Warrior Trading Blog

Cut Bait on Gold Fishin’ -$270 | Steve’s Futures Pulse 197


Hey, what’s up fellow traders, trader Steve here. Happy Tuesday to you. It’s a stormy day outside and a stormy day in the markets, with volatility moving the market up and down, but largely sideways today. Today I did finish slightly in the red, down $270 on one attempt in the gold futures markets. I’m going to show you in today’s Future’s Pulse why I evoked the trade, why I quickly changed my mind and covered five of six units at break even, so I could take just a very small loss on this trade and live to trade another day. Look over my shoulder in today’s Future’s Pulse. Come on.

All right, I’ve got that gold chart up here so we can focus our attention on the why behind the trade. We saw coming in this morning here, early this morning, big run up in the gold, up, up, up, up, over $10 move higher, which of course for you insomniacs or very early birds, one o’clock in the morning, nice little opportunity of $10. that’s $1000 move by the way, the proof that opportunity is nearly 24 hours a day in futures markets. But let’s move and fast forward to reasonable morning hours for trading.

We started to see the market go into breakdown mode here, and in the chat room here we saw the market start to break down that key demand level. Again, for a second time, that green horizontal line comes in at 15, 13, 60. It’s this level right here, and we saw that the market was also starting to emerge down below that congestion.

Now look what we’re looking to happen here. We’re looking for the market on these short term breakout scalp trades to move with a certain level of follow through outside of this congestion. We initiate a short position on this one at 15, 12, 70, which is right here just as the market was starting to break. Early on in the trade we did get up about a hundred dollars a contract on this one, but you could see it bottomed out very quickly, and the market started working its way back into the value area. Now that’s the area between the red and green line, also known as the fair auction. So when I saw that I wanted to cover five of six units right back at my original starting point 15, 12, 70. so I just had one unit left of risk, and we trailed that stop down which was originally at 16, 40 up here, down to 15, 40, which is right here. And you can see recently on these bars, the market did penetrate higher, and we got stopped out on one unit at 15, 15, 40, so last $270.

I want to talk to you about why I kind of cut bait on this trade and really went into risk management mode. Okay? Again, early on the trade was starting to look like we were off to the races, up six, $700, a little over a hundred dollars per contract, but the quick turnaround in the market, and the lack of follow through multiple times through these technical lows, and a lack of penetration lower had me changing my mind. But it was really the [inaudible 00:03:04] S and P that I want to show you here that led to my decision. Now remember, gold and stock indices like the [inaudible 00:03:11] S and P, NASDAQ, Russell, and Dao will tend to move juxtapose in opposite or inverse relationship. A strong stock market will typically really cause a [bearish 00:03:22] precious metals, that’s gold and silver.

Now, what I saw happen here is the market started to make a run up here. This is the S and P, and it started to retreat. That was also a function of what we saw in terms of strong congestion on the 30 minute chart, which I’m bringing up right here and now. This is the 30 minute horizon, and look at how as the market started to make its run higher, which was the initial start to the breakdown in gold, which was fueling the trade to start in the green forest, but then it ran and started to really bonk its head on that congestion zone and resistance. It since has retreated at the time of this recording, and that’s what ultimately led to the market kind of grinding higher in our gold.

Let me show you that gold chart again. So right about that same time horizon as the market failed to make new highs here for the day, we saw gold start to come up here. You could see by and large the market continues to bounce on both sides of the value area. So for me, I’m going to call that directionalist volatility, not for lack of trying, but for a lack of market following through.

Let’s take a look at the Euro currency, because there was a couple of other markets that we talked about today, but, I have to confess I didn’t pull the trigger on but there’s still great learning opportunities on the trade. This is the Euro currency, where we saw the market start to penetrate itself a little bit higher here in the early morning session, and then the hold above the POC, and the grind through the level here, and at the same time it moved outside the congestion. The exact same strategy that failed to come to life for us in the gold did come to life on the Euro currency.

You can see in this zone right here we start penetrating higher, and we move fast and vertically away from those congestion zones. That’s exactly what we we’re looking for the gold to do to the downside, but it wasn’t meant to be. Another market that we talked about today was a little pocket of opportunity in the October light sweet crude. Now this one was on the market breaking above a key level that we have here at 55, 50. It’s right here. When we talked about it in the futures trading chat room, the market was starting to work its way back up through the value area.

And you see how there’s a little pocket here of volume void, we call this a volume gap, and when we see that happen, in conjunction with seeing these back to back, long range bars, the trade was a break above 55 50, and looking for this little 30 cent opportunity to fill and it did that and a whole lot more. It’s going to be interesting to watch light sweet crude from here on out the rest of the day, whether it’s going to stay inside this value area, break above 56 19, or fill back through that volume gap. I don’t know. I didn’t make the trade but I thought I’d share you the technical analysis as well.

For those of you that might be looking for a prospect of new opportunity, I’m going to bring up Chicago wheat, which is slowly working its way back for a nifty opportunity potentially for those that are lurking with sharpening their bullhorns. Now here’s what we saw in the Chicago wheat, a beautiful breakdown mode trade early. You could see this morning, 8:30 AM bar, big breakdown below the four 74 level. That’s $4 and 74 cents a bushel. The market goes down, down, down. By the way, those red color bars, that’s called Taz Vega indicator, making it crystal clear to see that you want to side with the bears. In other words, get your bear claws out. Market comes down, first, close back inside those levels which are painted in real time on your chart. That closed on this particular bar comes in at four 64 and a quarter. That’s a 10 cent move each penny in Chicago wheat, 50 cents, so $500.

Okay? Now, what we’re paying attention to here on this trade here is the volume aggregation zone that you see up here. You see I’m circling all this area right here. Okay? Now remember, this is like taking volume that you see in the bottom of your screen down here and we flip it sideways. Why do we do that? Well, we do it so that we get a horizontal histogram so we can explicitly see when the market’s doing just as it is, starting to break outside of that congestion. The key area we’re watching right here is a close above four 65 and three quarters, and in fact we’re even considering an entry on a bistep so we can catch it on momentum on a break of four 66 in a quarter rate, where I’ve drawn this yellow horizontal line.

If you put a stop down below all this congestion, below the red, below the aqua, below the green, and across again all this volume aggregation, I call that putting your stop across the highway. Why? It’s like putting, again, a stop across a busy highway where there’s medium, a whole lot of cars going back and forth. It’s hard for the market to get there. Okay? So the stop would be down below here, four 62 and three quarters. This is a great learning opportunity.

Remember, this is for educational purposes only. This is not an explicit recommendation for anybody to do this exact trade. After all, I don’t know your financial situation or risk tolerance, so use this as a fantastic learning opportunity. Why do I like the trade? Well, look at the space between our Taz boxes dynamic profile. Also look at the fall off in volume that we see right here. What goes down in the case of commodities oftentimes must come up, and many times we’ll move at the same pace as we saw the prior move. I like the gap, I like the fall off in volume, and I liked the space between the boxes. This is one I’m going to be watching here the rest of the afternoon.

Until I meet you back at the markets next time, trade well and be well.

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