Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

New Year’s Resolutions

Published 03/01/2017, 11:43 am
Updated 09/07/2023, 08:32 pm

Originally published by Chamber of Merchants

It’s been a great year. Even though most of 2016’s gains have been wiped off the table, it’s been a good year because we will apply what we have learned from 2016 to make 2017 a far more profitable year. I urge you to consider 2016’s trading weaknesses and resolve to correct them in 2017 to have a perfect year. When I say “perfect”, I’m referring to adhering to a system of trading without emotion. Perfection refers to the completion of the task. Profits will follow if we perfect or complete our commitment to thinking better and trading better. I will spend the bulk of this report on laying out a better plan for sustainable and profitable trading in 2017. Market commentary is important, yet, I can comment till I’m a shade of blue: if we don’t trade better, our account balances won’t look better. So let’s spend time where it’s due: our trading skills and thinking processes.

2017 Resolutions

Let’s not beat around the bush: we are all risking our wealth because we want a better future. We don’t participate in the market for “fun”. This is a business and when we treat it as such it must be profitable. If a business is not profitable it will not survive.

Therefore let us be profitable.

BRIEF MARKET OVERVIEW

Ok… so there are a couple of things we need to familiarise ourselves with heading into 2017.

a) The Markets:

For approximately 6 months, all stock market participants have been conditioned to trade without considering risk. No matter what the news has been, the reaction has been “new record highs”. Why is that? The PPT or plunge protection team has guarded the stock market right up to the election because, agree or disagree, a rallying stock market was to play in Hillary Clinton’s favour. It’s politics. Goldman Sachs (NYSE:GS) was the main driver of the stock market rally and is an overweighted component of the Dow in the stock market index. Hillary happens to be best mates with Goldman Sachs etc. So no surprise that billions of dollars came to the rescue each time we had a negative surprise. However, Hillary is gone. And 2017 we face a new animal: (no not Trump.. I seldom refer to people as animals)… the animal I refer to is the new market.

b) The new market: for the last 8 years there has been a pattern of economics and policy which has been reliable to profit from. The Fed, interest rates, the PPT, employment numbers, lack of inflation etc… Fairly predictable for an economist on the Austrian school of thought. However, from next year we potentially have a new market: The Fed may play a smaller role due to Trump’s vision of an Infrastructure Bank to circumvent the Fed.

This is war.

I don’t mean to sound dramatic but I’ll remind you of what the Federal Reserve is:

The Federal Reserve is not a government entity.

It is a private corporation, a bank that guarantees liquidity (printing money) in times of crisis. It has shareholders and, get this, was established by JP Morgan, Baron Rothschild (trillionaire family) and others in 1913, one year before the First World War. It finances both sides of wars and ensures there is money during times of crisis which usually allows it to own more of the government and own more of the country and infrastructure and the market. So while the Fed is the saviour of 2008 when they saved the US from financial destruction, the destruction was largely a result of government and Federal Reserve policies.

So what’s the point?

Okay, firstly, the Federal Reserve is a private business which has unconstitutionally assumed the right to print money and inject it into the economy. JF Kennedy signed an executive order to repeal this power from the Federal Reserve. We know how that ended and the executive order was cancelled by the incoming president after JFK’s assassination.

So now we have a President Elect with a cabinet that is openly criticising the Fed and wants to establish a government driven Infrastructure Bank that will deal with the budget of the government.

Again, this is war between a hand full of shadows behind the Federal Reserve and a non-establishment President.

Let us wish him a better fate than Kennedy.

But back to the original point… This may very well be the start of a new market because there are factors that no one can predict the outcomes of. This is a market where the patterns and trends of the past cannot with confidence be expected to apply to future events.

In addition we now have two points of accountability for the price of gold.

(Did you know that the Australian Government has a suspended law (it’s still there, it’s just dormant) that gives the power to the Reserve Bank to be the only buyer of gold? That means in case the monetary system fails, they can un-suspend that law and make it illegal to sell gold to anyone other than the Reserve Bank of Australia. A monopoly. This means the RBA can, within the law, set the pricing for gold, even if its worth much more.)

I digress.

Two points of accountability for gold: We still have Comex in New York…but we also have the Shanghai Gold Exchange.

As of this writing, the difference in price is $25 per ounce. That means I can literally buy a thousand ounces at spot price of $1150.90 USD right now in New York and fly over to Shanghai and sell the same gold for $1175 USD per ounce.

