MAMA SAID THERE WOULD BE DAYS LIKE THIS

                                              She Warned Me

Where do I start?

At 2:47 AM [Chicago time] my internet service went out. Ok, I thought, it’ll be back up in a sec. Wrong; it took until 6:50 AM before service was back on and normal.

At the time, the market was drifting and not much of anything was happening. When I got back online, I couldn’t get into the master PAMM account. “Permissions error” wouldn’t let me in.

Too make a long story short, between the IT department – customer service – and me, we finally figured it out and I logged in about 11:45 AM [Chicago time]. Of course, as can be seen by the chart, we missed a profit day via the algorithm.

Am I angry? Am I sad? Just how am I doing?

“Hey, stuff happens; just deal with it and move on; no need to attach emotion to an event that is random in nature. As it was, it made no difference if I had internet service or not, because I still wouldn’t have been able to get into the PAMM account to trade in a timely manner.

Back in the day when I commuted into Chicago to the exchange, there were some days a commuter train would get in an accident and be delayed 2 or 3 hours while they got the wreckage off the tracks. We’d sit somewhere in the suburbs and wait, and wait and wait some more. A somewhat painful reminder that sometimes in life things outside your control do happen. Just deal with it and move on.

We came into the day in “buy mode” and looking back at the day’s action, there were 2 pretty good signals to get long that would have produced profits. We move on to next week as Asia gets back to work. So, no gains today as the trading gremlins paid a visit and prevented us from trading.

Have a good weekend everyone!

-vegas

THE MELT UP

                                          Liftoff In 5…4…3…

Well, thank you “Weimar Ben” for striking the gold match yesterday and getting us [hopefully] out of the low volatility environment we have been finding ourselves in for the first few weeks of the new year.

Nothing like a nice $60 rally in afternoon New York trading to get the party-hardy Asian traders back from the eternal celebration. Now, if we can only get the Europeans to follow suit: well, I can dream can't I?

Yesterday’s explosive move after the Fed minutes [which by the way were released early] quickly took the algorithm from “sell mode” in to “buy mode”. We got our first buy signal at 12:15 AM [Chicago time] at 1710.79. Stop was initially placed at 1707.70.

After spending a few candlesticks holding steady, the market moved up to a high of 1714.64 [bid] before backing off. After moving above 1714, I raised my protective stop higher to 1712.29. I therefore had a “free trade” going in the early stages of trading.

With the explosive move in gold the day before, I knew at some point today some profit taking would be inevitable, and I wanted to insure at the very minimum I would take $1.50 out of the market.

With the very next candlestick, the market started “leaking water” and my stop got taken out. Gain on the trade was $1.50 / oz.

Now I have a decision to make. Do I go back in later on another buy signal [if we get one] or do I stand pat with my $1.50?

It’s an easy decision. I accept the grind that is trading most days. I know “The Power of $1.50”, and I do not want to give back anything to Mr. Market after this big move in the last 24 hours.

I simply don’t care if gold is at 1710, 3310, or 310 an oz.; what I care about is "buying 1 and selling 2” so to speak. I don’t care about “missing something” in terms of price action: exactly what am I missing? I don’t care about price action, I care about making money for the day! I know from experience NOT to get caught up in buying or selling frenzies that distract me from my goal: the systematic accumulation of cash in ever greater quantities each and every day.

Did the algorithm deliver?

“Yes, it did.”

“Now it’s time to do my job and walk! Like I said, an easy decision.”

Have a good day everyone.

-vegas

THE WAITING HUSTLE

                                         Waiting For The Fed

As if low volatility isn’t enough, markets are waiting for the release today of Fed minutes to give some kind of clue whether or not QE3 is in the works.

We came into the start of the day in “buy mode” Last nights action in Asia was almost non-existent, with very little interest in a closed Holiday session. Europe got going with some light selling that put today’s range in, and since about 5:00 AM [Chicago time] action in gold can best be described as choppy. Since 8:00 AM [Chicago time] we are in “sell mode”. Then, out of nowhere, we get the obligatory short-covering rally to shake out those who thought they could go into the Fed report with a winning short position. Chop-chop at its best.

