In my view there are three priorities in trading:
Try to understand the "times" we are in
Only trade with money you can lose
Knowing yourself is vital because it dictates the type of trading you do. In a perfect world you are patient and you pick an investment with a long term goal and you buy and sell as little as possible. I am not like that. I am an impatient person and my trading reflects that in that I try to buy or sell when a market over extends itself in either direction and then take a quick profit when it rights itself, That is also why I trade heavily leveraged products like AGQ and ZSL. It has worked well for me but on occasions I pay a heavy price.
Over the last week or two I have positioned for a break in the market. When it came yesterday I felt it was more in the form of a Gold and Silver "take down" than a general rush for the exit. I felt this because to me a rush to the exit would have been lead by a falling Euro and stocks which in turn would have put pressure on the metals. Thus when we started to over extend at lower levels I took good profits and then reversed my position into going long Silver AGQ. I was stopped out but the loss ate away the profits from the week's short position. AT the end of the day I went back into AGQ.
The times we are in are sad. Our politicians and banks rule the world without regard to law and order. This reflects through to trading because the markets are corrupted by inside information and manipulation. There is no honesty as MF Global showed us. With this in mind you have to try to think as they do and anticipate rumours being floated that will move the market in different directions every day - that is why my style of trading works at present. In an orderly world markets would move based on real fundamentals.
Trading with money you can afford to lose goes without saying. It is almost impossible to pick an actual top or bottom almost every trade spends some time "off side".
WHERE ARE WE NOW
We are approaching the big Gold and Silver delivery month of December and I suspect companies like JP Morgan and HSBC are heavily short. Asia's way of limiting the manipulation in the US markets has been to take delivery of the physical metal and we can expect that to continue... so I suspect a significant part of yesterdays move was a take down of the metals so that these companies can cover shorts. It is also all about removing an attractive alternate for people looking to pull their funds out of Europe so you can be sure Central Banks played their part in this shorting.
I do not think Europe is done yet but there is no doubt that the solution they have chosen is printing.
So.. we may see more sell offs but for now I think that may be over and the focus will be the December metals deliveries.
As I said I took a hit yesterday when I went into Silver when it broke through the $ 33 support as I thought that the sell stops had already been taken out. The market continued to sell down and stocks also followed. The Euro didn't and I think that is an important signal. Now we have had this clean out I expect AGQ to be a good investment and will add to my position over the next week if the opportunity presents itself. I am also going to look for buying opportunities in stock but the budget negotiations will have a big influence on this. AND you can be sure there will be many false rumours that spin prices in all directions so that Wall Street can make good trades at the expense of their clients.