and let things run its invariable course. For every time you are in an ongoing campaign there is only one equation you should be concerned about:

What is the ratio between opportunity and risk right now?

Meaning, what are the odds the tape is going to advance (or drop) more than the odds for it to reverse and stop me out (wherever your stop is). This is not an easy answer and it depends on your trading style. For automated systems for example I painstakingly measure the average MFE and MAE of each system and then use those statistics to arrive at an optimum campaign management style.

For discretionary campaigns you employ a fuzzy logic approach based on your pertinent experience and again your trading style, which can be shifted as the campaign unfolds and new evidence is revealed. That however requires strict personal discipline and that right there discounts 90% of all participants. I know I know – the truth hurts – you can blame your Kindergarten teacher or some dramatic childhood experience if that makes you feel better. Believe it or not – I don’t come here to stomp on your fragile egos – no matter how tempting.

Now for me personally here right now I am more concerned about the possibility for the bears to have their faces ripped off. And the odds are about 50/50 that this will happen in the coming week. However we still cannot discount the the possibility that we may retest the lows or drop even lower. Plus today’s event schedule offers a ton of opportunity for monkey business across the board. The bears still have a prayer of a chance to turn the table as long as we remain below the 25-day SMA.

I for one am perfectly happy to endure a deep retrace because if this eventually continues higher I’ll be holding it all the way. And if it fails – well, I’m out at break/even. So my worst case sceneario is to lose nothing and the best case scenario is to smile all the way to the bank. Again. Remember the Dollar campaign two months back. Same idea and same approach.

On the setup side I really like crude this morning which seems to be gaining a bit ground. Besides everyone hates it right now which increases the odds of a little surprise squeeze. I’m putting half an R on long above the 25-hour SMA – stop below 82.

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Words to the wise:

For some of you it is important to realize that trading is not a spectator sport. Invariably you will get the crap kicked out of you a few times and everyone processes that experience in different ways. Some simply walk away, others dust themselves up, learn their lessons and jump back into the ring. But there are many who cling onto the dream and at some point decide to become some sort of couch coach. A lot of self deception and pain avoidance is at play here but essentially it makes you feel as if you’re still part of the game. ZeroEdge is full of these people – the vast majority of them haven’t executed a trade in years.

Drawing lines on a chart and talking about it doesn’t make you a trader – only placing trades and accepting the invariable consequence of either winning or losing does that for you. Even if you’ve had a tough year and you may decide to sit things out for a while there will come the day when you have to get back on the horse. When you’re at that point we are here to help you and guide you along. But it’s unproductive to come here post some illustrious charts without intent to use them for trading. At best it’s a boring academic exercise and at worst it’s a waste of your and our time.

Cheers,