How to Be Part of This MONSTER Long-Term Trade (That I’ve Already Grown My Account by Over $200,000 On)
I hope every father reading this had a great Father's Day this past weekend.
I'm a very proud father of an 18-year-old son and I must have done something right (perhaps most of it’s due to his mother!) but indeed every day is a happy Father's Day for me. So I hope you enjoyed it with your family and your sons or daughters.
Now let’s start today’s report a bit differently. Over the weekend, I read an article called “Can Individual Traders Succeed in the Financial Markets?” by a guy named Brett Steenburger, who seems to be a trading psychologist. I guess he advises traders and trading firms.
He notes the survival rate of traders is very, very poor.
He said 75% quit after two years and 90% are gone after four years. I think that's probably overly optimistic. The statistics and effects are probably even worse than 90% of traders blowing out their account within the first three months.
Anyway, this coach goes on to tackle this problem and he came up with a few insights I want to share them because while some of them are useful there are others where, quite frankly, I couldn't disagree with him more.
In the article, a founder of a trading firm is quoted as saying it takes at least six to eight months of dedicated effort to get to the point where a trader is consistently profitable. While I agree with that, and also about the importance of training and mentoring to accelerate the learning curve for developing traders, we part ways on successful methodologies.
The article tries to emphasize the application of technical indicators. This is something I strongly disagree with because I feel indicators create a lot of distractions.
Price action and patterns are what you need to study instead. Fortunately, the article does reference Peter Brandt who has used chart patterns on different time frames to develop ideas. I totally agree with that.
However, I strongly disagree with the article’s assertation that the “old model” of trader education featuring class seminars is somehow useless and outdated and that the new model is all about learning at proprietary trading firms via online communities.
I have four decades in the trading world and I've done it all. I've tried different things and to my mind the one thing that traders really need is objectivity.
But trying to learn via an online community makes it impossible to be objective. Just picture yourself in a room with 10 people, 25 people or even 100. You’ve now got all kinds of divergent opinions all trying to say something different for different reasons.
There’s no way you can be objective in such an environment.
Just think back to a few months ago when we were at the height of the epidemic panic. Unemployment was (and still is) the highest it's ever been, GDP was cratering and so on. Now you're in a chatroom full of traders, and how many people would have felt the NASDAQ was going to go to a new high soon?
Probably none. The consensus would have been the opposite. You would have gone with the people who were betting on new lows and look at how that would have worked out.
I know from personal experience that whenever I'm considering a trade idea and examining charts, seeing a random article that takes the completely opposite view can sometimes throw my confidence in that trade. I start doubting myself and hesitating whereas before I was ready to put on the trade.
That’s why I believe that while mentoring is important, you do need to isolate yourself from the herd and identify a methodology that gives you a genuine edge. Then you need to have complete independence and confidence to execute that methodology day in and day out.
Seeking opinions all over the place is just going to confuse and distract you. It will lead to all kinds of emotional trading and that’s exactly how NOT to become a consistent winning trader.
Let me give you an example. Here’s an example of an email I sent out last week on June 14 at 1:54 pm called “Yen Biased”:
In that email, I talked about GBPJPY (the British pound versus the Japanese yen) on the weekly chart and I was looking at the governing double top and head and shoulders pattern. (When I say something is a governing price pattern, I mean it governs or dictates the price after the pattern has been confirmed.)
In GBPJPY, the governing price pattern reversed an earlier uptrend into a prolonged downtrend for five years including most recently a bearish rounding top. Now I did put the wrong entry price on the chart, but whether you went short at 135.77 (on the chart) or 136.27 (in the text below) with a pending limit order you were still set to make a 350-400 pip profit based on this analysis.
I didn't need to go into an online community and seek out a thousand opinions to understand what this chart was telling me. I didn’t need a bunch of indicators to “help” me either.
My pending limit order was triggered two days after I sent out that email. That means I didn't have to worry about this trade by constantly watching the screen. I simply entered my limit order in and waited.
As of this writing, GBPJPY is trading at 132.13, some 420 pips lower than my entry, and giving me a handsome profit of over $200,000 on this position.
Now the position is still open so it could make me more money. Or it could move against me and I lose some money.
However, I'm still expecting much lower prices in GBPJPY and I’m prepared to wait as I hold the trade.
What I’m trying to show you here is that I didn't need to seek everyone's opinion for effective analysis and trade execution. I have a methodology that works and I stick with it.
Here’s an updated GBPJPY chart on a weekly basis:
I refer you again to the governing patterns way back in 2014 – 2015. This is why understanding history is so important. If you don't know history you're bound to repeat it, as the old saying goes. My observation of the double top/head and shoulders indicated this pair was going to move lower as these are bearish price patterns.
The pattern was confirmed when the price dropped through the neckline of the head and shoulders and since then we’ve seen only a downtrend in GBPJPY.
The lesson here is that once we understand which governing patterns are in place, then we can see how to strategically place our orders.
Price history will force prices lower here because there’s no bullish pattern on the other side of this that suggests GBPJPY is going higher.
Now of course the market will always retrace within a trend. That's basically what we saw in the last couple weeks where GBPJPY soared and then reversed hard. And it’s why I suggested that members try to short GBPJPY with a limit order at 136.27.
Limit orders are very tricky because the market can rise to a certain price (but not your price) and then drop, leaving you out of the market even though you were correct on the direction of the overall move. However, this time the GBPJPY market hit the limit price perfectly and now it’s 400 pips lower.
That move has given me a monster $200,000+ profit so far.
I'm going to be holding most of that position for the long-term although I may cover a portion of it at it hits various support levels.
I hope you see that I made this call without indicators or similar “help”. All you need is some basic understanding of trends, price patterns and price action to make significant profits in the market.
