Then Obviously, You Don’t Know Trading
We came into today’s trading in “buy mode”. Asia is still celebrating the New Year, and ranges all week in Asia are expected to be tight. “OK, so what’s your excuse Europe?”
Half way through the trading day, I sent my algorithm traders an email letting them know that this extremely low intra-day volatility was the reason I didn’t take a buy signal from the algorithm at 3:05 AM [Chicago time].
“Did you not like the signal? How do you discern this? What made you “skip” this?”
In one simple word: volatility. Or, to be more specific, the discernible lack of volatility after 12 hours of trading.
I come into each and every trading day expecting to see normal or above normal volatility in the market. When I see below normal volatility, my “Professional Cannonball Dodger” [today’s post at http://vegasxau.blogspot.com] title goes into full fledged application.
I’m assuming we are going to have an approximate $20 range in gold today. How it gets it is the million dollar question. We’re sitting here at 4 AM [Chicago time] with an approximate $ 9 trading range and the algorithm gives a buy signal.
The problem isn’t that it’s a bad signal; the problem is that with a range of $9 we are closer to the low than the high, and if the market is going to make a $20 range today, then 1 of two things has to happen.
Either we continue with new lows [thus expanding the range by going lower], or we get a reversal to new highs and put the range in that way. I’d rather buy at 1678 than 1672 given this last scenario because then the probability of making new highs [and thus expanding the range] is much higher there than at 1672.
Since we are in “buy mode” there is absolutely zero chance I fade the algorithm. If you ever see me do this, you know for certain the aliens have landed and I have been “podded”.
OK, so if we expand the range by going lower, then why would I want to be long on a buy signal? I can’t be short, and the market is showing me it is grinding lower with rallies very short in price and brief in time.
So, if I religiously follow the algorithm, knowing what I know, I can probably expect a string of buy signal losses before I finally get a short-covering rally that can get me back to even? So, how many?
"I'm a trader, not "The Amazing Kreskin"."
Why would I want to put myself [and my dear clients] in a position where we pray for a rally to breakeven? I can be at breakeven without doing anything; I don’t need to trade to be at “breakeven”!
By 9 AM [Chicago time] we are fast approaching the window where taking new positions is not advisable given probability considerations [that would be 11 AM Chicago time]. With the market showing no inclination to do anything but chop lower, the algorithm in “buy mode” with 2 theoretical long positions that either got nothing or showed a small loss, and time running out, why would you trade today?
I’ve already outperformed the algorithm [due to my recognition of low volatility] today by sitting on my hands. I don’t need a situation where I need a nice $6 rally to get me to zero.
“Thanks Mr. Market, but been there done that and I’ll pass.”
So, to my PAMM clients, I say this today: 30 + years of experience trading gold [and a bunch of other markets] has given me “religion” when it comes to volatility.
In previous posts [at http://vegasxau.blogspot.com] I have stressed the importance of knowing and understanding volatility; today you learn first-hand how I incorporate volatility into the algorithm and the importance of price and time in conjunction with each other.
When they logically don’t add up, I sit on my hands, knowing this is THE [one and only] major limitation in my algorithm.
I don’t trade for action; I don’t trade other peoples money to generate rebates on the spread; I don’t trade to see if there is any chance to garner a further incentive fee; I trade to make money when I have the statistical advantage in my favor based on past history.
Your account had a victory today. You won’t see it in the HotForex statistics, or in any spreadsheet. Days, weeks, and months will pass and people will forget the importance of this day; I won’t because I consider myself a professional trader.
These are the types of days that build your account silently; they are just as important as days we clean up with money in the bank. When others are climbing out of a huge losing hole, most of the time we are avoiding the situation entirely. That’s not to say we won’t have our day; we most certainly will, but it isn’t today is it? As I said in my companion post on the other website, what I really am is a “Professional Cannonball Dodger.”
Update Special
Just before I post this, I notice the $6 rally I was talking about earlier. Yep, it came with a buy signal down near the bottom at 8:05 AM [Chicago time] at 1664. Assuming you had 2 $3 / oz. losers to deal with, the rally from 1664 to a hair just below 1670 would have gotten you back to almost breakeven [give or take a few pennies].
“Geesh vegas, it’s almost as if you know what you are doin’ or somethin’.”
“Yea, it’s the somethin’ part.”
Have a good day everyone, and we will attack it again tomorrow.
-vegas
No comments:
Post a Comment