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Positioning for a Prolonged Pullback and Props to a Great Trader

The selloff was dramatic last week. The drama was in the speed of the fall and not so much because of the size of it. That speed made it difficult for many traders to make money including me and I was short S&P futures and long precious metals. Part way through the week I converted my short futures to short strangles to take advantage of the bump in volatility. Unfortunately, the market kept dropping and the volatility component of those futures options continued to grow and my precious metals positions performed poorly as any kind of a hedge. So I am more than a little ticked that my account value didn’t go up, but I ended the week net long and ready to take advantage of a rally which is what we are getting at the moment. It was a good reminder to keep position size in check because you might be right in the long run, but it won’t matter if your account gets wiped out in the short run.

I am enjoying the rally, but I do not think that the coast is clear. The correction was too quick and too shallow in my opinion to reflect the state of global economies so I intend to use any continued bounce over the next few days and weeks to position for a more prolonged pullback.

Precious metals prices should perform well going forward despite what happened last week. I intend to buy any gold and silver pullbacks especially those correlated with broad market selloffs. There are numerous speculative juniors that are trading very cheaply in my estimation. I intend to focus on the precious metals juniors in the near term with a plan to roll profits into base metal focused juniors as countries begin to fiscally stimulate their economies with infrastructure programs and the like.

Options are rich and juicy for the selling with volatility elevated so I will be expressing my market opinions by selling options as well.

And I will continue to scalp. I don’t post those trades on the blog as they tend to be very short term in nature. I would like to take my hat off to Mr. Yen on twitter @RealBrianWatt. He operates the most entertaining, actionable and transparent trading feed that I’ve had the privilege to read. I recommend that you follow him. I’ve switched to scalping /MES from /ES and my results have improved significantly. Thanks Brian.

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