Yes, there has been a change of character in the market. One professional I follow commented on it in the first couple lines of a post last week.

Risk is on the rise

Obviously, there is lots of frustration going around. My personal pet conspiracy theory is that the larger players are taking a more active role in shifting the market around (random spikes) in order to recover losses sustained when their computer trading models failed catastrophically in August. I think this began when Bernake "leaked" the contents of his letter to the US Senate in the last couple days of August. To me, that looked a lot like a "planned" spike which, if the larger players had foreknowledge, would have given them their first opportunity to recoup losses before month end reporting. Would Bernake do something like that as damage control to help the banks reduce their losses and thereby shore up public confidence without direct Fed intervention? Nah... I must be crazy...

How I react, is to sit back and let the market tell me what it is doing. Right now it has a bad case of Parkinson's and Alzheimer's combined. It shakes, twitches, can't remember where it has been and has no idea where it is going...

I also pull back and write more tools. I've been working on a "spike" tool that will alert me to this kind of market whipsaw behavior. I don't like it yet, so I will work more on it. I also go back to development on robots like the Hammer, as well as explore new ideas. Some are frustratingly good, provided that one is skilled or lucky enough. I have neither enough skill or luck, and I need long term success.

Counter-intuitively, GoFX would probably have had a very good month in October if he had widened his stops and taken more drawdown risk. He has had many trades that spike against him, hit his stops, turn back around and move in the desired direction. There is nothing more frustrating than being correct about the market direction, and yet still take a loss. This is especially true for someone who is trading publicly and Monday morning quarterbacks tell him what he should have done. Most people have the liberty of trading privately and just brag about their wins and are quiet about their losses.

But, I said probably. Widening the stops is like playing Russian roulette. With wider stops five times out of six the market would have come back and GoFX would have taken profits. But all it takes is that one trade when the market does not come back - the round is chambered, the trigger is pulled and BLAM, an account gets its brains blown out all over the place.

Trade carefully,
Bill