” And The Secret Is…. “

Random Thoughts

And The Secret Is…..

Financial Juice recently asked me to write a short list of rules for trading. The piece morphed into “7 Secrets To Success In Trading” (see education). The first secret (spoiler alert) is that there is no secret. No one knows exactly where a market is headed—not you, not me, and certainly not the guy who screams on TV.

Grail Hunt

A pivotal point in my career was when I realized that there was no Holy Grail. I used to wake up early to start programming trading systems, searching for the secret sauce. Usually, by early evening I’d have created a new or at the least, a “new improved” trading system. Each day I’d go home and tell my wife Marcy about my latest wonderful discovery. I’d spout off some statistics and she would “suffer a fool gladly.” One day after listening patiently, she asked a very interesting question: “How many trading systems do you really need?” It then hit me like a ton of bricks. I had written literally several thousand but all you need is one. Just one. One that is conceptually correct. One that is simple. And most of all, one that you will follow. This was a bittersweet day. I was a little bummed because I thought if I worked hard enough, I’d find the Holy Grail. The searching part was exciting and fun. The epiphany was grounded in reality. I’d now have to work at following a system, one system.

“Rub Some Dirt In It”

I recently had lunch with a long lost friend, Dr. T. I exchanged trading knowledge with him on a quid pro quo basis for some men’s health advice. I explained my lifestyle and that I probably indulge a little too much here and there—something that’s nearly impossible to avoid living in Cajunland. And of course, he told me that moderation is key. I then went on to explain that I was obviously in a stressful field and that I worked long hours. I expected him to discuss some sort of stress management but his answer surprised me: “Rub some dirt in it.” This guy spent most of his adult life saving lives in the ER, so he knows what stress is. Unless you hit the lottery or are living on an inheritance you’re going to have to work. And, with that work is going to come some stress.

Just Do It

I got ripped a new one—ironically by someone with “Ripping” in their pen name–in a book review on Amazon because my methodology was too much work. Again, work cannot be avoided. If you want to be good at what you do, like Nike says, then “just do it.” And, don’t just do it but do it well. Make an effort to become better at it. I look at several thousand charts every day to find the best opportunities. Over the last 15 years or so I’ve looked over at 11 million charts. In that process I’ve seen reoccurring patterns. Sometimes it works and sometimes “it don’t.” That’s life and why I preach using stops so much. If the trade doesn’t work out, like Tosh, “I pick myself up, dust myself off, and I start all over again.” At least I know that I gave it my best.

To The Markets

With the Ps (S&P 500) at all-time closing highs, I woke up thinking about how a simple trading system such as moving average daylight* would have kept you mostly in this uptrend for years. In fact, there have only be a few days where there has been downside daylight below the 200-day moving average during this period. This is yet another testament for simple systems and just following along. Once a market is in an establish uptrend, then err on the side of the uptrend until proven otherwise. Don’t outthink it. Do pay attention. Do look for clues that would suggest otherwise, but for the most part, just err on the side of the longer-term trend.

The Quack (Nasdaq) ended flat. The good news is that this action keeps it not too far away from all-time highs. So, err on the side of the trend here too.

The Rusty is still looking a little dubious. It remains set up as a Bowtie sell signal. The good news is that a few big up days would negate this. And, even it did trigger in earnest, there’s plenty of support just below current levels.

Most sectors are like the market itself-sideways, but hanging in there and not too far away from all-time highs. Since the methodology requires a pullback, I’m not seeing a tremendous amount of new setups just yet. So continue to follow along with existing positions in these longer-term trends until proven otherwise-i.e. stopped.

There are still some emerging trends, or I guess now they are bona fide trends, in areas such as Metals & Mining-especially Steel & Iron and Copper. Other commodity related areas such as the Energies also appear to remain in new uptrends. Outside of commodities, second tier (i.e. lower level) Chinese stocks also remain in uptrends.

So what do we do?

Continue to follow along. At this juncture, again, I still prefer the aforementioned newer trends vs. the older established ones. Trail your stops higher in the old trends and look to establish new positions in the new trends. If the market can breakout and follow through, we will likely look start seeing setups in both new and existing trends.

Best of luck with your trading today!

Dave

*Lows > the moving average, I have a piece on this coming out soon in Proactive Advisor Magazine (stay tuned).