Trade Anatomy

Leg Bone Connected To The Knee Bone …

If you can’t draw your trade system on one side of a paper napkin, it’s too complicated.

Just to be clear, ‘simple’, does not mean ‘easy’.

What’s presented on this site and essentially in real time, is a particular method of approaching and trading the market (not advice, not a recommendation) using a culmination of research and education (i.e. losses) that span the course of over thirty years …’thirty-five’, to be exact. 🙂

That culmination has resulted in the following ‘system’.

Being from the engineering field, it’s probably no accident that system takes the form of a ‘checklist’.

However, make no mistake. The checklist is about as far as engineering can go. The rest (reading price action) is mostly art and intuition.

The System:

  1. The Set-Up 
  2. The ‘test’ or ‘gut-check’
  3. The first ‘correction’
  4. Continuation or Failure
    1. Trend identification
    2. Potential channel(s)
  5. Exit process
    1. Scale out
    2. Full exit
  6. Post trade evaluation

Let’s take a look at how that system’s applied to the current (open) trade: DUST-21-01.

Since we’re short the Senior Miners GDX (not advice, not a recommendation), we’re going to use the daily chart but invert it (to approximate DUST) as shown below:

Marking up the chart with the above ‘checklist’ reveals the following:

As this post is being created, GDX is collapsing through support levels while DUST screams higher.

In the past two days, unless price action was monitored minute by minute, there was no time to get aboard comfortably (i.e., with low risk).

This plays directly into “Turkey’s” admonition a century ago about ‘not losing your position’.

The First Correction: Complete

With that under our belts, it’s time to get to work identifying trendlines, channels or potential traps for either the bulls or bears.

As a starting point, the daily chart of GDX is compressed and marked up with past trendlines and a potential line (magenta).

Looking closer

This series of trendlines is rising (using inverse fund DUST) at approximately +725%, annualized.

We can also see from the zoom area; price action can go sideways for some time before contacting the trend to either verify or negate.

Using DUST as the proxy, that sideways action can be as long as fifteen trading days. Just long enough to discourage the late comers; bulls and bears alike.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

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