Coiled Up Ready To Strike

Despite being a discretionary trader I am not much of a gambler. As a matter of fact I hate gambling with the same passion I devote to trading. Which may sound strange to some as game theory inherently adopts many of the disciplines and statistical approaches employed in trading the financial markets.

Thus I recognize that the line between gambling and trading is blurry at best. Which however makes it even more crucial to constantly monitor one’s action and to err on the conservative side when taking a trade is even remotely close to constituting a gamble.

Although I do grant myself the occasional ‘lottery ticket’ it is always backed up by technical analysis giving it a better than 30% chance for a high payoff. What I do not ever do, no matter how convincing the technical evidence, is to bet the bank on a directional move.

In the end of course all of this is highly debatable and it seems that everyone needs to draw that fine line on their account. Which sort of reminds me of the difficulties in defining pornography.

In 1964, Justice Potter Stewart tried to explain “hard-core” pornography, or what is obscene, by saying, “I shall not today attempt further to define the kinds of material I understand to be embraced… [b]ut I know it when I see it …”

My modus operandi is to use the same approach when it comes to the difference between trading and gambling 😉

So why the long intro? Well, because quite frankly the current formation developing all across equity indices constitutes one of the nastiest churn zone of the past few years. It’s got all the right ingredients to make life hell for anyone but the most stone cold hard nosed swing traders:

  • Explosive changes in both directions.
  • Long wicks on the hourly panel marking turns on a dime.
  • Confusing price action in general due to intra-day volatility.
  • Overlapping candles taking turns on the daily.
  • Event risk looming ahead (see below).

Unfortunately it’s that time of the month again for everyone – tomorrow we are graced with this month’s FOMC minutes followed by the ECB accounts the morning after.

Which means that resolution of the current churn zone will most likely happen somewhere between those two events and most likely explosively.

And that in turn means getting sucked into a directional trade anywhere near the center of the current churn zone is tantamount to gambling. And you now know my perspective on that.

Crude is making a run for it, which is the type of move I was hoping of catching. However once again we are looking at a market that turns on a dime and doesn’t give you much time once it explosively takes off.

A retest lower would constitute a high probably entry opportunity in my book but the odds for that are low. Traditionally crude keeps running once it switches into short squeeze mode.

We may however get a nice entry opportunity in the bond futures after Wednesday afternoon. Before that I wouldn’t want to test my luck inside the current rising channel on the daily.

As the pickings are slim right now I’m keeping my two favorite charts of the day for my intrepid subs:


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