Thursday, July 24, 2008

Thoughts on Gold, Breakouts and Stops


The recent shakeout in gold, (GLD- chart above), has garnered the attention of even the most ardent of gold bulls, as well it should, for if you do not pay attention to your speculations you will not have a net worth with which to speculate with !!

I was not happy getting stopped out of gold because the chart did look wonderful. Since the interim low at $86.07 on June 12th GLD has had 4 gaps to the upside on its run to 97.50. Truth be told if I had be paying attention, like a speculator worth his/her salt should, I would have been long GLD when it broke above 87.75 back in early May. But such is the endeavour of trading you cannot be all places all the time.

That being said, I received some e-mails regarding my recent foray, unsuccessfully mind you, into the gold and crude markets. The comments ranged from my stops were too tight, I shoulda been more patient, to why would you ever sell gold? All of the comments have some merit, but I have a pre-arranged risk profile that tells me position size and dollar amount at risk. It is this was that I can continue to take LOTS and LOTS of small losses and take VERY LARGE gains ! I understand there are some bulls in various speculations like crude, gold, KO, Berkshire Hathaway, that they "will never sell". I truly wish you well because down this road lies eventual ruin, no matter how venerable the name or the import strategic or otherwise of the commodity.

I am quite content to get stopped out, buy back in, get stopped out, buy back in, continually. Because I know that as long as I have not lost my technical mind, the breakout will occur and off to the races we will be. It also helps as I do own physical gold and silver which helps me sleep quite well at night.

I once read a story of a trader (if I have shared this story, please bear with me) who had an initial signal to buy, I believe at $20, the position go to 21.5 only to fall back and stop him out. He got a 2nd signal to buy thru 21.50, the position go to 22.25 only to fall back and stop him out. This happened 4 consecutive times on the same position. Each time he re-evaluated the merits of the trade, which were still apparent. Finally the 5th signal to buy came at $25, and he had the patience to enjoy the trade, riding to to the $50 area.

The point here is are you patient enough, with the conviction, (notice I did not say stubborn)to stick to your analysis and execute? I would hazard a guess that 90% of all professional full time traders would not have come back for a 5th helping. I can always buy back into my position no matter how many times I get whipped out.


Housekeeping notes;
In my haste to post, I made some numerical errors. That being my stop level on my Bank America short trade. When I announced the trade I wrote the BAC short entry as $32.60 and the stop as $32.32 which makes no sense as a stop on a short must be above the current level, just as a stop on a long must be below the current level. In the open position section I put the correct stop number down which was $34.32

My apologies for the error.

Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 6 units Currencyshare Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 1 unit Ultrashort Dow DXD@ $50.12 stop $58.62
Long 4 units Currencyshares Swiss Franc ticker FXF @ $97.70 stop at $93.82
Long 1 unit Ultrashort QQQ ticker QID @ $37.05 stop at $42.87
Long 2 units Hecla Mining ticker HL @ $8.50 stop at $8.09
Long 2 units Ultrashort 20yr Treasury ticker TBT @ $67.85 stops at $69.24/68.32
Long 1 unit SPDR Gold shares ticker GLD @ $91.55 stop at $89.19
Short 1 unit of Visa ticker V @ $86.25 stop at $75.43
Short 2 units of Netflix ticker NFLX @ $30.35 stop at $29.43
Short 1 unit Wells Fargo ticker WFC @ $29.90 stop at $31.22
Short 1 unit Bank America ticker BAC @ $32.70 stop at $34.32

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