Sunday, April 25, 2010


Here is the problem with trading. Most of the time any market will be in consolidation mode. Gold is a good example.

For the last 5 months gold has done nothing but trade back and forth with no defined trend. It's very tough to make money in those conditions.

Now don't get me wrong somewhere someone will have traded this perfectly. They will have stumbled upon the perfect system to catch each little wiggle. Often they will proclaim their superiority loudly for all the world to hear.

Unfortunately there really is no holy grail of investing and the system that happened to work this time will almost always fail during the next period. It's just how the markets work, conditions change. So unless one is lucky enough to guess what will work before each new period in the market what invariably happens is one ends up giving back all of the gains they made when their system breaks down.

The answer of course is to just stay aligned with the secular trend and accept that there are going to be periods when one will just have to sit and watch other people make money. The last five months have been a perfect example as the stock market has gone up while precious metals and miners have gone nowhere.

Know full well that eventually this too will end as gold is in a secular bull market with a long way to go and the general stock market is in a secular bear market with limited upside potential.

So at some point gold and miners will make another big move up and all the waiting will have been worth it. And at some point the stock market will come grinding back down and all those who held on expecting conditions never to change will lose all of their profits.

So one can trade if they must, but do so knowing that the market is going to take away any and every profitable system at some point whether it be a technical system, patterns, cycles, indicators, sentiment, COT or just intuition.

I've watched it happen to countless "traders" over the years. The really good traders survive these periods because they practice excellent risk management. Unfortunately most retail traders when they get on a hot streak believe they have found the secret to the market and risk management goes out the window. That's just about the time the market starts throwing curve balls.


  1. You don't believe in a Holy Grail to Investing(arbitrage), because you don't understand how the markets actually operate. You, as well as all in the financial markets, only know what they have been taught. The same mantra is repeated, meaning the same information. Untill one developes a different way of investing in the system, one will not see beyound ones knowledge.

    I developed multiple arbitrage's a decade ago. These arbitrage's allow me to invest(arbitrate) the financial markets without risk.

    Thomas Adair

  2. Folks I can assure you that you can not arbitrate the market without risk.

    I'm sure Tom here would love for newbies to believe this nonsense but it is in fact nonsense. If Tom was correct he would be the richest man in the world not Carlos Slim.

    If it sounds too good to be true it always is!

  3. Toby,

    I don't understand how you could assure that one can't arbitrate the market, without risk. It is very easily done. I am not the only one that does this. I've arbitrated the market since 2001. I produced over 30% a year.

    Your point about me being the richest man in the world? If i took a $100,000 and made 30% a year, I would have to live a long time to be the richest man.

    People, arbitrage is being done in front of your face. It's in the news, and still you don't see.

    Yes, it sounds 'too good to be true'. Everything we have today, was once,'too good to be true'.

    My first career was as a pilot in the military, and for thousands of years that was,'too good to be true'.


  4. What is your criteria for determining whether a market is in a secular bull or not? Some people believe commodities as a whole are in a secular bull, while others believe that only precious metals are in a bull due to the damage everything suffered in 2008, so I'm curious as to how you differentiate between commodities and precious metals?

  5. I'm kind of in the camp of only precious metals still being in a secular bull.

    I think we've damaged the global economy and as long as that remains then the demand side of the equation for most commodities is going to be impaired.

  6. LOL if you really had a riskless system you wouldn't be making 30% per year. If you had a risk free system you would be leveraged heavily and making many thousands of percent a year.

    Like I said if it sounds to good to be true it is.

  7. Toby,

    You seem to know the answers to arbitrage, that you don't know. That's the one witch is hard to fathom.

    Since you do know about using leverage, and I do use leverage.

    When i became a hedge fund manager, there was the availability of heavy leverage. The problem is getting that type of leverage. I was limited to a certain leverage, unless I showed the arbitrage. I wasn't willing to do that. I left the business.

    There is a trade off using arbitrage I developed. In return for making a certain percent over a known period of time, I am unable to make more that 1% every 10 days.

    Remember, I'll be glad to open your eye's a little if you send me your contact number. My typing fingers are killing me.

    Thomas Adair

  8. Folks,
    Here's the problem with arbitrage that Tom doesn't want anyone to know. Just like selling options playing the arbitrage game will garner small profits most of the time. In order to turn those small little profits into 30% you will have to use huge leverage.

    And then every once in a while an arbitrage deal will come apart and when that happens price will slam down against that huge leverage and you will lose a huge portion of your portfolio in the blink of an eye.

    Remember Long Term Capital Management?

    Trust me when I say there are no risk free investments in this world.

    Even cash is a risky investment as the government will eventually devalue the currency and you will lose purchasing power.

  9. Toby,

    All I can say, is that I've given you the chance to open your eye's. I asked you to send me your phone number, to tell you an arbitrage, that would of changed the direction of your life.

    I give up. Your closed minded, blind, and unwilling to change.

    Toby, you lost more that you know.

    My last comment on your site.


  10. It appears we finally got some form of a correction. Mining stocks held up very well.... so did silver (maintained $18.00).

    Do you think this correction has more legs? Still think it will be followed by an 'asset explosion'? I'm assuming you are typing your latest public blog right now.

    Can't wait to read your insights!

  11. I'll have something to say in tonights report.

  12. Gold has now broken above the previous top of $1225 per ounce and now looks set to soar. Many are worried that it cannot possibly go anyhigher. My own view is that on an inflation adjusted basis $1200 per ounce is still only 50% of the 1980 high - so there is still some way for it go and with all the short term technical indicators pointing sharply higher the recent sideways consolidation will provide a solid platform for any pullback.


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