The setup for the big trade

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Mon, Jul 1, 2013 - 1:12pm
redwood
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IAM

Want to thank you for enriching this forum. Informative and on target your posts broaden the scope necessary for reading the metals market.

Mon, Jul 1, 2013 - 2:18pm
It's a mystery
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Ok here's a tip on professional traders

Upside call volatility in options on gold futures is getting hit very hard. That signifies sellers of upside calls, so market makers lower volatility. This is very often a sign that a reversal in the market is close (1275?).

I am simply putting it out there for educational purposes.

If the puts get killed along with then expect a trading range for a bit.

Mon, Jul 1, 2013 - 2:24pm
indosil
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@IAM

Excuse my naivety....but where exactly can i find this Volatility Index/data for Gold or Silver?

Also i didn't really get hold/understand your comment on Volatilty ......can u elaborate a little??

Mon, Jul 1, 2013 - 4:30pm
It's a mystery
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Hmmm

well I guess it depends on what trading service you use. Options like stocks have a volatility reading whenever they are trading.

August 1250 calls on gold futures have a 26 vol right now. So, if you simply watch what vol is today versus yesterday's, which many services have you get a feel for what "paper" is doing in the marketplace.

Volatility in GLD dropped two points today, which means paper saw selling of options, so lowered their values.

Mon, Jul 1, 2013 - 6:13pm
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The Set Up for the Big Trade?

Though I love this thread, the title of the thread sells it short in one respect, in that it implies a singular event, a particular trade of all trades that approaches, and for which we must prepare (by implication, identifying the ultimate lows).

I do not believe that Argentus actually meant this (and he can clarify that for himself), because he asked me to repost to this thread, a post that I had made on Main Street, as being a close proximation as to the actual purpose of this thread as he intended it. Indeed, the 'Spirit of the Big Trade' is a an ongoing approach to the market, which will capture any such 'Big Trades' by default.

So, duly reposted as requested.

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Stacking

=================================================

Prompted by Spartacus' question, here is my own experience of and strategy around these price cascades; it might interest some.

The stack is the core position, aka 'insurance.'

Like others I also trade; Argentus calls it the 'swing portion.' For me, I allocated half to core and half to swing. My focus is on the swing portion; I want the best return on that that I can get. That part is not insurance, it is an investment. Critically, I am not a helpless observer, volatility is my friend. Though these low prices are painful in one sense, in another they have been a stupendous opportunity to lower my average cost per ounce, and increase the ounces in the swing portion based on my original investment. This will pay back big time if we get back to earlier more agreeable prices, and is reducing my losses in the meantime.

Using $1550 and 26.50 as start points, being the pre-April cascade level, we are currently down about 20% in gold, and about 26% in silver. My own losses are half of that, as I am reducing my cost per ounce continually through trading (selling into rallies or prior to or during dips, buying back on dips or lower dips). Wherever price takes us, so long as it continues to bounce around and not flat-line, then the task of reducing that cost per ounce is ongoing and relentless opportunity to be seized. At some point, I expect to reduce it to even these low levels. I am not so smart to always know at what point to act, but I follow the writings of those who do ;-)

If at any time we return to $1550 and $26.50, I will have far more ounces for my original stake than I had before, and I do not need a return to those price levels to get back to my original financial position, because of that reducing dollar cost average.

If the prices remain low, I expect to eventually to reduce my cost average down to that level, and then keep going so that I am ultimately in profit again.

Nobody likes being underwater, but necessity is the mother of invention, and it has brought out the trader in me. I never traded before. We previously enjoyed a secular bull and that was great. This deep correction has forced me to adapt in turn and become more active. If and when we return to the bull phase, I expect the trading strategies that I have learned, to be just as effective in the that phase also; I will be trading now for good.

To sum up, I am up the creek as many of us are, but I do have a paddle, and I am paddling furiously. I do expect to reach shore, and am finding the experience both enriching, and an education. There are some very smart people in TFMR to learn from for trading, including Argentus and his peers on his own thread, and also on Pailin's corner.

Well, there's my 2 cents. I thank Turd, his website and the community here, for this and so many other things.

============================================================

Mon, Jul 1, 2013 - 7:19pm
Byzantium
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Just to add to my previous post

I am a hard core PM bull, in that I believe in the intrinsic value of PMs as the most superior and lasting form of money.

My core stack is insurance against fiat money collapse.

HOWEVER, the swing portion requires a different mindset; it requires acceptance that the market, and the cartel, are powerful, and that the dollar system has a huge inertia that cannot lightly be discounted. In particular, because the core stack is predicated on bullish conviction, the swing portion is to cover the other scenario, being the scenario in which the dollar system has more left in it than we might expect. It is difficult to lose money being short the metals so long as the dollar system survives, and this may go on for a long time yet. Once it collapses, that is what the core position is for!

