Armstrong – 27 Aug 14
From a post by Robo at Chartology forum
What Proportion of Daytraders Actually Makes Money?
I strongly recommend reading the research study of speculator skill from Barber, Lee, Liu, and Odean. They studied the returns of daytraders over a 15-year period, the largest sample I am aware of in such a study. Their study is also unique in that it looks at the ability of traders to make money in a second year after having made money in the first.
The authors conclude that “there is clear performance persistence.” The very top traders who make money net of fees tend to continue to make money going forward. The traders who lose money tend to continue losing money.
Here is the most important conclusion, however:
“In the average year, 360,000 individuals engage in day trading. While about 13% earn profits net of fees in the typical year, the results of our analysis suggest that less than 1% of day traders (less than 1,000 out of 360,000) are able to outperform consistently.” (p. 15).
In other words, 87% of day traders in a given year lose money after fees are taken into account. About .28%–one in 360–is able to make money after fees year over year.
To be sure, that small group of very successful day traders earns a significant return. After expenses, they average +28 bps per day. Compare that to the 350,000 out of 360,000 daytraders who average a daily loss of 5.7 bps per day after expenses.
The authors conclude that day trading skill genuinely exists. They also conclude that it is very, very rare.
Further Reading: Can Day Traders Be Successful?
This is a post from the Chartology Forum by member Bikoo99
who was a follower of Alf Field .
Here he picks up where Alf left off .
Thank you Bikoo99 for this thought provoking work
Here attempt is being made to replicate what Sir Alf Field left behind in his last post on Gold’s EW count.
Using his analysis method a projection for gold is made:
I promised that I would reveal some interesting things about the EW moves in gold since the $681 low in October 2008. That low was the start of the Major THREE wave. In Major ONE I mentioned that the corrections were 4%, 8%, 16% and then 32%.
We know that Major THREE will likely be longer and stronger than the prior Major ONE up wave. It is logical to expect that the corrections in major THREE will be a larger percentage than those experienced in Major ONE. This is how the first Intermediate wave of Major THREE developed in terms of London PM Fixings:
In Major ONE, the corrections tended to double when they moved up a degree in magnitude, so one must consider 26%, double 13%, as a possibility. A 21% correction from the peak of $1913 gives a target of $1511. A 26% correction would target $1416.
Intermediate wave I of Major Wave 3:
From 681 to 1913= + $1232 +180.9. %
Current correction from PM fix high 1895 (correspond to Comex high 1913).
1895 to 1204.5= -$690.5 -36.4% (Sir Alf expected 26%)
This is another FIB number according to Sir Alf and higher degree of correction as gold moves higher (read above).
Assuming Corrective wave 2 ended and intermediate wave three of the major wave 3 began at low 1204.5. Major wave 3 will consists of three impulse waves up and two corrective waves total of five waves.
Impulse Minor wave i of intermediate wave I, 1204.5 to 1385 (March high) = +$180.5 +14.49%
Corrective wave ii intermediate wave I, 1385 to 1242.75 = – $142.25 -10.27% (corrections are higher degree than was before).
According to Sir Alf methodology of current wave should at least extend same $ amount or same %
Dollar amount extension:
From 1242.75 minor wave three should extend to 1242.75+180.5= 1422.75
Or % amount basis projection of gold extension is 1242.75×15%= $1429.16 (completes minor wave iii of intermediate wave I).
Alf: Secret to Elliott wave is based in corrections.
Not counting higher degree of corrections or extensions in Major wave three gold price extension can be calculated using the same extension as from $681 to $1913 and applied to current low of 1204.5:
In dollar terms:
$1204.75 +$1232 = $2436.4
In terms of %:
$1204.75 x 180.9% =$3373
That will be at the end of intermediate wave III. then expect another 36% corrective intermediate wave IV before intermediate most impulsive wave V begins.
His power of forecasting gold prices since 2001 was in amount of corrections.
It is all captured here:
Fully’s Note :The Above link is a MUST read ! On this day after the 43rd anniversary of Nixon’s Closing of the Gold Window .
August 15 1971
MUST Read !
Edit…I stand corrected..initially I assumed Alf Field had passed away
He has simply stopped posting his work but is alive and well
Thank you Smithy for clarifying .
Friday, August 15
Copper Signals and Silver
Charts can be seen here
Some of the regular readers of this site will remember that the battle royale occurring in the copper market between the two groups of the largest speculators in the market has been an unending source of interest to me. To see the powerful hedge funds arrayed on one side of the market ( LONG ) while the other Large Reportables ( big pit locals, CTA’s, CPO’s, etc. ) are on the other ( SHORT) is not something that one sees all that often in the commodity futures markets, especially in this day and age of computerized system trading.
In looking over the chart of the price and the chart of the positioning of these large traders ( COT ), one can readily see that each side has inflicted some wounds upon the other based on the rise beginning in the middle of June and then on the fall since last July.
As things now stand, we are back to a near perfect equilibrium between the two sides with their respective net long and net short positions being nearly equally balanced.
