Gold, Manipulation and Confirmation
Trader Scott’s Market Blog
October 2, 2016
This is a letter from one of our great readers:
Dear Scott, oh yes, it helped a lot, as did your last blog about the resistance and support areas of gold and the gdxj. I will follow them closely. I have two questions though. First: would it make sense to buy at the resistance areas when a break out occurs both a leveraged short gdxj etf and a leveraged long etf. If the up move fails and breaks down, the short would make money, if the breakout is confirmed the overall investment positions in gold would perform well and at a certain moment one could sell the leveraged short and be long only until the next resistance area. The second question I have, would there come a moment when you would recommend to avoid etfs and trade stocks only because of the risk of bank failures and systemic risk? Thanks for your blogs. Your way of explaining the markets is really really helpful….a very last question. Who are these manipulators in your judgement? One group, several groups or the government? Take care
Answer: Easy question first – the reason that I always put “manipulators” in quotes is to stress the dangers of being a permabull/bear on any market. The folks who do that have a tendency to believe any price move not in line with their doctrine must be because of manipulation.
Who are these “manipulators”? When I was a floor trader, I knew a couple of them on a first name basis. They are a big mixture including:the nefarious ones that freak out the goldbugs/governments/Wall Street Banks/insiders/wealthy individual traders/hedge funds/central banks, etc.The only thing they have in common is that they are very well capitalized. And they run the gamut from good, decent, honest, lawful wealthy traders all the way to total despicable crooks.
But the important thing about the whole concept of manipulators and manipulation is that they are the ones who control the market. They always have and they always will. The amount of capital they employ in markets means that they have big footprints. The “easiest” method to success in markets is to learn to recognize what they’re attempting to do and then by using good RISK CONTROL (great entry points), just follow what they’re doing. It’s about supply and demand/liquidity. It’s along the lines of what is referred to as liquidity flows. And when I say they control the markets, I am mainly referring to the recognition that they are the ones who put in the big bottoms and tops, so to speak – the ACCUMULATION/DISTRIBUTION. They are the strong hands, when we hear about the transfer from weak hands to strong hands.
As to a confirmationof a breakout above RESISTANCE and failures of breakouts. This is always an interesting question – the strategy/analysis of confirmations, breakouts, and failures. I would explain my view this way. I NEVER buy strength, nor do I EVER short weakness. Therefore, I never buy/short a “breakout”. I do not even actually understand what those situations mean on a market basis. I don’t know how to control my RISK with that strategy.Markets are about uncertainty/odds. So how can you have a confirmation of something that is uncertain? And what actually signifies a breakout? One % above the high, ten % above the high. How do you “know” that? I don’t get it. Also, RESISTANCE and SUPPORT is not a price. It’s a zone/area. And that zone is flexible – like a rubber band. I have written many times that I love a certain trade set up, which I call buying “broken support” (it was definitely not my original “idea” – I saw other floor traders constantly doing it). It’s based upon the idea of having (almost) total respect for support and resistance areas. I’ll explain “almost” in a bit. I explained the strategy (via the previous link). And this is why I am way more likely to actually buy a “breakout” to new lows, which is supposedly “confirming” the DOWNTREND. Here’s the caveat and why I said “almost”.Ifthe market prior to the TRADING RANGE forming, which set up the SUPPORT zone in question, was in a DOWNTREND, then that particular breakout to new lows is much more likely to be “valid”. But there is still some other nuance around it. For instance, this chart of the Brazil stock market shows this in action in a large downtrend. You can see the numerous instances of eventually failed support areas, but even so, you can see there were many instances where a short term rally occurred first, beforethe market actually and eventually “confirmed’ a breakout to new lows. That is one nuance. And that is why TIME FRAME CONFUSION is a very real problem when dealing with markets. But I will say this – there are folks, such as William O’Neilof Investors Business Daily, who have been very successful using the break out strategy. If you are interested, I suggest starting there. And I will add just because I don’t do things a certain way, I am NOT trying to dissuade anyone else from pursuing any strategy which they find comfortable. And that’s the key – the confirmation/breakout/failure strategy is very uncomfortable for me.
So as to gold now, I believe we are in a huge UPTREND, and I have charts showing my buy zones where I would potentially add to my position into weakness. I prefer to be long and have plenty of profits, so that when we do get to those big RESISTANCE zones, I have plenty of time for a plan in regards to how to deal with that RESISTANCE.
And lastly, yes the situation with ETFs is a big concern, especially beginning next year. I’m trying to formulate a plan, and I will talk about it as needed.
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.