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Helpful lecture, about letting go of ego and paying attention to the charts when trading; Allan uses Gold (DGP) as an example.
The trading phenomenon
Courtesy of Allan
Here are a couple of ways to trade Gold. First, a methodology that most of us are well versed in, reading about Gold and being mislead by the most persuasive arguments:
From Seeking Alpha [click on table for sharper view]:
Here is another way:
In the past nine months, DGP (double beta ETF for Gold) has risen from $15.28 to $19.74, a gain of about 30%. This represents a Buy & Hold return, with the leverage inherent in the double beta construction of this instrument.
Or, DGP can be traded with a rule-based trend following system. The system represented in the chart below traded DGP long and short during the same time period, September 2008 to July 2009. There were 12 trades, 10 winners and 2 losers. The total cumulative gain was $25.82, or about 170%. The average trade gained about 13%.
This is a Daily chart, more trades and a greater cumulative total can be seen in intraday time frames, but for comparison sake, I want to compare Daily returns.
We are talking about a system that trades about twice a month and yields about 5-6X the return of Buy and Hold.
By now you should recognize the 3-line point break chart, embedded with the Blue Wave Trend Model, Precision CCI and Precision Moving Average.
If you click on the Seeking Alpha link, you will find 47 articles written about Gold during the time frame charted above. That’s one site. Multiply that by 100 other sites writing about Gold. Ask yourself, how in the hell are you going to figure all that out and have any expectation of getting Gold’s investment story right?
This is the trading phenomenon. It is about taking calculated risks. The results shown for DGP can be and are similar for equity and bond markets as well as individual securities.
Technical analysis in general and rule-based trend following in particular concerns itself only with price movement. There are reasons behind all price movements, but they don’t play any role in the way I trade. As you know, I have forecast a rough period for equity prices in the second half of 2009. Even that forecast doesn’t materially effect the way I trade. It took me 20 years to figure this out. I hope somehow your collective learning curves are reduced by my sharing of my techniques. It’s not to say my way is the only way, but it is to say that technical analysis, rule-based trading systems and trend following are the only way. The sooner that is learned, the sooner success will be found.
Sorry for the rant and lecture. Maybe you’ll thank me some day.
Or just remember me and the day it all changed for you.
