Counter intuitively probably the worst thing that can occur for a newsletter writer (or blogger) is for them to get a long string of calls right. It’s great for selling subscriptions, but dangerous for subscribers. Why? Because novice investors, and even many experienced traders start believing that person really does have a crystal ball, and they justify that as an excuse to bet too heavily.

I can assure you no one will ever be able to score 100% of their calls (they won’t even come close to 100%). But almost everyone will, from time to time, hit 4 or 5 or even 10 in a row. The problem is that after that 5th or 6th win traders start to believe you know something that no one else does, or that your system is infallible. Then what do they do? They bet the farm on the next trade, and that’s the one where the market decides it’s time for a loser, and the bank repossess the farm.

Folks we live in very unusual times. Almost every market in the world is being manipulated or intervened in to a greater or lesser degree. Ultimately this is going to cause a major catastrophe as we don’t have true price discovery based on supply and demand anymore. But in the meantime we have to trade in this environment without the benefit of knowing in advance when and where the next intervention is going to occur. We can make some educated guesses, and sometimes anticipate which way an intervention is going to push the market (the Fed has our back in the stock market) but timing is going to be tough. Who would have thought at the time that the Fed would rescue stocks 5 weeks ago as they broke support, and started down into an intermediate degree correction? Who could have anticipated that the gold rally out of the daily cycle low would be aborted at $1220 before it could even break the cycle trend line? For that matter who could have foreseen that the normal duration of golds daily cycle would be warped from an 18-28 day cycle, to a 28 to 38 day cycle?

In an environment like this where we never know where the next curveball is going to come from, it’s dangerous to trade large positions, much less leverage. So let me warn traders that when your favorite guru is on a hot streak, that isn’t a call to bet larger and larger. On the contrary the smart thing to do is bet smaller and smaller as the odds are increasing that the next trade is going be a strike rather than a home run.

For me personally, I will probably never trade larger than 1% in the metals sector again until I see gold making higher intermediate highs. The sector is just too erratic and unpredictable to take large positions anymore.

18 thoughts on “DANGERS OF SUCCESS

  1. dry dock

    so you won’t be publishing your success rate then ? it would be useful to know whether your approach has made or lost money over the last two years.

    1. gary Post author

      My calls in the stock market have been very accurate (probably means it’s time for a miss). We easily beat the S&P last year. So far this year I’ve been very accurate on gold, oil and stocks, but too early in the currencies. So I’m probably due to get hot on currencies and cold on the others.

      1. dry dock

        so what was the return on all of your trades last year? you must know the figure, surely its pretty easy to publish it ( as you used to do back in 2009-10) !

  2. Bob UK

    Wise advice Gary.

    Even at the best of times the best analysts are simply giving their best ‘guess’ as to what the markets will do – in these times when all the markets appear to be heavily manipulated it is nigh on impossible to get any kind of forecast correct.

    Unfortunately, there are plenty online who seem to think that someone like yourself has a crystal ball that can see into the future 100%. If you did you probably would be sat on a tropical island somewhere 🙂

    Until things become more clearer I am happy to sit in cash.

  3. bob davis

    I totally agree, no analyst/blogger/writer can be accurate all the time.. Thats why its imperative to show the results of analysis. I really would like to know the accuracy of cycle theory, and I see everything has been archived from March 2010 to the present. What percentage of your analysis has been accurate? You mention the daily cycle low was aborted, does that mean that particular analysis was incorrect. I’ve seen cycles often extended, cut short or aborted, again does that mean those predictions were wrong? I`m not having a go, just how do I know how to validate your predictions/analysis. Have you been successful with your trading?
    Could you please show evidence that the Fed stepped in five week s ago, what do you mean by that? it’s certainly a bold statement. I can clearly see certain equity markets have been hitting support (50dma) and bouncing off it, or there abouts since 2011, If you look at the 5/10 year chart, the action 5 weeks ago looks nothing more than a pause, even in October last year when there was a more significant decline, markets simply bounced off the 50dma if you look at a 10 year chart. I can also see the the gold market, since 2011 has been falling, hitting support, bouncing off support, lingering then falling again. Nothing to suggest anything will change anytime soon, so shorting gold/commodities doesn’t seem that bad a trade at the moment, just my opinion ofcourse. And then of course, theres manipulation, seems to be the favourite way of explaining every rise and fall in every market these days. I guess the rise of gold from 2002(around $250) to 2011($1900) involved no manipulation at tall, whereas the fall in gold and rise in the equities must be pure manipulation. Those evil bears!! I personally like Martin Armstrong, a very knowledgeable chap who looks at the world from a long term global and historical perspective.