The reason I am fascinated by this is because it reflects the continued lack of consensus among the big speculators as to the true state of the global economy.
Those that are bullish and positioned on the net long side ( hedgies ) are playing the inflation genie and a slowly improving economy with increased demand for industrial type metals such as copper.
Those that are bearish are playing the “deflation genie” and a deteriorating global economy accompanied by falling commodity prices along with a strong US dollar.
It is this shifting sentiment which is wreaking havoc among some of the trend following systems and has sent some of the individual commodity markets into their current range trade or sideways pattern.
Clearly, investors/traders are looking at some signs of economic improvement but they are also seeing geopolitical events and other factors which are making them second guess themselves. There is no clear cut conviction outside of the equity market traders as to which way things are going.
One cannot dispute however that the overall commodity sector has been under severe pressure of late. A simple glance at the Goldman Sachs Commodity Index tells the story there. Copper has been effectively taking its cues from this index of late.
Along this line, do you not find it rather bizarre that in spite of the severe downdraft occurring in the commodity sector, in spite of the sharp selloff that has been occurring in copper and in spite of the fact that the US Dollar has been rather resilient of late, we are still being regaled with articles decrying the “Blatant attacks on Silver” ,etc.
I cannot help but wonder about some of these folks who are evidently blind to the fact that everything else around the metal is sinking lower. Yet, for some strange, inexplicable reason, they somehow expect silver to be rocketing higher. It is somewhat akin to watching a wild hog digging around for edible roots. The poor thing cannot see that well to begin with but it is so focused on what is right in front of its nose, that it does not bother to see anything outside of that area of small focus. Such are those who keep talking silver manipulation while the entire commodity complex is now down strongly on the year.
Take a look at the Silver COT chart and you can easily see what is taking place. There is nothing sinister here but rather the dawning realization on the part of some hedge funds ( perhaps some of the same that were long copper) that they are on the wrong side of the trade and are now getting out.
Look at the size of that big bet the hedge funds had made on higher silver prices beginning back in June. They built that net long position up to the largest in 4 years only to have the metal careen back to earth after the entire commodity complex began to swoon. Simply put – the hedge funds were playing the “inflation genie” and surging global economy theme and just flat out missed it. Now they are abandoning ship. As they head for the exits, the price is coming back down after making an advance of about 3 Dollars since early June. It has given back $2.00 of that as the hedge funds exit.
By the way, this is an opportunity to once again point out the folly and absurdity of too many of these self-anointed Commitment of Traders “expert analysts” and other sundry, assorted charlatans who had assured us all that a spectacular silver short squeeze was just around the corner because “their analysis of the COT data informed them that the big swap dealers were positioned on the net long side and that implied a big short squeeze coming”. Of course we all know how accurate that worthless “analysis” was.
I have said it many times before and will say it again – extrapolating future market movements from the COT data alone is an exercise for fools. Only by studying a broad array of factors, such as the other similar markets, the Dollar, interest rate expectations, and then key technical chart patterns and resistance and support areas, can the COT data be used to any sort of trading advantage. Taken in isolation, as so many of these novices and would-be somebodies seem to do, it is great for selling newsletters and subscription-based web sites, but for real life trading strategy, it is utterly and completely worthless. I have to shake my head that some would part with their hard-earned money to pay for the kind of “analysis” that they are getting. It is quite tragic to be honest.
Take a look at the following chart in which Silver is being compared to Copper. Pay not so much attention as to the general price levels but rather the overall price patterns of the two metals. Notice how similar their movements are and have been. They both tend to fall in unison and sink in unison. Yes, there is not a one for one or a perfect symmetry between the two but the similarities are quite remarkable are they not?
The point is simple – markets do not trade in isolation. Anyone who claims that he or she knows what is coming next because they have examined the Commitment of Traders data and therefore can dogmatically assert “such and such must follow” is fooling not only you, but themselves as well. When one puts real money on the line and takes a position in the market, they should do so not on the soothsaying of some short-sighted “expert on the COT” but rather through diligent study of the charts.
Lastly for now, here is that TIPS spread chart that I post every so often. It has been updated through yesterday. Notice the line of the TIPS spread which has been falling of late. This is an indication that inflation expectations are receding, not growing.
It is also the reason that I of the view that without support from these geopolitical tensions, gold would be following the broader commodity sector lower. Traders are buying gold as a safe haven against geopolitical turmoil and NOT against inflation. That warns us to be careful with gold for if the events which have led to this rise in a desire for a safe haven do recede for any reason, gold is vulnerable.
This is not meant to be a bias against gold nor is it meant to be a bias for gold. It is a simple observation that fundamental factors argue for a lower gold price while geopolitical factors are pushing it higher. We all saw today ( Friday ) how swiftly the metal will sink if those geopolitical factors are removed. It was only the reviving of fears over in Ukraine which saved the metal from falling even more sharply. Those who are buying it need to understand this. My own personal preference is to not buy gold during periods of geopolitical unrest but rather during times of relative quiet into levels of chart support and only as much as one needs for insurance or diversification purposes. Buying gold and chasing it higher when it is being event driven as it is right now, usually ends up burning those who do. One never knows if the event can indeed spiral out of control so if you do not own any, acquiring some is prudent. But if you are buying it during times like these, just understand that it can plummet back to earth as quickly, if not more swiftly, than it rose.
