Approach to Markets/Gold
Trader Scott’s Market Blog
November 24, 2016
Thanks to J. from Australia for the idea for this post. In writing this blog,I’m trying to share with you guys/gals how to approach this business in a calm (prepared and confident), anticipatory (having a plan and a method) and professional (having trading skills, such as being adamant about taking profits at times) manner. So to get a better perspective on that, let’s step back to my commentary on gold for the last couple of months and see about the approach outlined above. And contrast it with the approach to gold which most of the gold permabulls have been using over the years, which has cost a lot of people money.
Following the re-test of the selling wave in gold last month I wrote about my belief (concerns) that gold: would bounce into the end of October; would see a secondary top in the first week of November; had gotten itself into a bit of a pickle and would need to be sold and also shorted above $1305; rallying after the election would be quite concerning, as it needed more selling (not buying) to set up a bullish situation – and sell stops would be taken out; would need to get into the latter part of November before seeing the next excellent entry point, and the bearish upthrust in gold on election night made me much more concerned about gold; below $1191 would be the much better area when we would see the bottom begin to form.
So this approach (hopefully) conveys a calmer, more anticipatory approach – in a more professional/business-like manner, while attempting to keep market biases at bay. And also by understanding the need to take profits at times, which has numerous benefits. So while the gold bugs were claiming it would soar after the election, the market was “saying” something completely different. So does this mean we’ll be right every time using this type of approach, of course not. But we will see markedly improved results with much less risk. However, to repeat, taking profits at times is a must, otherwise this approach is much less effective.
So how does this all fit in to where gold is currently. Gold has now gotten itself in a bit of a pickle in the opposite direction. We’re in a time frame at the end of November. We are now below $1191. And as I have stated numerous times, I don’t buy because I’m bullish – it’s bullishness combined with a great set up – that’s how I hone in on a market. A great set up (as I’ve stated numerous times) requires a selling climax. A selling climax shows that the strong hands are getting impatient/weak hands are freaking, and both are becoming much more aggressive – this keeps a solidness to the low areas, to then feel much more confident buying into them with more aggressiveness. And gold currently, sentiment wise and technically, is in an area where a selling climax is very possible. (Also, even though people are getting hysterical about a bond market crash, bonds saw some ending action come in on Wednesday, and are closing in on a bottom.) So I bought some silver on the new lows today, but I’d likely get more aggressive with lower lows. There is a big rally coming, but there will be re-testing, so be careful – and only buy into weakness.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.
November 25, 2016 @ 3:30 am Q
Great Post Scott. Any chance you could elaborate on buying into weakness, ideally with a little scenario? Q
November 25, 2016 @ 11:26 am Roman Dudek
Scott, what do you exactly mean saying, “There is a big rally coming in gold, but there will be re-testing”? There will be re-testing (of some lows) before big rally or, there will be big rally and then re-testing?
November 25, 2016 @ 3:10 pm traderscott
Both actually. Last night’s lows were a preliminary area. There will be another selloff and then a literal explosion from the lows, with the volume, and then the price will explode off of the lows and close way off those lows, toward the highs of the day – that is what we’re looking for. There will be plenty of volatility.
November 25, 2016 @ 6:28 pm Roman Dudek
Thanks Scott. Therefore, this would be a selling climax. Am I right? (Sorry, still learning)
November 25, 2016 @ 7:30 pm traderscott
Sort of. I try to avoid getting too technical about this stuff, but what I described is ending action. That would include the preliminary support. The actual selling climax is almost always preceded by preliminary ending action. So to actually use this in actual implementation and not theory, once you see that first powerful ending action, you should assume there will be a re-test of that and that re-test will almost always go to a new low and then another climax should be seen. That second climax must be on less volume. It shows the selling pressure is abating, that’s bullish. Go back and look at gold at the end of last year, when I kept chronicling my increasing bullishness in the comments from Sept., Nov., and finally I said it’s time to buy in Dec. The volume kept falling on those re-tests, yet we kept going to new lows. People were getting more bearish, while the market was “telling” us it was getting more bullish. I thought the optimum time frame was after Septemberish, but I let the market “tell” me, so keep honing in. That’s why I kept repeating for this year, late November, but re-tests into December. I have my view, but it’s up to the market, not myself. It’s just that I mark out these highest probability areas price/time and then hone in as we get close. Go look at some gold charts over the last few years, all you need is the price and the volume, not all of the fancy indicators which I don’t even understand anyway. The people who use those indicators and are successful at it – great. But they just confuse me. Watch gold keep taking out support areas, but then rallying back. Those breaks of support are the entry points for at least a shorter term trade. And look at the glossary in the drop down menu above and look at the books and articles drop down too. That’s why I had those put in.