Remember, this did not exist before 2014. It does now. Also, it creates arbitrage which means if the West manipulates the gold price down too much, they create a manufactured opportunity for easy profit which will automatically drain physical gold from New York and send it to China. So we have a minor check and balance from a competitive country which benefits from a higher gold price (because they have been acquiring record amounts of gold, they would want to protect the value of that gold). So it’s a different market now, one where the Fed cannot dictate so recklessly the price of precious metals.

P.S did you know that the IMF (the bank for the Central banks) is in Washington DC?

Do you get it? No?

Okay, did you know that all commodities are traded in US dollars? And that all funds travel through the USA at a fee before changing hands between countries?

Do you get it now?

The USA has a monopoly on capital flows through the world. They also have the most say in the IMF holding a majority vote. They also keep the US dollar desirable by ensuring that countries don’t deviate from using the US dollar.

Except China is deviating, and there’s nothing the USA can really do about it. The US is 20 trillion dollars in debt and are the world’s largest debtor. They are one big I.O.U.

A new market, a new scene, a new stage with new actors. We need to wake up and trade smarter, trade more aggressively and trade unemotionally. We need to accept that the media is clueless and that investment will need to be based on trends, time frames and fundamentals.

Trends:

If gold is being sold off…we need to accept the trend. If crude is rallying, regardless of the economics, we can ride that trend intelligently. You see, even the most recent stock market rally should not be happening, because it’s foolish - it’s based on zero economics and will come crashing down. Yet, the trend is the trend and we missed opportunities that others profited from. So we need to profit from trends, but have the parachute ready because we also understand the fundamentals.

Fundamentals:

The stimulus plan Trump is suggesting in a single year is equivalent to what China spends in a week. No jokes. So why would CAT rally? Why would copper rally? It’s a joke. A farce. It’s devoid of fundamentals. But that does not mean that a Merchant should not profit from a trend.

It all comes down to time frame.

Time Frame:

So, as a lucid economist, I can see the fundamentals of the economy and the political landscape(within reason). My bet was on a Trump win, for instance. However, as the market tanked 800 points, the PPT stepped in and reversed the trading in the futures market. It then became one of the most powerful stock market rallies in history post election. So I was correct and gold hit $1330, but I was wrong about the time frame as it was only an hour or two and then… gone.

I have also said repeatedly that crude is a bad idea as economies are in contraction.

However on what time frame is crude a bad idea?

You see, just because the truth is fact, doesn’t mean the market will trade according to the fact in the short term. Crude is a bad idea when the reality sets in that there is a demand side problem. But on the hope of a successful OPEC meeting, crude rallies because of the time frame. We can profit from that. But not for a second should we give over to the non-fundamental delusion which would lead us to hold while we should in fact be selling.

I’m encouraging you to join me in thinking better and profiting better by trading systematically based on rules, logic, trading skills and not emotion.

“Who cares if we’re in a bull or a bear market. Let’s make money.”

So firstly…

I had to decide what to report on… shall I chart out the bounce in gold or the yields in the bond market? Maybe I should chart gold and show you how we should be at $1500 but could hit a double bottom at $1045 first…But let’s face it, we can only plan so much until it becomes hope and hope doesn’t form part of a Merchant’s mindset.

So with regard to gold I’ll say this… We ended 2016 with a higher gold price than what we started. That is the first time in 5 years that has happened I believe. The gold market also tends to rally strongly in January.

But are we in a bull market or a bear market? I’d say we’re in a bull market, but even bear markets bounce. It simply means that the highs in a bear market are lower highs and the lows are lower lows.

But honestly, who cares if we’re in a bull market or a bear market. Let’s make some money.

Wow. That sounds too good to be true…

Well it’s pretty simply. Sell at a profit. Enter as support and buffer /opportunity/bargain zones. Manage risk and the profit will result. I’ll go into more detail shortly.

Reflection on trading

The first step to trading better would be to recognise one’s shortfalls.

So while I will share my weaknesses in retrospect, I encourage you to reflect on your own trading balance and the weaknesses that prevented you from being more profitable than you perhaps already are.

Mistakes and weakness

A) Knowing better than indicators:

When gold turned from its high in October I was alerted by indicators. I was aware that there were signals that reduced the probability of a further rally. I took profit and was out. However, I was caught in a trading halt in Blackham. After the trading halt I exited at a profit. However, when 90c+- was reached, I re-entered based on what I viewed as a bargain. I did this while I knew the gold price was weakening. I entered with the intention of a quick sell of $1+, however, as the share price weakened further below 90c, I justified my entry with a long term view of a bull market in gold. I lacked a view of time frame, expecting a bounce any minute. Childish and costly.

