Adapting To Changing Markets

Wednesday  24 June 2015

There is a legitimate question as to the existence of free trading markets, anymore.  Over the past several years, there has been an almost total takeover of the stock market by the Fed and a few controlling Wall Street entities.  It is beyond question that the precious metals market have purposefully been suppressed by the same factions in order to achieve distorted and untenable political means.

We do not trade the long side of the stock market, with a few exceptions, nor do we trade the short side of gold and silver as a stance against central planners’ intended manipulation of these markets.  Forex currencies are totally bank controlled, so our participation there is limited.  The Fed is in total control of the broken interest rate sector, so we do not trade the interest rate markets, at all.

These decisions limit what can be traded with what remains, and with what remains, we do not trade most of the New York softs: coffee, cocoa, and sugar, sugar being more of an exception.  Crude oil has also become a political tool and can occasionally be volatile, so we are a cautious participant in making trade recommendations in that arena.

What we have been doing is placing what markets in which we do make trade recommendations into a specific context whereby a set of rules have been formulated in order to make any recommended trade decisions.  We began implementing this format this month, June, while still tweaking the rules to fit developing market conditions.  It is an ongoing process.

What we know about the markets is that they are neutral in that all they do is generate price and volume information.  Being neutral, markets have no specific “feelings” that many trader/participants experience.  Any emotional responses are generated from within the individual in response to what may best be described as “expectations” and/or the self-imposed need to “be right.”  The market does not care what anyone thinks or feels, it just is.  So any feelings you may experience from the markets are totally yours.

One primary reason why so many fail in futures trading is not taking control of one’s emotional reactions, often letting emotions dictate decision-making.  By devising a set of rules for engagement, we have taken the stance that we are the ones in control of what to trade and when.  There are very specific patterns that occur in the market over and over and over.  By identifying these patterns, one can determine to trade only when they are in the process of developing.

What few people are willing to accept is the randomness of developing market activity.  Once a repeating pattern is identified, there is no guarantee in how it will develop from the time of initiating a position.  The reason for that is because the participants are not the same as those who participated in previous patterns.  Although the patterns may be very close in the development stage, the outcome can never be determined.

If the outcome cannot be determined, there is absolutely no reasons to have “expectations” as to how one “believes” a market should develop.  If one does not have any expectations on how any given trade will develop, there is no need to have any emotional attachments and experience fear or disappointment that seeps into decision-making.  The best way to harness ones emotions is to use specific rules of engagement.  If a pattern does not meet the specific rules in how it sets up, there is no reason to make a trade.

Using rules to make trade decisions, once in a trade, all one can do is predetermine the risk factor, place a protective stop, then let the randomness of the outcome develop.  While outcomes are random, in the sense of not knowing how a trade will develop, that does not mean there is no structure in the markets.  Once can identify important resistance and support areas as objectives for taking profits.  There should also be a set of rules to determine when to take profits or exit a trade.  Rules to enter.  Rules to exit.  No need to have any emotional attachment to any trade.

The objective is to be consistent in the application and execution of one’s trading plan.  Knowing that specific trading patterns give one an edge in trading because the patterns are profitable, on balance, but not knowing which will be profitable and to what extent, it is necessary not to pre-judge any trading pattern but just follow the established rules knowing that the overall outcome over a number of trades will be profitable.

Being consistent does not mean one has to be perfect or even right.  The success in trading will be a product of the process of identifying on balance profitable patterns and trade nothing else.  Master the process of trade selection and the outcome is guaranteed to be profitable over a series of trades.  This is a proven fact from the Laws of Probability.  This means, with a set of rules, you are the one in control of the entire decision-making process.
The market is being harnessed by having to prove your requirements are being met, and if not, there is no reason to be in purely randomly developing market activity.

Markets do conform to trends, and they do exhibit consistent-type patterns of development.  Trading is a business, and anyone engaged in a business knows how vital it is to have a business plan.  Without such a plan, the business is more likely than not to fail. Markets are no different.  It is essential to treat it as a business.

We have a plan.  It is not perfect, and it is constantly being monitored to make new and better distinctions about identifying market behavior.  Lately, we have been making recommendations to trade only half-positions.  A full position is a minimum of two contracts, or whatever one determines their trading size to be, so a half-position is a single contract or a half-size of one’s full trading size.  When trading half-positions, we tend to take sure profits when available.

We may leave proverbial profits on the table, but that is irrelevant.  A half-position is used in uncertain market conditions or when there is no established trend in the direction of the trade position, or sometimes a trade is known to be against the trend but for a specific reason.  The purpose is to be consistent and on balance profitable.

When a trend has been established, a full position is then warranted, and half-positions are still taken to lock in a profit, which also serves to reduce risk exposure, and then let the market continue to develop on the remaining half-position in whatever random manner it will.

This is an overview of what we are doing, and if we have any “expectations,” they come from the greater likelihood of a net profitable outcome over a series of trades with no regard as to how any given trade pattern will develop.  A trade either works, or it does not. It is that simple.

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