    1. gary Post author

      When I say that the Fed stopped the correction 5 weeks ago, I’m pointing out that the market was at risk for a very hard move down into an intermediate cycle low. The cycle was left translated and set up for at least a mini crash once support broke. It broke on Feb. 2. The Fed had to know the risk on that day and from out of nowhere the market reversed. Obviously no natural buyers would step in front of that breakdown plus it was way too early for the cycle to bottom naturally. It was pretty clear the PPT stepped in to abort a potentially dangerous situation that could have gotten out of control and forced them to restart QE.

  4. Lil' Ricky


    I think what you did in your most recent previous post (3/7) is a logical and — importantly — useful way for any newsletter writer/ blogger to proceed. Lay out scenarios for people and assign your best guess around the probability of those scenarios. That gives readers something to mull over, to incorporate into their own strategies. It’s simply another piece of information and about all anyone can ask for in the way of prognostication. People can then place their bets where they see fit.

  5. ted

    The PPT is a figment in one’s imagination.

    It is like all the conspiratorial ideas out there. There is always some master controller out there to point the finger at instead of taking responsibility for yourself. Pure bullocks!

    1. gary Post author

      I’m not sure what you mean. The Working group on financial markets has been around since 88. It’s common knowledge???

      By the way we made a nice little profit when I saw the market reverse on Feb. 2. It was clear that a deeper correction was going to be prevented so it was obviously safe to enter long positions which we did.

  6. Jonathan

    My 2 cents.
    People on CNBC said that the market is not ready for the rate hike. I would say, more precisely, the market is not expecting a June rate hike. There are many reasons that the market doesn’t see it coming in June. I just took a look at the long term dollar chart. The dollar has 2 lengthy uptrend in the history, 1980-1985 and 1995-2001. Both times it was due to the relative tightness (loose other currencies), not the US tightness itself, otherwise the rates would not have been flat during the periods. I doubt the Fed would tighten the monetary policy (rate hike) in the face of an already very strong dollar. I really think that the Fed would hike only when it’s forced to, such as when the inflation picks up, not when it would like to. If the Fed does hike in June, it would only indicate that the Fed doesn’t see the hiking, most likely in baby steps as being symbolic, would be a treat to the recovery, just as it was not a treat to the economy growth during the above 2 lengthy dollar uptrends.

  7. coolkevs

    I remember in 2011 when I posted to the old blog when Gary was looking for the “worst year in human history”. 2000 gold, debasing of the dollar, and stocks in the toilet. I was optimistic, not looking for the end of the world and that stocks would go up, 2000 gold would not be reached, the dollar would recover. Wish I would have followed my own advice more – I would have been able to retire, or at least quit the day job 🙂
    Anyway, not here to bash Gary – his call on biotechs being the next bubble was very accurate. Yet I’m beginning to think that the call for a return to the old Nasdaq highs might be a little too obvious because everybody’s looking for it. Just as a little over 1900 marked the top for gold with everyone looking for 2K, it may be a not quite for the Nasdaq.
    I will be very interested though to buy with both hands if/when SPX 1576 returns again – the old 2000/2007 highs should be a good place to buy stocks.
    Gold and oil – I don’t know – doesn’t seem like they haven’t bottomed yet and have broken some long-term uptrend lines going back 15 years or so.
    And for those who think that US stocks can’t go down over the course of many years, take a gander at Brazil – been going down for a few years. Also the Japan poster child. I think people hoping in their pension plans/401(k)’s for eternal perpetuity that US stocks are the place to be are going to be disappointed when they pretty much don’t go anywhere for the next 6 years after the run up we’ve had over the last 6.
    Peace out.

    1. gary Post author

      As you will recall I exited gold before it topped in 2011. Stocks did have a huge correction in 2011. Almost a bear market. And yes it’s too dangerous to bet big that the Nasdaq is going to make it to 5100 as it may come up short. That was the purpose of the post. The safest place right now is on the sidelines with most of ones portfolio in cash.

      And let’s be clear everyone always follows their own advice. Unless someone is trading for you no one every forces one to buy or sell anything. Only you can make the decision to pull the trigger. It’s only after the fact that traders blame their mistakes on someone else. At the time you weighed the evidence and made your decision without the benefit of knowing the future. It’s complete nonsense to make the statement “if I had only listened to my own advice”. You did listen to your own advice, and that is the decision you made in real time.

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