November 25, 2016 @ 8:08 pm mark
Scott…new here. When you say you bought some silver are you talking physical, a fund or stocks??
November 25, 2016 @ 8:59 pm traderscott
Actually futures (sorry) this time. Lower lows would more likely be physical Mark.
November 26, 2016 @ 12:48 am Roman Dudek
This is great explanation. At least now, I start to understand all these relationships between ending action climax selling and re-testing. Thanks Scott.
November 26, 2016 @ 1:20 am traderscott
This happens on all time frames, shortest term to longest term, all the time. So learning, recognizing, understanding and being able to implement it in real time with real money on the line – that is where we want to get. But doing this forces us to wait for a way, way better entry point/opportunity in markets. And knowing you can just keep repeating it makes markets a much more pleasant endeavor. Of course, we have to credit the great Richard Wyckoff for all of this. And lastly, this is only the method, the analysis. The implementation of it, the trading skills, are much more important.
November 25, 2016 @ 11:57 am Randal Magnuson
11/25/16 clicked back and forth between this post “below $1191 would be the much better area when we would see the bottom begin to form.” and the live quote price 9 am PST @1181.20, looks like GLD is on black friday sale. :) Good call Scott! Thanks for your work in our behalf buddy, enjoy the weekend.
November 26, 2016 @ 6:05 pm traderscott
November 26, 2016 @ 2:14 am Aamer
Thanks scott. Very insightful and accurate…..would be most grateful to hear when you think the entry point has been identified.
I guess my simplistic question is how best to play the re test phase …or not ? And if there is a big rally coming in the PM’s then usually it is said to let profits run….and not cut positions….unless you are using your resistance levels to trim….would that be correct ? If one had cut earlier in the year…there is a chance that a trader like me ( poor skills ) would have cut too early and missed the move to new highs then added when we began the corrections…
November 26, 2016 @ 6:26 pm traderscott
It’s all judgement Aamer. About cutting positions – it depends on your time frame. Short term trade or investment. But either way, I always aim to take some profits and/or “hedge” with short sales. But only attempting to do this at bigger resistance levels when the speculation (weak hands) are coming back on the long side in a big way. That happened 3x earlier in the year and again around $1305. It’s claimed to let your profits run, but it’s not my approach. If you let your profits run, you also risk letting your profits wither or your losses run. It’s why I sell as the market is going up – I hate using moving stops. I’m in this business to survive. It’s amazing how well you can do with tons of singles, some small losses, and only a few home runs. Aamer the only way to improve your skill set is to keep trading. Much of this has to be self taught, but with guidance. I was fortunate to have 2 incredible guides. And I was also able to observe closely a lot of other guys. I’m confident from the feedback I’m receiving that my posts and comments are helping – with a much more risk focused approach to markets – not profit focused. The profits will come, by neutralizing most of the losing. A lot of problems stem from people who are totally focused only on making money. So they are constantly in fear of “missing out” on the “big move”. Instead of focusing on being patient and letting the market come to the. And do I miss out on “moves” sometimes? Absolutely. But I could care less. My focus is on entering correctly and avoiding losses as much as possible. I do not focus on making money. That will come “naturally” from entering well. Taking profits is part of trading skills – an art, not a science. This business is about art not science, yet we need to make it a scientific as possible – it’s a tough one to learn. But I’m sharing my approach – it won’t be right for everyone. But trust me on this one – surviving this business is mainly about being a good risk controller.
