One Rules Them All

I am still recovering from a little technical melt down I experienced with ThinkOrSwim this morning. Fortunately their customer support really kicks ass and helped me roll back minutes after posting a slighty angry support request. Alright, it was a really angry request – but who can blame me? We’re talking about dozens of charts here that suddenly disappeared.

Anyway, it’s all fixed now and I’m a happy camper again. Yes, they screwed up their last release but it is clear they are working hard to help everyone roll back to their previous setup. If you have any trouble at all – just email support@thinkorswim.com and they will help you out. Even with all the recent trouble I maintain that they are the best platform for retail traders, period.

Anyway, now back to the markets. I’m posting this chart in the clear as I think everyone should see it after what transpired yesterday while I was on the train South. And I’m not ashamed to admit to this being a plug as this chart continues to keep dominating all others. Some of you subs are familiar with it as it’s a recent edition to the team – the daily Zero.

For the past two months the daily has been pointing upward, much to the chagrin of any bearish subs who have learned to respect it. It’s almost become a daily routine now – after the closing bell I pull up the daily Zero and upload it to the server. And every time I do it I am on the look out for a more negative signal which would be an early harbinger of structural weakness and thus short to medium term downside.

But as you can see – the daily Zero has been stubbornly pointing up. And guess what – thus far it continues to be proven right. I’m not sure what’s making this market tick, and despite the fact that I wrote the damn thing I myself am surprised by the level of reslience that equities have been exhibiting in the face of a relatively firm Dollar, plunging treasury yields, horrible economic reports, etc.

Listen guys – if you’re like me you have been reading hundreds of opinion pieces and studied thousands of charts trying to figure this market out. Yeah, you can do that and maybe you somehow manage to call the wiggles in this tape. Or – you can just follow the Zero 😉

There are three of them now. The daily is the latest edition and it’s really growing on me. The hourly was the original Zero and it shows us nice divergence across daily sessions. If you’re a swing trader or even scalper the Zero Lite is where all the action is. I can’t tell you how often it has kept me and my subs out of trouble – in particular ahead of head fakes. Anyway, if you like what you see and are interested in becoming a Zero sub then don’t waste time and sign up here.

Alright, now after this shameless plug I want to respond to Tim Knight’s post from earlier this morning. I tried to get him on the phone but he seems in bad spirits, so I will address it in an open forum as I actually meant to encourage him. This is what Tim said:

Two important questions I’ve been posing to myself:

Why not just resort to day-trading? It’s tempting. When I read about nummy having something like 28 profitable days in a row, and Market Sniper having – what was it? – something like 50 – – not to mention day traders not having to worry about overnight gaps, it is horribly tempting to throw all the knowledge I’ve built over the past quarter-century into the shredder and just take that approach. But, simply stated, that just isn’t me, and it’s not my style. There’s a reason I approach the markets the way I do; sometimes it works brilliantly; sometimes it seems foolhardy. Lately, it seems to be more of the latter. But throwing my arms up and completely changing styles just because I’m frustrated doesn’t seem prudent to me, although I’m willing to hear other opinions.

Mole: You are worried about throwing away the knowledge you accumulated over the past few decades. That’s understandable. However, you ought to ask yourself what good ‘knowledge’ is when it ceases to serve you? I study martial arts and an aphorism in Aikido – which has only two belts, white and black – is that as you gain more proficiency and work hard you finally are being rewarded with a black belt. Then you keep training and as you do your belt starts to fade and after hundreds or thousands of washing cycles fades back to gray and then almost white again. This is representative of the fact that in martial art you have to learn all these techniques to master an art. And then you have to forget all of them – in a sense, you complete the circle. You have to make them your own – they have to become you. And at some point you don’t think about techniques anymore – you just move when necessary and your instincts will tell you what to do. But those ‘instincts’ is the accumulation of what you have learned and practiced for years and years.

Now, I’m not saying that you should trade via instincts, that is not what I tried to communicate. Rather, I suggest that you should not be afraid of throwing away anything you have learned and that may have served you in the past. I just recently switched from Aikido to Systema, which is a Russian system I am really starting to appreciate. But guess what – many of the things I learned in Aikido I now need to abandon and I again am training with the white belts. Of course I do have a bit of an advantage, but you can’t walk into class and think that you are a hot shot and that you think you know something. That’s a mental block and it will lead you to not learning anything new. Plus it’ll lead to getting your ass kicked – hehe 🙂

Maybe that’s why we are mortals to begin with. We accumulate too much baggage and knowledge that may not be applicable as times change. But even within our times we often find ourselves unwilling to embrace change – despite the fact that change is the only constant in the universe. Now, in terms of trading it is very clear that this market has changed considerably in the past few years. And I’m certain that it will never revert to what it used to be – traditional technical analysis simply is unable to offer the type of edge we were able to enjoy for the past few decades.

Phoenix From The Ashes:

But this is also an opportunity to excel to the next level. I have been spending a lot of time working on new automated trading systems lately and yes – they are all intra-day systems. And not just swing trading strategies – most of the ones that seem to be unaffected by the daily gyrations and gaps of the past two years are running on a 1 minute chart. So there – we can argue with what we think what’s ‘right’ or what we want this market to be – or we can just accept the market ‘as is’ and develop tools that offer an edge. I choose the latter.

What worries you more than anything? It isn’t pre-election shenanigans; it isn’t monthly OPEX silliness; it isn’t the Fed; it isn’t Geithner. What worries me above all is…….what if I’m wrong about the economy? What if all this government intervention, in the end, turns out to be a brilliant stroke, and it really does set the economy on the road to a robust economy complete with healthy, growing earnings, growing employment, and worldwide prosperity? What if my sense of “balance” and “natural” is just misguided, and the modern knowledge of economics has yielded a situation where things simply aren’t going to roll over again? I have no answer. That’s simply my question.

Mole: What we ‘believe’ does not matter. The market is smarter than you, I, Prechter, or anyone else out there touting that they have seen the future. Quite frankly, I can show you some probabilities via my wave counts and many times I nail it spot on. And then there’s that sudden move that nobody anticipated – maybe I was suspicious about what preceded it (i.e. my comments to the Zero subs last Thursday) but did I anticipate a spike like we saw yesterday? Hell no – and neither should anyone for nobody has a crystal ball (except Goldman Sachs). Your sense of balance and natural wave form is very honorable and probably spot on, Tim. But you may be limited by your human perception in that you want it to happen now when you feel a redemption is overdue.

Well, sorry to disappoint you, my friend – but there is no ‘fairness’ in war, love, or the financial markets. If I have learned one thing in my life is that the big dogs get away with pretty much anything while the poor minority group schmuck who’s trying to feed his family via some desperate and act like robbing a gas station for fifty bucks gets thrown in the slammer for over a decade. That’s life – and although you have experienced success in your personal life do not make the mistake to think that any of us are excempt. Life is a bitch and then you die.

The market will do what it wants to do. All we can do is to follow the signs and then do what we have to do to survive and fight another day. Another lesson I have learned is that half of winning the war is to surviving and being able to fight another battle. Thus, instead of complaining I am spending my energy focusing on new tools and systems that are impervious to news, manipulation attempts, FOMC statements, etc. I think I am making great progress and to me it is clear that the future is in automated trading.

Bottom Line:

In the coming months Evil Speculator will slowly shift its focus from traditional technical analysis to automated trading and selected tools that provide a clear edge. The Zero is one of them. Geronimo is another. But there are more to come and I’m just getting started.

Cheers,

Mole