This post was from 11:30 yesterday well before gold was sent higher on the "No Taper" announcement, I think it's well worth looking at again as it again provides the same concepts preached nearly every day and if you haven't read these two articles," Understanding the Head Fake Move 1" and "2" , then you don't understand why, there's a method to the madness. Of course we had already been long GLD calls well before this, but it's just a perfect scenario of Technical Analysis being used against technical traders. These two charts are from the GLD post linked above as well as the commentary following them...
This is a descending triangle, this is a technical price pattern that is a BEARISH consolidation/continuation pattern, being the preceding trend was down, it fits perfectly here and the break below the triangle is EXACTLY what technical traders are taught to look for, making this an ideal head fake move as Wall St. knows how technical traders will respond to this classic price pattern.
So far it looks like the break hasn't hurt the 3C trend at all (2 min). What the charts show is how Technical patterns like the inherently bearishly biased descending triangle was used and the head fake move traders would expect because it's literally covered in hundreds of technical analysis books, all saying that the "Descending triangle is a bearish consolidation/continuation pattern that should break below support and continue the preceding downtrend". My concept with regard to this started long before 3C when I noticed these patterns went from working to not working or 50/50 at best and that happened in the course of a year as online trading became more popular along with Technical Analysis. So what happened to GLD after these 11:30 a.m. charts yesterday? I think you know.
Here's the entire view, the downtrend, the bearish consolidation price pattern, but we had already had significant positive divergences going in to this bearish pattern so the probability for a head fake move was already very high, I wouldn't dare to guess if it was going to be a head fake or real move (I'd suspect) without having the knowledge of 3C accumulation well before hand as well as 3C accumulation as the triangle broke down exactly where technical traders would expect, stopped out longs, drew in shorts and gave Wall Street not only the chance to pick up Gold cheaper, but more importantly set the stage for a short squeeze and a burst of long retail traders chasing price, both of which sent gold higher than it would have moved without the head fake move. This is why these concepts are so important. Through retail technical traders' predictability, Wall St. becomes predictable in how they will use retail traders to make money, we do the same in most of our trade set ups, but you have to be able to identify the patterns, know that they are no longer what they were, but they are still, forgive the pun, pots of gold; after all, this quick GLD move made us +32% yesterday or more.
Many of the charts you see here at WOWS are my proprietary indicator 3C which reveals underlying institutional money movements and often contradicts price. To understand the annotations made on charts, you must first understand that 3C has no numerical value, it is a pure divergence indicator. Positive divergences represent accumulation by smart money, negative divergences represent distribution by smart money and when 3C trades with price, that is trend confirmation.
The chart annotation system is simple; white arrows represent relative positive divergences, red arrows represent relative negative divergences and green arrows represent trend confirmation. When 3C is in a white or red box, that represents a leading positive or negative divergence, leading divergences are the most powerful.
We analyse 3C in multiple timeframes, the longer the timeframe the stronger the accumulation. 1-2 min timeframes represent intraday moves, a 5 min timeframe can represent a day or two and 15 min timeframes average trends of a swing trade nature. 30 and 60 min charts can move the market for a month or more and daily charts can be over a year.
You'll get use to seeing the charts and understanding how the multiple timeframe analysis works and works well.
Welcome to Wolf on Wall Street.
The trades featured here are meant to maximize returns with the least risk and highest probabilities. Unless otherwise mentioned, all trades are meant to be executed at market. I prefer long-term trending trades which perform well in rising markets, but really stand out in declining markets. However, we get occasional one day gifts 30,40,60% 1-day gains. I'd urge you to consider taking some or all off the table in such cases, the markets don't give gifts like that often or for very long. Most of the returns that make the system outperform so well come in short-entry trades. If you are opposed to short trades, this is not the system for you, unless you are ok with buying an inverse ETF. If you would like more information about the truth about shorting stocks, just email me.
Risk management. I recommend a specific and consistent risk management approach to all positions. In most cases we try for 2% risk money (2% of portfolio) unless such a position size exceeds 15-20% of overall portfolio in actual position size. Each trader is different and each has a different allowance of open trades. I like to keep the overall money in the trade around 10-15% of portfolio per position in case of gaps against you. Stops are generally executed at the end of day and I personally never place a stop order, all my stops are mental; remember, the middle man gets to see everyone's cards. When you are not in tune with the market or opportunities just aren't that spectacular, I take my risk per position down to 1% or even half a percent of portfolio value.
Each trader is different and must determine their own level of comfort with risk. I do have a channel stop which I provide to TeleChart/StockFinder users for automated stops, I appreciate you using my links to sign up if you do. The Trend Channel catches trends and works well as it automatically adjusts for each stock's volatility. Arbitrary exits based on nervousness about the markets WILL decrease the portfolio performance dramatically. This system will not ever get you in at market bottoms or tops. The recent 1 year performance against the Russell 2k buy and hold had the system beating it by 3:1. Ultimately it is up to you as to how you proceed, but I'm always available to help you determine what might work best for you.
I do use other scans and systems when market conditions warrant their use and may change strategy with market conditions.
The MOST IMPORTANT tool you have to bring you long term success is RISK MANAGEMENT. There are plenty of articles linked at Trade-Guild.net on Risk Management. We can be wrong 75% of the time and still outperform the market with solid, consistent risk management.
Position Sizing
The position sizes noted in the positions @ 2% risk of portfolio are based on a $20,000 portfolio-adjust as needed. Due to tight stops, there is the possibility, even probability that one position could take up the entire portfolio. You need to decide how many positions you want to trade and reduce the position size according to that. For instance, if you want to trade 5 positions in a $20,000 portfolio, no one position should be valued at more than $4,000-not risk money or 2% rule, but share price entry x shares.
Futures Update BR-EXIT Edition
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So the conventional wisdom couldn't have been more wrong. Those chasing
risk and closing hedges couldn't be in a worse place right now. I would
still remin...
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