With a change in intermediate trend, volatility low, and markets positioning themselves for the Fed at 1:15 PM [Chicago time], it should be no surprise we had no activity today. Tomorrow is another day.

Have a good day everyone.

-vegas

A MENTAL CHALLENGE

                         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

SOMEBODY RING THE OPENING BELL

                                       Warm & Fuzzy Markets

Puppies snoozing make me want to take a nap.

Welcome to gold trading circa January, 2012. Do I still need to remind everybody that volatility has dropped from 2011?

I came into trading today and was hit with plenty of tangential trading issues. First up was the spread in XAUUSD when I started to trade at Midnight [Chicago time]. The average spread at HotForex is $0.38 between bid and offer, and I’m immediately staring at $0.63 to as much as $1.26 within the first hour of trading.

I know from experience that when I see stuff like this, dealers are up to no good. Chatting with the brokerage house is a complete waste of time and energy because all you are going to get is the standard corporate crap of “the spread is determined by the liquidity providers and there isn’t anything we have to say about it”.

Add to this Asia is still on Holiday for the Chinese New Year, and when these guys get through partying and decide to get back to work is anybody’s guess. Maybe February will see them back, but for now ranges in Asia have collapsed and really give no clue as to direction or momentum going into the European open.

We came into the day in “buy mode”. We get our first buy signal at the 1:15 AM [Chicago time] candlestick at 1670.50, but the problem I have here is that I’m staring at a $0.70 spread [which should be about 0.35]. Now, I know if it stays like this I’m going to just not trade, because I’m not willing to line the pockets of the dealers because they need somebody to pick up their Christmas party expenses. But guess what? The market goes nowhere fast and just drifts slightly higher and then slightly lower.

Watching the market drift here, I want to be long [because I got the signal], but the day’s range is unusually tight and spreads are still not stable. I’m basically competing with the algorithm for best prices.

By the 2:30 AM candlestick, spreads are still slightly out of whack, but reasonable at just above $0.40. With the market at 1670.80 offer, I hit the market buy button. I’m only getting in a few pennies from where the algorithm originally said to get long. However, I get filled at 1671.50 on a market price spike.

“Hey vegas; thanks man for that order. I had a bar bill from New Years that had to get paid. Thanks man!”

So, right out of the gate I feel as though I’ve been taken out to the woodshed and beat with a stick. Add to this internet service interruptions, the MT4 trading platform crashing a few times, and no real market trading that I can see on my screen, and you got yourself a recipe for “why didn’t I stay in bed?”

The good news is that the algorithm is long and our stops are in, so no matter what happens next, it’s only one trade and it’s a longggggg day.

So, I’m long from 1671.50 at 2:30 AM [Chicago time]. Stop on this trade was placed at 1668.00.

From where I’m sitting, we are almost half way through the trading day, it’s dull as dishwater, and volatility seems very low. I’m looking for the price spike [s] that can get me out at a good price. At the 3:25 AM  [Chicago time] candlestick the market spikes. This is exactly what I’m looking for to get out. As long as volatility remains below normal, although I’m looking for algorithm signals, I’m not letting the liquidation opportunity pass me by on a spike.

At 3:28 AM [Chicago time] I liquidated the long position at 1673.52 for a gain of $2.02 / oz. on the trade.

I’m staring at a market that doesn’t seem to want to play today, so I’m taking my chips and calling it a day. Gain on the trading day of $2.02 / oz.

It’s not enough for a Ka-Ching, but if you would just “run the numbers” Skeptic Cat, you would see with the leverage I use that in a relatively short period of time you have the personal and financial freedom you desire.

I get accused of going for “chump-change” all the time by traders who have no clue. Others will say I leave too much on the table and call it a day too soon. It’s OK; we need guys like you to provide money to the marketplace; somebody has to.

Have a great day everyone!

-vegas