Archive for November, 2013
I’ll let the Vegas pics tell the full story on this Thanksgiving day, as there are simply too many things to list for which to be faithful.
Thank you God for love, family, friends, skill with which to hone a craft, the opportunity to help others, and a world of tomorrows that allows us to be better than today.
May all of you have a blessed and peaceful Thanksgiving.
In less than two days, I’ll be on a plane to Vegas for one of my rare speaking engagements, which is free and will take place at the Trader’s Expo Saturday at 8am.
The topic will be one of my favorites … creating outlier trades.
I love the topic because it can have an immediate positive effect on a beginning or struggling trader’s P&L, yet is one that most fail to either understand or execute.
Simply put, and as stated in both the book and throughout participant feedback to the Jellie training program (remember the popular “Keys to the Castle Post“??), it’s perhaps the most powerful aspect in all of trading.
And while I’ll be discussing the concept in great detail on Saturday, this morning’s trade sequence below was a perfect “set the stage” example that will likely find its way into the presentation, if only to provide a very recent example of using it on leveraged ETFs.
In this case, I chose to trade Pro-Shares SSO, which as many know is a leveraged Exchange Traded Fund that mirrors the S&P. And yes, I was also trading the S&P futures.
First, let’s look at the chart and sequence:
While I’ll let the chart and Saturday’s presentation do most of the talking, suffice it to say that the key cog in the outlier engine is that of the second entry … one that in this case as a buy – in anticipation of a break north given the multiple day set-up – occurred at a higher price than the initial entry. Simply put, the second entry combined with both time and probability will pay huge dividends as your tape reading skills improve over time.
You see, most won’t make that second entry, or even worse, they’ll pare down or close the position due to a prior failed trade, perception of a personal “slump”, or simply not being aware of a classic bear trap … perhaps because they’re micro focused and missing the day-to-day continuity of pattern.
Yet do the math. Without the second entry, this trade sequence would have resulted in about a $1,800 gain. With it, it resulted in over $3,100 … over a 70% improvement. Which doesn’t count the futures trade profit where my buy stops triggered as the anticipated range break took hold.
Yet typical responses to this massively important concept from struggling traders include:
“But I can’t buy at a HIGHER price than I just bought!”
“Isn’t that a retail entry?”
“I’m in a slump and need to lock in at least SOME profit.”
… and I could go on for pages.
To these, I offer one question as a response: If you’re playing poker, have K-Q (the probe bet), and the flop comes 9-10-J (the additional bet based on NEW information which confirms your probe), do you bet MORE or simply take the small stake right then and there (the concept of bluffing aside which isn’t applicable to trading)?
Plus, keep in mind that in trading, you essentially deal your opponent another poor card via entry #2, so you know (not think or guess) at least some of what he/she is holding because you dealt part of the hand knowing exactly what the card was!! As I’ve said before, this concept makes trading seem simple compared to poker.
Many unfortunately do the latter, which has the adverse affect of limiting gains which will never offset lower probability scenarios, slippage, and transaction cost.
Yes, it’s only one example and the lower percentage probability could have resulted. Yet that’s the beauty of this business where we only need be concerned with identifying the pattern and maximizing income from the opportunity while time, probability, and sample size do the real heavy lifting.
As for me, assuming I’m on my game either at the Vegas poker felt or the worldwide trading tables, you’ll know me by the words …
Who knows, those two words just may lead you to your own mega-million bankroll and book (which I’ve just learned is now being translated into Chinese which is wonderful news for our charities).
For they are indeed keys to the castle.
See you in Vegas.
In today’s video I catch up on a number of fronts, including announcing that 100% of the “Chronicles …” book proceeds will go to our charitable causes.
And while there are so many trading & life lessons that we can take from what’s yet again transpired in our city over the past months and years, I’ll keep today’s comments to one concept.
We all know the story of 2004 where the Red Sox were at the top of the world, having erased decades of futility by finally winning a championship. Three years later, we saw them win it again in 2007 with one of the most talented groups ever compiled.
Then what I call the “Road to Ruin” began, ultimately leading to the baseball equivalent of a “market crash” where a club with talent as good as anyone, spiraled down into a pit of cockiness, laziness, sloppiness, and overall pit of despair, finally resulting in choking away a shoe-in playoff position in 2011, before hitting bottom in 2012 by losing an unfathomable 93 games.
Then 2013 dawned, where the club went through one of the greatest purges in sports history by trading away its talented, yet high-priced and work ethic opposed prima donnas and went back to basics with a new approach and identity.
The end result? From worst to first. From 93 losses and last place to 108 wins (including playoffs) and a world championship in a single year.
That’s right … one year. It didn’t take years or decades … the ultimate sports mess was turned around by a simple recognition that egos had grown larger than both humility and work ethic, and that drastic action had to be taken.
This sequence oh-so-accurately describes my own trading journey. From the decade-long effort and tens of thousands of hours to rise from the ashes to the heights of the industry in the 2000s, to occasional subsequent bouts of lost energy, passion, and distractions, to continual rebirths and re-dedications that are sometimes as drastic and powerful as the Red Sox 2012 moves.
You see, the book may be complete, but the journey isn’t. For every day brings new discoveries of both the limitations and potential of one’s own humanity.
Whether you care about baseball or not, or whether you’re a member of Red Sox nation or simply get nauseous thinking about those championship-spoiled New Englanders, this year’s BoSox journey reminds us all of the following:
History does NOT equal the present or future, as you CAN change for the better on a dime. I’ll be discussing this concept more at the upcoming Trading Expo in Las Vegas in November.
Celebrate your successes (yes, it’s OK!!!), yet with a degree of humility and clear recognition of from WHOM your strength truly comes.
Seek and listen to wisdom, yet ignore shouts from the cheap seats.
Recognize that even life’s potholes provide a roadmap.
I have an idea for the rest of your trading career.
How about Trader Strong!
Have a wonderful weekend.
P.S. Dad, you and your brother undoubtedly had two of the best seats as angels in the outfield. I look forward to chatting with you about it some day.