November 26, 2016 @ 11:39 am David V.
Sounds in some ways like surfing, instruction helps you with what you need to do but it’s on the water where you get the sense to time and judge the amplitude of the waves.
Some miners after their 3rd quarter earnings look like they have moved sideways out of their down trend channel, with PMs near support can this be a good indication of the strong hands about to turn things around?
November 26, 2016 @ 6:58 pm traderscott
David, I’m jealous of you – it sounds like you are an experienced surfer. I suck at it. But yes, you are exactly correct. I can share all of this, but true confidence and competence requires just doing it. And you will get better and better – then get very confident you know “why” these things happen, you get good at anticipating them, and you gain the confidence you can repeat it over and over. Markets move in selling waves and buying waves. The amplitudes are the key as to when the increasing ones “should” be showing up to “confirm” your outlook – anticipating. The strong hands average down when buying/covering (accumulation) and average up when selling/shorting (distribution). They trade in huge size, so that is the only way they can do it. And they leave their footprints. A selling climax shows they are getting impatient and more urgent. So it’s the preliminary ending action, followed by the selling climax and re-tests. That whole process is when we should also be getting very interested. Friday morning was a bit of an attempt at preliminary ending action – there will be more. I’m continuing the strategy which I shared a week ago – using the strong selling waves to buy, but selling some of that (not all) into the intra-day rallies and hedging a bit. And using profits and into weakness buying more. A powerful selling climax will alter that plan. And that is my plan, the markets seem to have a way of messing with plans. But it is hugely important to have a plan/strategy and not a haphazard belief in QE or US$ destruction, etc. which we hear about constantly. Belief in that stuff is deadly. I still get calls from the clowns who have been peddling that crap for years – I got one today in fact. I pointed out all of the actual facts about the $ bull market to the salesman and he still had the exact same uselessness in reply. These people are stealing from hard working, decent folks and it’s disgusting. Sorry for the diatribe.
November 26, 2016 @ 8:12 pm David V.
Pretty much a novice at everything myself but You’re right about the peddlers, been trying for the last 5 years to undue the mindset of those permabears.
Your strategy and the suggested reading has been a lot of help.
November 26, 2016 @ 8:52 pm traderscott
Markets (thank goodness for me) are not brain surgery – just hard work. And right David, the permabears and the permabulls in every market are a disaster. Markets go up and down, what else is new. Trying to micromanage the “reason’ for each big move is useless. I’m still trying to figure out what is their point, and what the heck is their strategy in markets, except to complain.
November 26, 2016 @ 9:08 pm Dmitrii
You offen say that selling climax shows strong hands are getting impatient. Do you mean that “strong hands” provoke selling climax (strong hands do some market manipulation to make weak hands feel fear and sell their gold then strong hands can buy it)?
November 26, 2016 @ 9:30 pm traderscott
Yes they certainly do try every trick in the book to get the weak hands to sell to them when they want to accumulate. They do what they can to get people scared, like piling on at support areas to run sell stops. Which is why I always talk about only buying into the strong selling waves when we’re entering a potential turning point in price/time. Emulate what they are actually doing, not what they want us to do. I am not advocating doing this in a bear market (downtrend), only in a bull market or in a big accumulation area. For many years my advice on gold was generally to step aside (any buying would not see gains for a while), so just be patient – I changed that last December. My belief is this end of year will be kind of similar.
November 27, 2016 @ 7:44 am Ying-Fen Chen
What a great treat seeing these many Q&A! Thank you all.
“The strong hands average down when buying/covering (accumulation) and average up when selling/shorting (distribution).” Scott, your teachings have changed the way I learned on tradings from main street books and paid newsletters; they teach buying at much higher price when it breaks to the upside, and sell at the break of the support. And I was never good at it.
November 27, 2016 @ 11:40 am traderscott
I was never good at it either Fen. I guess some people are, but i don’t personally know any. And the approach we take to markets makes all the difference. I’m trying to show a more “professional” approach.