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Archive for December, 2009

Trust Your Instincts

December 21, 2009 Leave a comment

On December 2nd, I wrote a blog post entitled “Let’s Talk About Gold”.  I had written that their was just to0 much talk about Gold and their were way to0 many analysts putting unrealistic price targets on the price of gold. For example, Peter Schiff, president of Euro Pacific capital claimed by the end of President Obama’s term we may see it at $5000 an ounce! I had made it clear that, Yes, Gold may indeed trade higher,based on that recent market activity tends to overshoot both upside and downside moves, however, at the time it just felt that the pullback was inevitable and I cautioned getting long at those current levels.

That being said, the current correction in Gold and gold related securities began on December 3rd, very lkely catching alot of people off guard as they believed the rally would never end. GLD the Gold ETF made a new high of $119.54 on December 3rd and made lows of $107.14 last week, trading below the 50 EMA.

After the explosive move that Gold made, it should not surprise anyone that a pullback occured and a significant one at that. Only those individuals who did not have a trading plan would have been surprised. Those individuals who let themselves get caught in the hype of it all. This pullback has provided an opportunity to get involved at current levels with minimal downside risk. That is why we always stress to our traders, “Do not chase the move”, but rather “wait for it to come to you”, meaning buy it at a level that you feel comfortable with the downside risk.  This business has always come down to Risk vs. Reward.

We feel that getting long GLD at this $108.36 level presents a great opportunity. We have positioned ourselves to take advantage of the next move, which we believe will be back up. Short term, we may get a little more selling pressure as the economy does show signs of improvement, but after the new year, we believe that we have the best opportunity to make money being Long Gold.

So, the point here is this, Trust your instincts, When it just does not feel right, meaning the stock just seems like it has gone to far, heed on the side of caution and don’t take the trade, wait for the trade to come to you.

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Trading with Patience

December 7, 2009 Leave a comment

Usually Monday are more exciting for intra day traders: new information from the weekend, pent up demand/supply on the sidelines waiting to get involved, or something makes the market move. However every once in a while we get a Monday that is very flat and boring as today was. That is when you can start the day with some probes, looking for opportunities but never with full leverage since the order flow that will take the stock or market to new levels hasn’t materialized.

Just look at the following 15min two day chart of $DIA, after we establish a trading range we were never able to break out of it. The only time we were able to get more aggressive was the break from the lunch time trading range around 2pm, the opening range lows had to be respected as support. When we penetrated those lows, but were UNABLE to close below that level, all the shorts had to cover. This chart summarizes the sort of day we had to deal with today. No real follow through on long positions and despite an attempt to break support the market didn’t have the volume to make lower lows.

Tomorrow will be another day… in order to bring on the leverage we need to get this market to move away from it’s currently trading range.

Why do you exit good trades too soon?

December 4, 2009 Leave a comment

There are many reasons for this but the number one reason is trading your P&L instead of trading the trade. The only way to hold on to good trades longer is believing in your idea (but being flexible to change if it is not following through).

The only way to take it to the next level in your career and not focus on the small fluctuations is to do a better job of building and “argument” for a good trade just like a lawyer builds a case in court.
 
The better the argument for your idea the more confidence you will have in the position.
 
BTW this is also how you will keep yourself from over trading, the weaker the argument the less you will trade.
 
**This of course assumes you know what a good trade looks like! 🙂

Let’s Talk About Gold

December 2, 2009 Leave a comment

Gold, Gold, Gold! Who is not talking about Gold these days? The Gold trade has become the crude trade of the Spring and Summer of 2008.  Back then Crude was all the hype. Everyday people who have little or no knowledge of the markets had begun to watch the prices of crude. Obviously they were concerned of what it would mean to them at the gas pumps but these everyday people were calling up their brokers and telling them to get them involved.

Today Gold traded to yet another all time high and closed at $1212. The coverage of this rally is being broadcast everywhere. Analysts continue to raise their price targets to numbers that seem absurd. Peter Schiff, president of Euro Pacific capital is claiming that by the end of President Obama’s term we may see it at $5000 an ounce!

Now, I have been trading long enough to realize that you can not stand in front of a moving train, however, I have also been around long enough to know that the “smart money” is already involved and normally sells into strength as the “retail” investor chases the move. In that run up in crude in 08′ , analysts were saying $250 a barrel of crude was coming near term.  As we know now, that never happened , but instead it traded down to the low $30’s.

My point here is that, yes, the order flow is up and it may trade higher, but we must realize that our markets in recent years overshoot both to the upside and the downside . This momentum rally will end at some point, leaving many “holding the bag” and once again Wall Street may have to answer some tough questions.
For now, be careful!  You can trade the long side, but be prepared for that inevitable pull back that will come at some point!