B) Ignoring price channels and trading boxes:

Ridiculous. It’s like trying to avoid landmines by crawling through a jungle on your hands and knees trying to feel where the landmines are. By the time you’ve discovered it, you’re dead. Use the signs, recognise the signals. Respect channels and boxes.

C) Manage risk.

Even with a long term view, stop losses need to kick in in the event the trade turns against us. With Evolution Mining (AX:EVN) recently, I was stopped out in the $1.80’s. I re-entered in the $1.66 zone and exited at $2.05, profiting 3k in 3 days. (I also made back the loss).

This would not be possible if I did not allow myself to be kicked out with a stop loss. So we need to manage risk.

What I’m emphasizing is that we can get stopped out over and over again which is better than entering, riding down to the bottom, then grinding up to break even. All the while we don’t have cash on standby so we cannot act on any opportunities. So getting stopped out is healthy… Knowing how to stop out is a skill. Acquire it. (I’ll do a post in the near future).

D) Trade the price action:

It is a mistake to trade gold while focusing solely on the US dollar for instance. Even when one views many factors such as the euro, bond yields etc… it still is high risk to trade an asset based on the movements of other assets.

I know that sounds confusing. Let me explain:

If the dollar goes down, gold goes up. It’s a no brainer. However, what if the dollar goes down and Goldman Sachs dumps $8 billion dollars of gold on the market… trading based on the dollar we should stick with gold no matter what. But if we trade the price action in gold, we would see that gold had been forced through a support level, which means it’s going lower. So trade the asset based on its supports and resistances. Incorporate other signals and factors, but trade the price action on your asset/stock.

Here’s another example: Gold is stable, but your gold miner is dropping in share price. Do we hold on or do we get stopped out after breaking support?

The correct answer is get stopped out: there is information that you do not have but it is revealing in the share price. Know the support and resistance levels. Getting stopped out leaves you with cash, which is an opportunity to seize an opportunity. Cash is king because it give you access to choice and freedom to make decisions. But if you’re riding your stock down in good faith, your hands are tied.

E) Cheaper does not necessarily mean a buying opportunity:

Millennium (AX:MOY) was cheap at 30c…so I bought it… Then it was cheap at 27c…cheaper at 24c… Cheaper at 18.5c… when is it a good buying opportunity? When it reverses trend. That means leaving the 18c range and returning to the trading box at 20.c to 25c, which is confirmation that a low has been set with a confident rebound. Re-entering at 20c or 21c or 22c or 23c or 24c or 25c is better than entering at 30c and riding down to 18c… agreed?

F) Take profit more often.

This is a skill. It doesn’t come naturally because we are inherently frightened of bailing on something profitable. Get into the habit of selling. Practice it.

This goes hand in hand with recognising channels and boxes… top of the box exit…break out at top of the box re-entering with a trailings top or static stop below support zone. It is so simple yet eludes us.

Conclusion

It doesn’t matter whether we’re in a bear or bull market. What matters is that we trade with intelligence and savvy so that we can profit and retain profits regardless of the bull or the bear. What matters is that we manage risk to ensure our balances grows and that we run profitable endeavours.

Firstly, Evolution Mining Ltd (AX:EVN): I’m pretty convinced that EVN will open high, possibly testing the previous day’s high or higher, but that a correction will ensue down to $1.95 or even $1.80… I would run a high trailing stop (2c or 3c) on EVN Monday morning. If I were to be stopped out I would have peace and look at entering at support zones depending on what price does. Stocks that are trending up will usually pull back for a few days before having enough fuel to power on past the recent high… Of course if gold jumps to $1170 or $1200 then one needs to be dynamic and adaptive. I would not want to be out of gold miners in the event of a gold rally. Trading occurs real time… as information changes it should either confirm or change your decisions.

My aim is to make $200k by March 2017 over and above my current drawdown. That would be a single trade of 180% or… it would be, say, 10 trades of 18% each… How often have we seen 5-20% and not taken it? So the aim is to take it intelligently.

Look back at your failures in trading in 2016. Look back and own each failure. Forget about manipulation or Brexit or whatever. Look at what you could have done differently for superior outcomes.

Be honest. Be brutal.

Now let’s make money without anyone’s permission. Let’s grab hold of our goals by dumping fear. Let’s embrace risk by managing it. Let’s deny our sense of comfort and be rewarded for it.

Let’s be more than hopefuls.

Let us be Merchants.

Happy New Year.

2017 is going to be massive.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.