The Only Way To Maintain An Edge

I mention this not so much to back up my analysis from Monday's column but to direct your attention to the DXC over the next few sessions. As you may, or may not know, the DXC trades inversely with gold stocks intra-day. Given that I have been trading NEM lately, I figured it was about time to quit with the cursory glances and put the DXC on a 5-minute chart. It helps dramatically, put one up.

The chart of the Euro (EUR) above shows how rally in the DXC could put further pressure to the downside.

Below is a note that I sent to my subscribers last night.In light of recent market conditions, I felt it was timely.

Let's simply lay it out there. Trading is challenging of late, the intra-day range has been narrow and erratic, it is safe to say that if you are playing the game the same way you did a few weeks or months ago, it is likely not working.

Trading, like life, requires adaptation. I can tell you that even during the go-go volatility days between 1997-2000 my trading approach changed slightly. My approach in 2000 was different than in 1997 and as a result more effective in the context of the environment. Fast forward to 2003, there is nothing subtle about the markets changing character, unless you have been on vacation, the changes are blatantly evident. Average True Range continues to contract and volatility intra-day has become erratic, not following any pattern on a consistent basis.

That being said, the job of a trader is to make money while incurring minimal risk. I can tell you that if I was trying to trade 20-30 times a day (what I am known for) I would be incurring far too much risk as I would be chopped up each and every day. The only way to maintain some sort of an edge, which I have, is to push the time frame out. Presently I look at 5-minute charts, it has allowed me to endure the chop seen on all 1-minute S&P charts and as a result capitalize on the few opportunities that present themselves each day.

Secondly, gold stocks, not your typical HVT traders, continue to provide a few looks each day, Newmont in particular. Lastly, I have begun to share with you my thoughts and comments in the FX market, telling you of specific trades I am taking in the hope of showing you other ways to navigate a challenging market.

I know of no trading colleagues that are trading the same way they did just a few months ago. One friend of mine, a die hard listed (NYSE trader) now trades NASDAQ (I may speak to him again someday, lol). Another colleague is focusing more on arbing against the specialist and the ECN's, pick you weapon, but you better pick soon.

In summary, trading presently requires you to draw upon every experience you have ever had in the markets in order to figure out the next move. The process is by no means as easy as hitting the scan button on your 'gee whiz' software, while at the same time sitting back and observing is the most productive use of your time. Making mental notes is far more effective than chasing your tail looking for the stock du jour.

Enough said.

Dave

As always, feel free to send me your comments and questions.

Dave