Tuesday, December 6, 2011


                                      Every Kid Knows This

You trade because you think you have information that is ahead of the market. For the purpose of this discussion, it doesn’t matter how you came about clicking that buy/sell button. Every person on earth is in the exact same position 1 millisecond after a buy/sell order has been initiated. You have to know when you are in trouble [wrong] and get out [liquidate].

For too many traders, this is a completely unknown variable, whose total value is based on whim and fancy. Some of you will just throw a stop in based on how much pain you can take on any given single trade. We place a stop where there is a perceived technical violation; making us to think either the algo just went in the other direction or something of value has been violated therefore making the trade wrong in direction, or both.

                                     Information > - Money
                                    Or, + Money > Information

What is needed is an exchange of information where the knowledge of information gained on the loss is greater than the monetary value of the loss. In other words, we are at an inflection point of information. We are at the point of no return so to speak. Something has to happen and no matter what it is [up or down, profit or loss] we are going to gain one way or the other [information or money].

                             The Event Horizon Of A Black Hole

Nothing in nature is more powerful than the gravitational field of a black hole. Here, at the event horizon, physics breaks down. You are at the point where you can’t get any closer or you will be sucked in; even light particles can’t escape the gravity. Here is nature’s moment of truth; where everything on one side of the event horizon exists [including information], and on the other doesn’t exist. This singularity is where everything happens: where God divides by zero.

Almost every trading signal “The Vegas BFSG Algorithm” initiates starts with the premise that we are at an important inflection point regarding the prevailing intermediate trend. As I said in the post “Vector Space Trading”, we sit on the surface of the trading pool, waiting for that piece of information that tips the scales in our favor of profit.


The most important thing coded into the algorithm is its ability TO KEEP YOU OUT OF TROUBLE. [When we hear our middle name spoken, we know we are really, really close to getting it.] That doesn’t mean we never have any losses. Losses on some trades are inevitable. Anyone who says different is a liar and a fool. What it does do is skew the profit probability distribution curve in our favor based on normal and/or higher volatility.

So, no matter the method you trade, you need a concrete understanding of what makes your trading successful, but more importantly what makes it lose money. If you don’t know, you can’t even ask the right questions, let alone doing something about it. You have just pasted the event horizon of trading

Today’s Action & Wrap Up

As those of you who have the algorithm know, we went into “sell mode” at 8:00 PM [Chicago time] last night in the Asian session. Early in Asia the market rallied and we got our first sell signal at 3:40 AM [Chicago time] at 1718.50. Stop on this trade was placed at 1723.10 which was right at the previous high at 2:25 AM [Chicago time].

The algo turned to buy shortly thereafter, but the price differentials were so small, the stop was never hit. If you got out and took a small loss of a couple of bucks because of this, that’s fine as long as you do this consistently over time.

As a matter of definition, when I place a stop loss on a trade, it never gets pulled or canceled unless I’m trailing a profit. In this way I’m consistent in my approach. So, even though the algo went into buy mode for a few candlesticks, it wasn’t enough of a price move to make any difference, and didn’t hit off my stop.

The reason I take this approach, stems from my days in the gold pit. When the algo hovers around a signal, going slightly over or slightly under buy or sell, the probability it can chop your account up is high. The last thing you want to do is go sell, then buy, then sell, then buy, etc., etc., within a few bars or candlesticks, getting chopped up and losing money and absolutely nothing is going on in the market. Make the market prove to you it can stop you out and go the other way.

So, my gain on the day was about $ 11.50 / oz. But for reporting purposes [and Skeptic Cat of course], and because I know that some of you probably got out and then back in a little later when the signal to sell came again at 1718 [6:00 AM Chicago time], I’m going to assume a $ 3.50 / oz. loss on the first trade [which is generous]. We got a confirmation bottom, which I clearly point out in the manual and Appendix III at 1707.50 at the 7:50 AM [Chicago time] candlestick.

So, the net gain on the day is $ 7.00 / oz. [10.50 – 3.50].

 Time to go live life; no matter what happens this afternoon, it will be here again tomorrow.

Repeat after me:
Ka-Chingggggggggg  [Day over, thank you Mr. Market]

Have a good day everyone.

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