So, an easy and unhesitating disposition to sell half the swing portion when an intermediate top is detected, characterizes the mindset needed for trading. Optimism and fundamentals are total handicaps for trading.

Trading on technicals and with a bearish slant, is profitable while the dollar system survives. When it crashes, our core stack is ready. Winning in this current system while it lasts, and being ready for the next, is how I am trying to position myself.

There is an expression; 'better a year early than a day too late.' Yes that's true, but its too black and white. I am going to steal from Green Lantern's Bruce Lee quote; we need to be like water, adapting to the forces around us, rather than expending ourselves fighting something that just is what it is.

Mon, Jul 1, 2013 - 9:37pm (Reply to #2249)
donnaf
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@ AM charts post #2239

To clarify chart dates for self & make sure I'm not reading it backwards:

Does '250913' on first chart = Sept. 25, 2013;

'301013' on second chart = Oct. 3, 2013

Thx

Donna
Tue, Jul 2, 2013 - 7:32am (Reply to #2258)
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donnaf wrote: To clarify

donnaf wrote:

To clarify chart dates for self & make sure I'm not reading it backwards:

Does '250913' on first chart = Sept. 25, 2013;

'301013' on second chart = Oct. 3, 2013

Thx

Donnaf: Yes. I'm using European dating so 010511 = 1st May 2011 I'll try to use text to denote month from here onwards (eg 01 May 11) for cross continental clarity, but excuse me if I occasionally slip into old habits as I have to type these posts up pretty fast. Also on the Gold Silver Ratio, silver vs gold thing ... a personal rant. I am sick of seeing internet pundits advising "Silver goes down twice as fast as gold, but it goes up 3 times faster than gold" This is inexcusable drivel designed to attract investors who can't afford gold. If it were true, silver would be worth more than gold .... and it isn't. I just point this out ... do a little test. Let's guess of a 100 point swing we are capable of capturing 80 points which would be a very desirable standard of ability, considering 75% of everyone loses. So then we switch from Au to Ag or back. Great. Now we catch 80% of the next swing. Here are some big questions that sort of don't get mentioned: 1 What are the switching costs for physical? 2 How big is the average swing? 3 What, if anything, is left for the holder of the metal who carried the price change risk 100% of the time? 5 If you take a cost hit to swap from metal to metal, how much new gain is required to get back to where you were before the swap? So how does this work financially? eg 100 units of capital - switching cost of 10% = 90 units. Now to regain parity with your old capital you need 10 units, which on 90 units is a gain of 11%! not 10%. So that means we need a new trend, which we catch according to our batting average of 80% capture, and it must go 11% x 1/80% = 13.75% in our favour before we make a single cent ... and then keep going even further so we can make money. Your mileage will differ I'm sure, but these things need saying because nobody out there is saying them. An active account required either a huge profitability record, or exceptionally low trading costs.
argentus maximus Rhythm and Price https://www.greenhobbymodel.com/rhythmnprice.html This analysis - global markets
Tue, Jul 2, 2013 - 7:47am
It's a mystery
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Equity market diversion

SPX is in a rising wedge the past few weeks and looks set to fall hard in the next day or two.

Metals are in the obvious inverse head and shoulders the algos are so fond of blowing up.

I think AM has the 5th as a date of volatility, as does PEI. Of course that is job day here in the US.

I will look to the long end of the curve set-up to see what we have but the top in bond prices long

term looks in.

Gold basis AUG is thin at 1275, 1342, 1373.50 (those are magnets that will fill in time).

Tue, Jul 2, 2013 - 7:53am
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@Byzantium

Hat tips for both posts, Byzantium. Thanks.

You highlighted in a very clear way much of the trading philosophy underlying this thread which I have not gone into in sufficient detail. Stackers: in my view, those two posts warrant more than one read.

Why be positioned long only? There are multiple timeframes operating. The long term trend towards a hard asset/hard currency world will have many short term pullbacks, since no market moves in a single direction all of the time.

It pays to reduce exposure in a short term timeframe if the metals are consolidating recent gains by falling in value. The swing trading idea is designed to increase the total amount of metal held by exploiting these opportunities. Embracing the techniques of adjustable exposure also creates a flexible mindset for trading.

argentus maximus Rhythm and Price https://www.greenhobbymodel.com/rhythmnprice.html This analysis - global markets
Tue, Jul 2, 2013 - 8:11am
Ilya Repin
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"inexcusable drivel designed

"inexcusable drivel designed to attract investors who can't afford gold"

is a little bit harsh i think especially for proud Silver bugs like myself

"The major monetary metal in history is silver, not gold." Milton Friedman

XAG 08 low - 2011 high 491%
XAU 08 low - 2011 high 182%

XAG 08 low - today 130%
XAU 08 low - today 81%

Silvers is still outperforming Gold from its last major low.. it just drank to much and has a bit of a hangover currently, thats all.

