Who Needs a Method if You Can’t Pull the Trigger

The Entry Points

This post is not meant to be a short-term timing tool (that discussion is there, but unimportant for most people), but a way to understand sentiment. The PMs are a very emotional market. It is very dangerous to get bullish with the crowd on the big rallies. The selloffs quickly ramp up the bearish sentiment. The post below was written a long time ago, and is re-posted into all of the big selling waves in gold. Sentiment shifts/crowd behavior never changes. Confidence rallies with price, and drops with price. On 9/11/17, I re-posted some wildly bullish articles around the internet about gold regarding the “bullish trendline breakouts, new highs, being above (useless) moving averages, and a potential pause in rate increases”. Now we’re starting to see the opposite – “failed breakouts, interest rate increases, monthly reversals,and being below (useless) moving averages”. There continues to be widespread ridiculous commentary about how interest rate increases and “real” interest rates are supposedly bearish for gold – here is a post debunking those views. Gold hit its secular bottom two days after the first Fed rate increase in nine years and has rallied substantially along with the rates, and yet people still don’t get it.

The original post is below. Keep in mind it was last updated on 7/9/17, so the dates are relative to then. But the general sentiment commentary can be for any time, any week, any month. Yes, gold is in a secular bull market, and the juniors are closing in on a true bull market:

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Gold is in a bull market, but it’s still under the influence of an accumulation area, meaning more volatility – opportunity. The true uptrend “breakout” is coming this year. The secular bottom was in December 2015 , and I stuck my neck out and bought gold even with the worldwide ultra-bearish view of PMs then – and wrote a post on 12/9/15 discussing why it was finally time to buy gold, and especially the miners. We’re up substantially from those lows. But far too many people gain tremendous confidence, become complacent, and fear “missing the move” in an uptrend, right at the worst times to get confident, after/into a big rally, (around the highs). And far too many people lose confidence in an overall uptrend/bull market right at the worst times to lose their resolve, after/into a selling wave (around the lows) – opportunity. That confidence and fear of missing the move (at the worst time) just happened into the 6/6/17 highs, when there were numerous calls for a “trendline breakout”. My view was the opposite, and used the recent selling, and “bullish jobs number” to buy.

In a bull market the big scary reactions are the time to use our emotions in our favor, by using reverse psychology on ourselves. Is it easy? No it’s not. But if you’re feeling scared, gloomy, and can’t imagine there could be a bottom setting up, then so is everyone else. And these lows are also at the same time that most of the market shorts are getting super confident (weak hands). Which is just like how most of the market longs get super confident right into the highs (weak hands), as per the second week of February in the miners. So it’s in the big selloffs when we need to pretty much put the charts aside and step up to the plate. Because who cares what the charts look like if we allow our emotions to rule.

Complex methods are useless for almost everyone, especially myself. Because 75% (or whatever number, you get the point) of this business is about psychology – meaning our own psychology, and also being able to interpret, pretty well, everyone else’s (the crowd’s) psychology. This may sound weird, but instead of spending so much time learning a “method”, you may want to spend time truly understanding your own strengths and, especially, weaknesses. And also learn about the psychology of the crowd. Two outstanding books to help learn crowd psychology are “Nobody Knows Anything” by Bob Moriarty and “Extraordinary Popular Delusions and The Madness of Crowds” by Charles MacKay. In the bigger picture, understanding our psychological/emotional makeup, as well as that of the crowd, is much more beneficial than being tied to a method. But if we can mesh our newfound understanding of psychology with a solid method, then that is a pretty powerful approach. And actually, it’s the approach to markets which is the most important thing. Who cares what the method is if we can’t pull the trigger (unemotionally) at the “best” entry points?

It happens time and time again. People have all of their great looking charts with their fancy moving averages, support areas, and trendlines. These charts look great when prices are in a sustained move higher. The moving averages all “say” buy, buy, buy. The support areas are “holding”, and the trendlines are slanting up, up, up. People look at charts then and see things “are looking good”. Who wouldn’t be confident? And the only ones with pain at that point are the shorts, plus the people who were too afraid to buy into the previous fear-based selling, thus these folks are “missing the move”. Missing the move can be as painful for many as losing is for other people. Then the selloff starts, and the confident longs wish they’d sold. But they look around the internet for the GURUS (who were bearish at the bottom), to give them reassurance. And the selloff deepens, and the mood changes. and the charts look horrible – support areas get broken, trendlines get broken, and moving averages are all pointing down. In short, the charts look horrible, and the vast majority of people, who are tied to their charts, get as bearish as everyone else – so they freeze. And then, once again, they do nothing right at the potentially best entry points into markets.

Markets haven’t changed since the Tulip Mania. Meaning ninety percent of the people will never be able to pull the trigger at the best entry points, and are too confident to sell into the greed. Don’t be one of them.

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About traderscott 729 Articles

Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.

9 Comments

  1. Hi Scott,

    You might already know this. But I just came across a short paper on T theory which states that the period of superior rates of return (better than T-Bill rates) is roughly equal to the prior period of inferior returns. It is consistent with your way of finding stocks that had declined a lot and had built a long base and buy them in break out. The break out point is a way to locate the approximate position of the vertical line of the letter T and try to ride with the right portion of the horizontal line (the period of the superior return).

    You can find the short PDF paper at http://www.ttheory.com/pdf/a1997introttheory_.pdf

    When we say that December 2015 (January 2016) is the secular low of gold and silver (miners), we essentially tried to place the vertical line of the T around that time. If the placement is correct, PM and miners will have about 37 months of the bull run.

    • Good find Easy Al. Sure I know about T theory – Market Wizard (in a good sense) Marty Schwartz uses it. It’s quite interesting. Schwartz is a great trader. His book Pit Bull is in the Resources page at this site, if you want to take a look.

  2. Au may be to dangerous to go long here as one analyst puts it.
    This looks like a repeat of July 7-10 with all the hand wringing.

    • It’s always “maybe too dangerous” at low areas. I’m thinking it’s similar, but a couple differences. July was a better setup overall. Another break would help.

  3. Hey.
    This time around with gold on a Friday.
    Hours before the Pre- Market I placed a limit order for 120.08 on GLD thus heading to work later.
    A)Although it worked out well (so far). What could I had done differently to improve this entry point?

    B)I’m thinking in using the 1333 area as a means to exit the trade. Would you suggest a different place(area to exit)?

    C) Just curious. you said on the interview that your-ex girlfriend dumped you. However, you don ‘t state the reason she dumped you. If you don’t mind saying the reason?(I’m assuming that is because of the nature of the financial uncertainty that relates to charting).(If you’re uncomfortable answering just skip this one)

    • C) Sure. She was going to Med School and had a promising career ahead of her. I was completely focused on markets (and consistently losing money). I understand her decision, but it didn’t change my mindset at all. I was really young then also.
      A) Very nice job. The only way to have gotten a better fill would have been to accept a missed trade, by putting the order in even lower almost arbitrarily. I do that sometime, but really in this instance, gold was below 1265 already. You did well, remember just probabilities. You were off to work.
      C) If you are waiting for 1333, it’s likely to be volatile on the way there. That is a real tough question to answer. 1290 and 1315 will be areas. There will be backups still, probably pretty soon. if you hold on thru the backups, they will strengthen the trade, but they are hard to sit thru. You bought the spring, so you have room, but i do expect the Yen to be a problem. Just remember, I always sell too early when my view is a pure trade.

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