Tuesday, November 29, 2011


                                         Truth Is Awesome

Very few endeavors of human activity are as predatory as trading financial markets. Some days you almost feel as if you are on a Klingon battleship destined for glory. Training and discipline are the only things that get you to the next day. Even Klingons know the devil is in the details.

If you think while you trade, you better start reciting, “Would you like fries with that order?”

“But vegas, we all make mistakes; nobody is perfect. I’m bound to screw up once in a while, and I realize this may lead to a loss.” I mean, I’m only human!

There is a branch of analysis in mathematics that deals with problems which are unsolvable, i.e. you can’t find the appropriate formula or formulas for a solution.

The main problem for most traders is that when they start thinking, they don’t realize the ramifications of the problem. You may think you are trying to find a solution to a particular problem, when in fact you are trapping yourself in a non computable trading nightmare that has no end.

                              Let Me Know If This Is You, OK?

You spend hours, days, weeks, maybe even months researching, studying, and trying every technical indicator available on the platform. When it goes bad, and losses mount, you start thinking, “Hmmm, maybe if I put a filter in to get rid of the losses, everything will be OK. [In goes that MACD oscillator] Yup, that fixed the problem. Ohhhhhh, [but the next trade there’s a new problem] Gee didn’t see that loss coming; but no problem, I’ll just find another filter to take care of that. [In goes the RSI] Uh ohhhh ….”

Welcome to non computable trading.

But there are unintended consequences on your trading results because of your new filter that gets rid of the last loss. What if your new filter prevents you from profitable trades over and above the losses you might think you have saved yourself from?

Welcome to the new problem, same as the old problem.

I will give you another example, that I often hear from new traders or those that think the road to riches is paved with predetermined profit points. Let’s say for example that you saw my post regarding the calculations I did for you to get to the point where your trading account has over $1 million. You tell me, “OK, I’m going to take profits every time I’m up $1.50 / oz. in gold.” [Sure seems like problem solved.]

All right, what do you do when the market goes $1.49 / oz. in your direction 3 days in a row before turning against you?

“Well, OK, I’m going to make an exception and start at $1.49 because it’s close enough to what I want.”

Now that you are on this slippery slope of profit erosion, please tell me where you draw the line at slippage?

“Well, really probably at about $1.25 / oz.”

OK, what do you do when you have 5 days in a row where the market goes in your direction for $1.24 / oz. before turning against you? At this point, you are so frustrated you will think the dealers are screwing you and come up with about a thousand conspiracy theories to explain things. Where does this iteration stop? $1/oz? Breakeven? Loss on every trade? I don’t know, you tell me, because you are now trading seat-of-the-pants.

Note: It doesn’t stop when you are trapped in non computable trading!!

As I have repeatedly stated many times, every method, plan, system, or algorithm mankind can dream up has at least ONE [and usually many more] major drawback or limitation that will lead to losses. Add to this, gray areas of implementation and execution that have no solvable answers!

The key to escaping “non computable trading” is TO ALWAYS BE CONSISTENT IN YOUR APPROACH.

I said in an earlier post that “The Vegas BFSG Algorithm” has 8 pieces of information theory coded into it. It was designed so that even if you interpret the code INCORRECTLY, YOUR WORST CASE SCENARIO IS AN OPPORTUNITY COST AND NOT A REAL LOSS. How many of you can say that about your trading? Right, I didn’t think so either.

So you’re sitting there and you screwed up 15 ways from Sunday, and instead of making $12 / oz., you only made $ 5 / oz. Yes, you feel bad, but look at the facts. I can assure you there are many traders that would trade places with you, in a heartbeat, if that was the biggest problem they faced.

The key is consistency in execution. If you treat every unsolvable problem the same way every time, it ceases to be an unsolvable problem. It may still be an unsolvable mathematical problem, but it frees you from thinking and solves the problem [right or wrong] from an execution standpoint. You live with it and move on. End. Of. Story.

Today’s Action & Wrap Up

We started the trading day with the algorithm in buy mode. Trade signal came at 3:10 AM [Chicago time] and about the worst price you could have gotten was 1707. So, I’m going with a long position at that price to be conservative. Right near the end of the up move, NEAR THE TOP, the algorithm gave a confirmation top sell [liquidation] signal at 1716.

Ka- Ching [again].

Gain on the day was $ 9 / oz. [Thank you Mr. Market, have a nice day.]

                          Cheer Up! There Will Be Moves For You

Oh wait, you missed it?

Well maybe you caught the massive up move in the Dow 30, S&P 500, or the Dax30?


Well, I’m sure you caught the almost $1 / barrel up move in crude oil? No again?

                             Skeptic Cat Is Back!
                             Hello, It’s Nice To See You Again!

I’m trying to be there for you Skeptic Cat, but there is only so much I can do. I will leave you with a thought though. With the internet being what it is, and the multitude of traders who are trading “The Vegas BFSG Algorithm” out there making money every day, if it wasn’t everything I am saying it is, what do you think would be floating out there about me right about NOW???????

I’ll be here waiting for you.

Have a nice day everybody.

No comments:

Post a Comment