Recipe For Trading Success

Always fade the news, folks – trading the headlines has always been a sucker play and a guaranteed way to either get taken to the cleaners or worse – to get scared out of winning positions. We here at Evil Speculator prefer a more minimalist approach focused on a few select ingredients:

Recipe For Trading Success

• 2 cups of pure price (red or green)
• 1 oz. of sentiment
• 2 tbs. of momentum
• a dash of out of the box thinking
• optional: one or two indicators

Carefully separate the sentiment from all the news and rumors. Rinse it in cold hard facts and make sure you only leave the raw numbers. Put the sentiment into context by comparing it with ongoing trends, historical data, seasonality, etc. Slowly stir it into the momentum and bring it to a slow boil on a low flame. Then mix in price and apply some out of the box thinking. Optionally use one or two indicators but make sure to avoid form fitting by trimming the indicators to plot what you want to see. Continue to boil until a clear edge starts to float on the surface – skim it off and store it in a jar. Make sure the jar is sealed and securely stored as to protect it from all your emotions and various cognitive biases.

Use sparingly with your favorite dish but make sure to stick within your daily trading diet and to not fall prey to over trading. Serve on a silver platter and garnish with your favorite spice girl.

There you have it – see, this wasn’t so tough! 😉

Now on to more serious matters – today’s copper chart is a great opportunity to get all the new subs familiarized with how we play those net-lines:

On the left side of the chart you see the hourly panel and the right the daily. As you can see the daily is somewhat in limbo when it comes to net-lines but just bear with me. Yesterday afternoon we got a breach above copper’s hourly NLBL (net-lines buy level). From there it busted higher and then snapped back after running into both upper Bollingers. After a retest of the NLSL (net-lines sell level) it bounced higher, which suggested continuation of the prior buy signal. This does not always happen but if you take profits at the BBs then it’s fair to wait for a test of an inverse net-line (sell on a buy or buy on a sell).

Obviously we pushed up hard since then and never as much as touched any NLSL, which in itself is very bullish. May I also point out that copper busting higher despite the little emotional drop in equities this morning potentially favors more upside. But of course we cannot rely on correlations these days so let’s take a peak at the spoos:
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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Well, we bounced back exactly at the daily NLBL – how’s that for a coincidence? Of course we need to make it across 1190 or it’s lights out for this counter rally, with or without Steve Jobs. On the hourly panel I have pointed out two support lines – if we breach through the first one it’s defcon 2 – the second one would be defcon 3 for the bullish perspective.

As a sidenote – we are somewhat in limbo land here – it’s like that strip between East and West Berlin wall back in the days. We are barely above the lower 100-day BB but need to make it across two NLBLs plus the 25-day SMA. It’s possible we get to the moving average but then bounce back – which incidentally would be roughly the 1220 target I pointed out a bit over a week ago.

My point is that guessing the tape here is very precarious and the path for the longs is littered with obstacles. If you mix in earthquakes, retiring CEOs, Libya, and what have you, then you just know that emotions are riding high which usually puts a lot of pressure on the rational sections of the average trader’s brain. Expect this thing to run like a hare and thus stay nimble.

I personally staying aside and letting the tape come to me. If we get to 1220 or higher then we can talk about the ongoing trend and whether or not we should expect continuation upward. If we fail here then we’ll have to pick the point of downside verification as the long term downside potential would trump the few measly handles we may loose in between.

Bottom Line: Don’t get married to your positions and stay very nimble – this is rough tape and stick with clear momentum – don’t try to step in front of anticipated moves. If you do you will most likely get squeezed and manhandled – unless of course you enjoy that sort of thing.

Cheers,