Most are familiar with the movie series The Matrix in which reality was totally divorced from perception. I believe we are faced with the same situation when we, as traders, engage the markets now.
Formerly relatively free markets have been replaced by The Matrix. Markets that, over a long period of time, reacted to fundamentals and over shorter periods of time reacted to supply and demand factors no longer exist. All of that has been replaced by The Matrix leading some to even question the validity of technical analysis.
Does it not seem that what used to work fairly well no longer does? Or works so sporadically as to call the usefulness of what we used to do into question? Does volume matter with the advent of dark pool trading and high frequency trading (HFT) machines? Does it seem that things no longer trend well at all? When you do identify a trend, it tends to end abruptly? Seeing a lot of chart patterns that used to work well fail more consistently than leading to the next technical expectation as to direction?
I do not believe I am alone in these observations. Here, as I see it, is The Matrix where nothing is as it seems.
+ A federal government that manipulates statistical releases and often out right fabricates them. From employment/unemployment statistics where those no longer receiving benefits are excluded and a birth/death deflator is used to skew results. Where GDP figures are deliberately manipulated by using a false inflation deflator. Where nearly ALL “adjustments” after the fact (like a page 18 retraction in a newspaper!) are negative. The US Federal Government is not alone in this practice. The Chinese government is a past master at this. Throughout the globe, national economic statistics are systematically falsified.
+ Government regulations that crush commerce for the benefit of the few.
+ A Federal Reserve that manipulates interest rates, money supply and even directly intervenes in bond and equity markets.
+ Global Central Banks who do the same as the Federal Reserve for self-serving Ponzi schemes to the benefit of the few elite.
+ Energy cartels with price fixing, supply manipulation and massive collusion.
+ Wall Street which has taken chicanery, double dealing and insider trading to a whole new level, even for them. Where a thief like John Corzine remains free. Where laws are changed to benefit a few ahead of massive fraud. For you see, that fraud is now legal.
+ A mainstream media which gives it all a blatant, agenda-driven spin.
All of the above are interwoven in such a manner as to make it difficult for many and impossible for most to see what is reality behind the fiction. We were all given a glimpse of the harsh reality in 2008 when a rip in the fabric of The Matrix existed for a brief moment in current history. The “unforeseen” derivative melt down allowed for that very brief instant. Almost immediately that tare in The Matrix was “fixed.” The harsh reality remains as it was. The perception of that reality was manipulated.
As traders, we must accept the fact that there is nothing we can do about this as individuals or as a group. We are powerless to change what is. What this is is beyond deplorable. We rant and we rave about it but that also does not change the reality. As traders we either reckon with this reality or we do not.
An acceptable method of dealing with this is to withdraw totally from markets. That is a choice an overwhelming majority seem to have made as they recognize the death of buy and hold, seen their 401K’s ripped to shreds, etc.
There is another response. First, we accept that the forces of The Matrix are now what is driving markets. The Matrix is what drives capital. For those who so choose, we can accept The Matrix as morally reprehensible as it is a false reality. However, if you know how to trade in The Matrix, you can garner an astounding amount of wealth in fairly short order. You use the “order” of The Matrix to extract capital from markets. Your financial life may depend on your ability to do this, to look at it in a different light and benefit you and your family by so doing. If you refuse to do this, as a trader, you will continue to feed those in The Matrix whose sole purpose is to extract capital from you. I will make a few suggestions on how you might be able to accomplish this and look forward to your feedback as to other ways and methods as well.
+ Shorten your trading time frames. This is no longer your Daddy’s market. Embrace volatility and make it your friend. In the short time frame, eschew thinking in terms of “bear” or “bull” as it clouds what price is telling you. In the long term, I am a huge bear as I can foresee the coming destruction of The Matrix and the corrupt monetary system that stands behind it. That, however, will not make me a single dime tomorrow, next week or next month. When we trade in short time frames, all of that is left at the door. You trade now with that long term bias, you, as a trader, will be destroyed. Same would apply to those traders who see nothing but blue sky and candy canes in the future.
+ Become an expert in reading and analyzing the Commitment Of Traders Reports (COT). It is an excellent source for understanding future global capital flows. Become conversant in cross market correlations.
+ Learn to trade reactions to news/price events. Thursday, June 14, 2012 was a superlative example of that. Tactical tip: the first direction price takes is normally the future direction of price. In this case, in very short order, we got a move higher very fast. Then an equal and nearly opposite price impulse to the downside. Then, more slowly, the longer term directional move back up. Market ended approximately as high as the high off the first impulse move. You will see this repeat, over and over again.
+ Learn the correct use of options in your trading. We will use the coming Greek elections this weekend and what those results, potentially, could mean for the Euro, as an example. Regardless of your view either Euro positive or Euro negative, should you be already positioned in a Euro futures contract or positioned in the FOREX market? If so, you have taken on huge risk in your trade. You could be in the trade with an option instead. Your risk is limited and your potential upside is almost unlimited in a very large move. Uncertain as to the direction of the move but expecting a very large move? Go long a straddle or a strangle with options could be your answer. In short, learn to trade options in a highly volatile period.
+ Attempt to think in the terms the elites think…if I were them, what would I do? Stay very opportunistic.
This is but a brief few ideas and concepts. Expand on them, add to them. Hope this helps.
Yours in the never ending search for trading edges.-The Market Sniper