The GSR trade is legitimate. only by a small 300% in 3 years

Tue, Jul 2, 2013 - 9:19am
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GSR

GSR has its own cycle, spanning years or decades. My own switch points start at 45 and 65. My target had previously been lower than 65, but it is clear that 70 is now possible, so I'll start switching my gold GSR swing portion at 65 and complete the swing at 70.

The unwind is a question of patience. In principle, I then wait for 45 to start the reverse flow. Being though now of a trading temperament, the lure of playing the zig-zagging in between, will no doubt be a factor too. There are many compulsive disorders associated with newbie traders like me, not least that patience is the hardest game. rtabit and others over at Pailin's have posted excellent insights into the need to know yourself, being as important as knowing the markets.

Late edit: If we fail to clear 65, I'll probably just remain an observer. I'm not going to chase a receding GSR once it falls below 60. I have a chart on my wall with axioms made during a period of calm reflection and analysis, aka 'of sound mind.' One axiom is not to swap gold for silver below a GSR of 60, such criteria being in force till the next review made when of sound mind.

Tue, Jul 2, 2013 - 9:22am (Reply to #2262)
thatguy007
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Ilya Repin wrote:is a little

Ilya Repin wrote:
is a little bit harsh i think especially for proud Silver bugs like myself
Just to add to the GSR debate... personally I am into PMs for where they are heading :D , but mostly into Ag as I believe gold will run into the physical limitations of manufacturing. What alerted me to this is seeing a 1gm Au bar... I mean seriously, what must the tolerances between bars be. At the prices I expect to see a 10% tolerance on a 1g bar could mean serious $$.

BTW sent you an email Ilya but expect a reply much later :P .

Again a big thanx to AM and Ilya and all who contribute here, nearly (apart from PTC) the only reason I visit TMF and which explains why I do understand Ilya's wish to leave

p.s 2014 Ilya hat tips... I love #s :D

Tue, Jul 2, 2013 - 10:01am
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Initeresting Charts

These number are given out a month in advance and can provide some assistance to your trading. The pic below was for June (I received the numbers June 1rst). The second pic is for July. Obviously we have had very little price action for this month. This along with AM's and Ilya's posts could be very helpful. These numbers can be applied to any time frame. In other words there is a weekly and daily as well. The monthly's are most appropriate for this blog. When analyzing these charts the green line (VC line) serves as the swing line for the month and when the market is trading at these number I assume the market is trading at neutral. If the silver market were to approach Red lines S1 and S2 I would be looking to start taking profits off the table, assuming I was long. The reverse is true for the blue lines B1 and B2. If I were short I would be looking to cover my shorts at those levels. S1, S2, B1, B2 indicate the market is at an absolute extreme energetically for the month and if it were to break those number to the upside or downside for the month then it would be as if a rubber band has been broken and we would probably see more follow through in that particular direction. This has been rare in my experiences so far. One way I trade these is by waiting for the market to determine its direction coming from neutral (green line). I can only assume, based off my simple minded analysis that 20.17 will provide the first level of resistance for the silver bulls. We will probably flirt with that level before a direction is determined for the month. Ill keep everyone posted as I see things developing.

I can also apply these numbers to almost any major market. Happy Trading:)

June monthly silver #'s:

July monthly silver #'s

Tue, Jul 2, 2013 - 11:12am
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Silver vs gold

If you look harder you get to see more ....

Fibonacci ratio = 1.618

---------------------------------------------------------

The Bull Market:

Gold 1999 low 251.7; rise to high 1920.74; .... 763%

Silver 2001 low 4.00; rise to high 49.786; .... 1244%

1244/763 = 1.6304.

Silver rose Fib ratio x Gold's rise ... not triple ... almost exactly 1.618 x Gold's rise.

--------------------------------------------------------

The Bear Market:

Gold high 1920.74; last month's low 1180.2; .6144% of the high

.6144 ..... 1/.6144 = 1.627

Silver high 49.786; last low 18.2076; 49.786/18.2076 = .3657 of the high

Gold fell .3854 of it's total high, silver fell .6343 of it's total high

.6343 /.3854 = 1.645

Thus silver fell 1.645 x gold's fall in absolute terms, which is a rounding error faster than gold's fall.

Let's look at that rounding error a bit closer:

1.645 / 1.618 (the Fibonacci Ratio) - 1.0166 which is 1 (equality) plus .00166 which sounds familiar because in the recent/current bear market silver fell almost exactly .001618 faster than 1.618 x gold when measured in it's own absolute value.

