Anirudh Sethi Report

Chief Investment Officer

Everything was fine last week. Even the ugly US employment numbers that were released on Friday morning were greeted with enthusiasm by the global marketplace as both the bond market and the equity market rallied. What could be better? The numbers weren’t that bad and there was always  next month when they could improve. Why not hope for the better outcome in the future as the government authorities and the news reports wanted you to believe? Basically numbers like the ones last Friday are ‘Goldilocks’ numbers, not too hot and not too cold. They allow everyone to think that  things are not great, but the authorities can, and will, make them better. Poor employment numbers imply the Fed will lower rates, which would make equities more attractive in the future (using the dividend discount model or something similar). At the same time bonds rally as a result of the projected lower rates, and finally the dollar declines which helps commodities and carry trades, also making it easier to repay outstanding dollar-denominated debts. Winners all around. “Sweet!”, as they say in the lottery ads here in New York.

From the foreign exchange point of view, the market calls this the “dollar smile”. If the dollar’s economic numbers are weak, but not terrible, then the dollar will decline while all other markets rally – this is the dip in the middle of the smile. If the numbers are good, then the dollar will rally – twisting the  right end higher. But if the US numbers are truly terrible, then the dollar will rally as well. The rationale seems complex but the forces moving the dollar are very powerful. If the US economy is perceived as heading into recession, then banks and other financial actors take risk off the table, cutting back  their balance sheets, which sets off a scramble for dollars. In the modern marketplace, recessions make the dollar go higher. The very aggressive dollar rally in the fall of 2008 is a powerful example of what happens to the left end of the dollar smile. From the US point of view, this is clearly a dollar smile, but when the same thing is seen from the rest of the world, it becomes a global frown. If the US is either strong or weak, the global markets suffer. Profits are made only when the US economy is struggling along, and losses multiply when the US either goes on a positive tear or gets into serious trouble. Read more…

Richard Donchian blazed the trail with the straightforward notion that trading many markets at the same time with the same rules — works:

“When I first got into commodities, no one was interested in a diversified approach. There were cocoa men, cotton men, grain men … they were worlds apart. I was almost the first one who decided to look at all commodities together. Nobody before had looked at the whole picture and had taken a diversified position with the idea of cutting losses short and going with a trend.”

Don’t get hung up on the word “commodity.” His quotation is probably 60 years ago. The key is the STRATEGY, not the INSTRUMENT.

R U L E # 1
Never, ever, under any circumstance, should one add to a losing position … not EVER!

Averaging down into a losing trade is the only thing that will assuredly take you out of the investment business. This is what took LTCM out. This is what took Barings Brothers out; this is what took Sumitomo Copper out, and this is what takes most losing investors out.

R U L E # 2
Never, ever, under any circumstance, should one add to a losing position … not EVER!

We trust our point is made. If “location, location, location” are the first three rules of investing in real estate, then the first two rules of trading equities, debt, commodities, currencies, and so on are these: never add to a losing position.

R U L E # 3
Learn to trade like a mercenary guerrilla.

The great Jesse Livermore once said that it is not our duty to trade upon the bullish side, nor the bearish side, but upon the winning side. This is brilliance of the first order. We must indeed learn to fight/invest on the winning side, and we must be willing to change sides immediately when one side has gained the upper hand.

R U L E # 4 DON’T HOLD ON TO LOSING POSITIONS
Capital is in two varieties: Mental and Real, and, of the two, the mental capital is the most important.

Holding on to losing positions costs real capital as one’s account balance is depleted, but it can exhaust one’s mental capital even more seriously as one holds to the losing trade, becoming more and more fearful with each passing minute, day and week, avoiding potentially profitable trades while one nurtures the losing position.

R U L E # 5 GO WHERE THE STRENGTH IS
The objective of what we are after is not to buy low and to sell high, but to buy high and to sell higher, or to sell short low and to buy lower.

We can never know what price is really “low,” nor what price is really “high.” We can, however, have a modest chance at knowing what the trend is and acting on that trend. We can buy higher and we can sell higher still if the trend is up. Conversely, we can sell short at low prices and we can cover at lower prices if the trend is still down. However, we’ve no idea how high high is, nor how low low is.

R U L E # 6
Sell markets that show the greatest weakness; buy markets that show the greatest strength.

Metaphorically, when bearish we need to throw our rocks into the wettest paper sack for it will break the most readily, while in bull markets we need to ride the strongest wind for it shall carry us farther than others.

R U L E # 7
In a Bull Market we can only be long or neutral; in a bear market we can only be bearish or neutral.

