TLDR: We're excited to introduce a new model that will be updated during major market turning points, periods of overheating, and moments of extreme positioning. The goal is to provide you with timely reversal signals across commodities, currencies, and equities. Remember, these trades require proper risk management to fully capitalize on opportunities. More trade opportunities are coming next week.
The strategy behind this model is inspired by the wisdom of Paul Tudor Jones, who emphasizes the importance of a 5:1 risk/reward ratio. This means risking one dollar to make five, allowing traders to remain profitable even if they are wrong 80% of the time. This approach highlights the power of asymmetric risk management, showing that success in trading is not about having a high win rate, but ensuring that gains significantly outweigh losses.
In current market sentiment, there's a significant shift in bullishness as seen in a recent chart shared by Jim Bianco. The percentage of bullish newsletters dropped sharply over the past two weeks, marking the largest decline since major market events like the 1987 crash and the 2008 financial crisis. Despite this, the VVIX/VIX model indicates complacency, and the Advance-Decline line remains strong, suggesting resilience in the market.
On the intermarket front, gold appears to be a high-probability bet, likely heading higher as yields move lower. Silver is also expected to see a significant bounce. We're approaching a seasonal turning point where the commodities-to-bonds ratio typically rises, and we're eagerly awaiting this week's commodity update for further insights.
Teaser/New Model: This system will be updated during major market turning points, periods of overheating, and extreme positioning. My aim is to provide you with reversal signals that highlight key moments in commodities, currencies, and equities. Keep in mind, these are like any other trades—proper risk management is essential to capitalize on them. Stay tuned, more trade opportunities are coming next week.
“[I’m looking for] 5:1 (risk /reward). Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.”
Paul Tudor Jones
The greats emphasize this concept because successful trading isn't about being right all the time, but about managing risk and maximizing gains relative to losses. By focusing on a 5:1 risk/reward ratio, traders can remain profitable even when they’re wrong most of the time. This strategy allows for asymmetric risk management, where the potential reward far outweighs the risk. In essence, it shifts the focus from trying to predict the market perfectly to ensuring that when you win, you win big, and when you lose, the damage is minimal.
This approach reflects the reality of uncertainty in markets—no one can be right all the time. Great traders understand that by limiting losses and letting profits run, they can succeed over the long term, regardless of short-term setbacks. It’s about protecting capital while allowing for significant growth when trades go in their favor.
There is a huge difference between being right and making money!