You definitely don't require any friends to confirm your thinking. You only need to analyze the patterns that govern the market action.
This is why it was very easy for me to see that the recent GBPJPY rallies were just fake outs within a bear market. These were dead cat bounces which can be profitable if you take them in the short term but which are better used as opportunities to go short at a conveniently – and temporary – high in the market.
Now let’s review the USDI (US Dollar Index) as it’s trading right at or near a major support line:
USDI hit a major support area after its recent drop and I can well imagine that it will continue to bounce around at this level in a similar way to what’s occurred over the last couple of years.
I don't think the dollar is going to rise by much, but it doesn't look like it's ready to drop for the next couple weeks at least. I remain long-term bearish on the dollar despite the now-higher probability that it will slide sideways for most of the summer season.
Just keep that in mind when you're trading the dollar-correlated currency pairs.
Here’s EURCHF (the Euro versus the Swiss franc) on a monthly basis so help you better understand long-term price pattern analysis:
In EURCHF, you can see that just like GBPJPY, there was a double top bear pattern. Sometimes these tops can be symmetrical and sometimes one peak is lower than the other. But either way, it’s still a double top and it acts as a reversal of the previous trend once it’s confirmed by a drop below the neckline.
GBPJPY had a double top and a head and shoulders, and EURCHF has something similar with a head and shoulders with a dropping neckline. The right shoulder is lower than the left shoulder. A dropping neckline like this usually means the price will drop hard and fast that’s exactly what we saw here.
There’s nothing on this chart to indicate the price is ready to reverse the trend. That means you should be looking to sell any EURCHF rallies.
EURCHF is typically a range-bound pair and needs a lot of patience to trade it, but if you have a long-term mindset then EURCHF has nowhere to go but down for this pair.
The main takeaway here is that once you understand what these patterns infer, you can make a whole lot of money with your knowledge of that price pattern and the subsequent price action.
Here’s GBPCAD (the British pound versus the Canadian dollar):
The Swiss franc and the Japanese yen are the strongest currencies right now while the British pound is the weakest.
So most every GBP-related chart looks very bearish and the pound looks likely to drop even more against its counterparts.
There’s a double top here on GBPCAD, just like GBPJPY and EURCHF. Recall that this is a reversal price pattern, meaning that the trend was up prior to that pattern, and then down after that pattern was confirmed with a drop through the neckline.
GBPCAD has been traveling sideways and now we're left to decide where prices are going from here. By virtue of the governing price pattern, GBPCAD is going lower before it’s going higher.
After all, it’s just plunged through the neckline of its most recent head and shoulders pattern. That’s very bearish. The price might very well slide sideways before dropping, but ultimately GBPCAD is heading lower.
Now let’s examine the precious metals again, starting with XAGUSD (spot silver).
For the past several years, silver has been contained within a long descending triangle and now we're left to wonder if it will finally break out to the upside by busting above the $19 and $21 price levels.
If not, then XAGUSD will remain where it’s been trapped for many years, unable to make new highs. This is why silver remains in “prove it” mode.
For now, silver has failed to overcome previous resistance and earlier bearish key reversals. That’s why I’m happy to wait and see what happens here. I need further price information before I jump on board due to silver’s history of failure to break out.
Last week did show some evidence that XAGUSD has dug in, possibly before a genuine run at those highs. But history tells us it's going to be a real slog for silver to escape that descending triangle. I’ll wait for silver to “prove it” before I make a trading decision here.
Now for XAUUSD (spot gold), where we see that the yellow metal has been contained in a congestion zone for the last several weeks:
The longer this congestion continues without a drop suggests energy is being stored for another push higher. However, bear in mind that gold made a new multi-year high several weeks ago but failed to follow through.
So there are possibilities that gold could drop within the reverse triangle I’ve outlined here (with the maximum low being around the $1,450 area), or else finally push higher out of the congestion zone and set new highs.
I’m a little leery of jumping in here, so I’m monitoring the gold price action closely to see which major move we see next.
As for the U.S. stock market, let’s look at the NASDAQ first:
The NASDAQ made a huge bullish key reversal last week with a close near the high. Typically a key reversal points in the direction that the market is headed, but the week before there was a huge bearish key reversal. They can’t both be right.
In a moment I’ll show you the divergence between the NASDAQ (which made a new all-time high) and the other two major indexes (which did not).
But for now, note that the NASDAQ is now trading at the upper edge of an ascending broadening price formation. To my mind, this market starting to feel over-extended and I wouldn't be surprised to see some congestion for a while, or perhaps even a drop. I would be very hesitant about chasing this on the upside for now.
Here’s the S&P 500 index for comparison:
This index has fallen well short of making a new high, and it seems to be facing major resistance with what could be a double top.
Right now the best price structure to describe the S&P trading action is a megaphone pattern, which is often a topping pattern. It’s so-called because it looks like a coach’s megaphone that he or she yells through from the sidelines.
While I feel the lows have been put in here and I think it's unlikely we'll see new lows, it’s going to take a big push to send the S&P through the highs.
For now, I’m keeping an open mind about where this is going. But I think this index is getting close to an area where it's going to consolidate or even drop before it can explore higher prices again.
The DJIA (Dow Jones Industrial Average) looks similar to the S&P in that it failed to make a new high:
From looking at the current price action, I’m getting the feeling that notwithstanding the fact we could see a lot of volatility in this area, the DJIA should see some pullback in the weeks going forward.
Now let’s summarize: I’m bearish on GBP and in ‘wait and see’ or ‘prove it’ mode on pretty much everything else. I’m still biased toward a lower dollar, but most markets look to continue moving sideways in consolidation patterns for now.
So with that said once again I hope everyone had a Father's Day and that you enjoy a healthy and prosperous trading week ahead.
Mark "TradingObjectivity" Shawzin