I will get something up on the corn and bean markets regarding the charts and the COT data as time permits tomorrow. have a nice weekend
September is usually the key month of the year and an inflection point.
- natural gas price trading in a 5 yr range between 2-6 $ or so.
During this time the index of producers/explorers has more or less doubled.
The 3x short producer ETF has been beaten down hard.
Conclusion: Producers are very expensive. They are either predicting higher prices or waiting for their turn in the barrel.
I’m in the barrel camp and long GASX.
Full confirmation of the trade is the 13/34 cross over…Ideally, the stoch should stay below the 50 line during a bearish move. IF the stoch breaches the 50 be aware of the possibility this could be a change in trend.
“Pigs get slaughtered”
FYI–THE TSI 7,4,7 OR MACD 4,8,9 ARE GREAT INDICATORS.
Hope this is not too soon
Once this breaches the 34 EMA a free fall should start…
There has been lots of gnashing of teeth out there in Forum land about what’s going on in silver. Here is my take on it. Silvers notable underperformance to gold lately is consistent with what the rest of the general stock market has been broadcasting. And that is that we are in the early stages of a financial crisis. That’s what silver does in a financial crisis, it underperforms gold. The Gold to Silver ratio actually performs like a credit spread. It predicts the onset of the crisis before it occurs and can be used as a heads up before its onset. Gold is more liquid than silver so it is more sought after than silver so in a credit crisis the GSR rises. Thats why we reached a peak in the GSR during the Citicorp technical bankruptcy of 1991 and in the crisis of 2008/9. Its a reflection of financial stress. Here is a roadmap of past GSR readings.
So the weak silver price is in concert with what I see the rest of the market telling us right now. And that is that the top is in, we are now seeing a failing rally in the general stock market which is part of the topping process. The top out parade is now marching right before our eyes. The small caps in the Russell 2000 went first and now we are seeing the Dow and S&P top out. It appears we may still see a new high in the tech sector as the QQQ still has lots of internal strength. Here is the daily and weekly of the GSR. Note it is trending higher and if it exceeds 67 it sets the trend to a higher high and will be announcing financial stress in the system which may be the advent of a financial crisis.
Let’s take a look at the major averages and note how this current snap back is occurring on declining volume and looks to be building out a bearish rising wedge or flag.
Now step back and view them from a daily perspective where one can clearly see the fading volume
Now from a weekly perspective note the weekly stochastics show how momentum is deeply entrenched in a downward move and we are simply in a snapback mode. Note the exception of the QQQ where internals allow a move to new highs.
As mentioned we are witnessing a top out parade, which is part of the topping process, it happened in 2000 and 2007 and its happening now. As I mentioned the Russell lead first, and across the pond Europe has busted loose to the downside also:
Here is something to watch the Advanced Decline line. Note it has dutifully confirmed each new high of the averages in this cyclical bull market. But now it has dropped off after peaking one month before the S&P. It is key to watch if it can go on to a new high after this pull back. Note at the end of the big 26 year secular bull market in 2000 it peaked 17 months before the S&P peaked. In 2007 it peaked 4 months before the S&P. Maybe this time it gives even less notice? Let’s keep watching this. A/D-red, SPX-green
As far as commodities confirming a deflationary impulse within a credit contraction let’s take a look at em. Also note the early fall off of oil prices and especially gasoline at the peak of summer and before the end of summer labor day peak driving season!
Now CRB,CCI,and Corn, Livestock
Finally, let’s look at the real price of gold. The best I can offer as a measure is gold divided by the CRB. So we are looking at a relative index of gold vs. the cost of other commodities. It has declined steadily since the beginning of this bear market in 2011. That’s what it is supposed to do by the way. But look, since early June it has reversed course and has been trending upward. Similarly, that’s just when the gold stocks started their advance. This makes sense, so the premise is this is what is driving the trend higher. In other words this argues that we have started a cyclical bull market. Personally, I still allow that this is just a rally within the bear market, but I am being open minded here. I understand that if we do have a financial crisis it could be severe enough to drag the PM stocks down to new lows…its a possibility:
Oh, and remember that HUI/Gold ratio which showed that the PM stocks have been underperforming gold itself since 2003, but has now reversed. Well, looks like it just finished up its back test after busting through its H&S NL. As Merrill Lynch used to laughingly say in the middle of a bear market back in 2001 “Be Bullish”!
Larry and Moe are giving me and Curly grey hair. Coupled with the last week in gold looking like an hs on the 60m and the usd looking strong
Who knows what will happen? but the downdrafts in this sector seem to come out of no where and furiously..very difficult to make any sense of