So silver is actually a 1.618 leveraged version of gold, 1.618 x upside and downside, which is a far cry from the popular claim of silver being leveraged 3 x upside gold and leveraged 2 x downside of gold. Maybe back when the Hunt Bros owned it all and the system was naked short and cornered by the Hunts, it might have been 2x and 3x, I have not checked, but over the recent decade the bull and bear for both compare as described here.

argentus maximus Rhythm and Price https://www.greenhobbymodel.com/rhythmnprice.html This analysis - global markets
Tue, Jul 2, 2013 - 12:15pm
Byzantium
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Silver vs Gold

Argentus, without challenging anything in your post which factually addresses blogosphere misconceptions, there is however a layer of nuance being that the timing of the price extremes are not synchronised between the metals. In 2011, silver peaked first and achieved a GSR of around 30.

Now as we observe the markets working towards or establishing a bottom, the optimal GSR might not be when silver is at its ultimate low. If gold recovers first and faster (and that is a big if), we might then see the maximum GSR.

We already recently hit around 66 I believe, which is more than double the 30 seen in 2011. So 1.6 applies if timing is not taken into account, but non-synchronised timing of the extremes does add to the potential opportunity.

Tue, Jul 2, 2013 - 12:19pm
Ilya Repin
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Interesting numbers those,

Interesting numbers those, thanks. I wonder what all the Silver bears can say about "industrial demand" being negative for Silver when it seems your maths supports the fact that Silver is, from a perspective of market "value"... Gold.

Simply put, Gold and Silver moved practically 1:1 over the decade as leveraged upside is consumed on the downside resulting in a net neutral gain. Silver does not outperform Gold over the long term. Therefor Silver is as good as Gold. Silver is Gold. If you purchased both on the same day the same amount of years ago they would have appreciated by the same amount.. all well and good. Thats actually really interesting and extremely bullish for Silver, more so than Gold as this mathematical ratios is discounted by most traders.

But the topic discussed was of the viability of trading Gold for Silver at certain points.

and it remains true that if you had exchanged your Gold for Silver at the low in 08 and then converted it back at the high of 2011 you would have pocketed an almost 300% difference before the leveraged bear ratio you calculated erased those gains.

and that is the point of trading, to buy and sell to maximise profitability. The GSR trade is exactly that, a trade, not a buy and hold strategy.

Tue, Jul 2, 2013 - 1:10pm
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Both posts correct there, of

Both posts correct there, of course.

Byzantium's point that I used trend start to trend end for each metal, and these were not the same dates, so what happens to the gold/silver ratio between those dates .... ie it goes to an extreme level which is opportunity.

And Ilya's point that the GSR can be used to magnify the metal difference beyond the 1.618 leverage by taking the opportune time to switch is spot on too. I'm good with it so long as transactions costs don't eat up the benefits gained, which for physical traders is a significant issue.

There is a third angle which I didn't cover and that is the long term difference between gold and silver may be 1.618 - but what is the shorter term difference? Like for instance how do they compare on eg hourly charts? Is it the same? It could be a higher ratio of leverage. I suspect this is the case.

A study of RSI, momentum, percentage change, or volatility readings with different settings for the indicators would make interesting reading.

Does anyone want to take up the challenge and inform us all?

argentus maximus Rhythm and Price https://www.greenhobbymodel.com/rhythmnprice.html This analysis - global markets
Tue, Jul 2, 2013 - 1:28pm (Reply to #2259)
donnaf
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GSR

As always, thanks for the input AM & for date clarification.

Donna
Tue, Jul 2, 2013 - 1:39pm
Byzantium
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Challenge

I personally don't see the utility of those measures in the GSR trade; that GSR ratio is the start and end of it. Pick your switch points, else wait for what appears to be market confirmation of the outer limit, and be prepared to wait for months or years. It isn't a day trade. We appear right now, to be at or near the 'expected' GSR high for this cycle.

The charm of the GSR trade for me, is that when the metals have crashed to the dregs, and you are out of fiat already one month ago, that is usually the optimal time to switch some gold to silver. Ostensibly comatose investments, not worthy of exchanging to cash at that point, can be switched advantageously for future reversal, in a well reasoned and clinical trade. It is the one ray of opportunity when the PM bug finds himself cornered, intended and likely to catapult his prospects higher in the event of a pm rebound.

Switching Phys to Phys is a pain, but possible. My own preference is Bullionvault. Low commissions, click of a mouse, convenient, sorted.

Edit: link to the GSR history.

https://www.kitco.com/gold_silver_ratio_charts/gold-silver-ratio-charts....

randomness