In a bull market we can be neutral, modestly long, or aggressively long–getting into the last position after a protracted bull run into which we’ve added to our winning position all along the way. Conversely, in a bear market we can be neutral, modestly short, or aggressively short, but never, ever can we–or should we–be the opposite way even so slightly.

R U L E # 8
“Markets can remain illogical far longer than you or I can remain solvent.”

The University of Chicago “boys” have argued for decades that the markets are rational, but we in the markets every day know otherwise. We must learn to accept that irrationality, deal with it, and move on.

R U L E # 9
Trading runs in cycles; some are good, some are bad, and there is nothing we can do about that other than accept it and act accordingly.

Thus, when things are going well, trade often, trade large, and try to maximize the good fortune that is being bestowed upon you. However, when trading poorly, trade infrequently, trade very small, and continue to get steadily smaller until the winds have changed and the trading “gods” have chosen to smile upon you once again.

R U L E # 10
To trade/invest successfully, think like a fundamentalist; trade like a technician.

It is obviously imperative that we understand the economic fundamentals that will drive a market higher or lower, but we must understand the technicals as well. When we do, then and only then can we, or should we, trade. Read more…

General Guides:

1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
3. Limit losses and ride profits, irrespective of all other rules.
4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.
5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation.
7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
8. In taking a position, price orders are allowable. In closing a position, use market orders.
9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.
10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.
11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.

Technical Guides:

1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. Read more…

Comex is reporting that as of June 18, the open interest in gold futures surpassed 600,000 only for the second time since May 17, hitting 603,094 lots. COMEX gold open interest climbed 5,712 to 603,094 lots on Friday, surpassing its previous record of 601,014 contracts set on May 17, Reuters notes. On Friday gold closed at an all time high price just shy of $1,260. Reuters reports that according to analysts, a “record open interest, an indicator of overall market trading activity, could lead to increased volatility in gold futures.” Little did analysts realize just how prescient they would be with this simplistic summary, on a day when a commodities fund is rumored to be in its death throes, leading to a major drop in spot gold. Also don’t mind opex: that’s completely irrelevant.

We will report on the latest holding of the GLD, which as disclosed on Friday when we first reported about Saudi Arabia’s doubling in gold holdings, is now the 6th largest holder of gold (some would disagree) in the world, bigger than all of China, later today, and everyday, when the updated NAV comes out.

In other news, post today’s “murder”, gold is back to Thursday levels. After all, hedge funds can’t always liquidate their holdings in the desired direction.

On Saturday (12th June )I had written Soft commodites are looking fiery.

I had mentioned Coffee will skyrocket in coming days.Just if u think chart is not working or we manipulate stock by writing…….then nobody on earth can manipulate Commodity !!

Friday it closed at 144.95

In 3 Trading sessions ,Yesterday it kissed 162 level.

Do u know in 8 sessions Coffee had spurted by 22%

Inverse Head & Shoulder formation indicates price of 173 level.

Sugar :Moving up and up !!

In last 3 sessions up by 3% and still looking fiery only.

Updated at 6:33/17th June/Baroda

The level of 2120 is Major support.

Above 2182,No worry for Bulls

-It will zoom to kiss 2230-2232 level.

There after 2270-2282 not ruled out.

-Don’t panic @ lower level ,For time being worst is over !!

Updated at 12:11/14th May/Baroda

This is another testimony of our Commodity Subscribers Moolah. 

Nickel, which I have recommended 4 days ago has crashed from 1014 to 958.10

Across the world, Commodity trading is 10 times of Stocks and Currency trading is 10 times of Commodites. 

Stock Traders venturing to graduate to Commodity trading too can benefit from this web-site and from our Subscription services in premium category.

Any thing else needed ?I don’t needed appreciation ….But really like critics (Because they had never earned and will never earn…)

The fact is, the majority of traders lose because they cannot control their emotions – and their emotions cause them to make irrational trades and lose.

Trading psychology is one of the keys to investment success, but its impact is not understood by many investors, who simply think they need a good trading method, but this is only part of the equation for winning at currency trading.

The influence Of Hope and Fear

In currency trading psychology, two emotions that are constantly present are:Hope and fear. One of the traders who recognized this was the legendary trader W D Gann.

Hope and fear are destructive emotions and all traders are influenced by them, they are part of all traders’ psychology.

Hope and fear can make traders act irrationally, they know what they should do, but they simply can’t do it.

Executing a trading method with discipline is the only way to overcome destructive emotions.

Human Nature Is Constant – Exploit It for Trading Success It doesn’t matter what market you trade:

Commodities, stocks, currencies, or what type of trader you are, a day or position trader, the fact is, trading psychology influences the majority of traders.

If you can control your emotions and trade with a disciplined plan you can gain a trading edge. Read more…