Vegas Trades Gold: THE “MAGIC” MARKET AS ILLUSION

Friday, December 9, 2011

THE “MAGIC” MARKET AS ILLUSION

What Do You See?

If you see the goblet you are bullish; if you see the side portraits of 2 men you are bearish? Which one does your brain see first? Can you see both of them at the same time?

I had only been in the gold pit for maybe 5 months, when one day a totally inebriated guy walks in to the pit 10 minutes before the opening bell, tells everybody to shut the hell up and takes a 1 oz. South African Kruggerand gold coin out of his pocket.

He then proceeds to flip it and it comes up heads, so he then tells the pit, “We’re going up today maggots, buy everything.” On the open he buys 10 contracts of gold [1,000 oz.], tells everyone he will be back at the close to collect. Snickers, not so friendly hand gestures, and references to his mother’s lineage come bellowing forth.

Needless to say, we go higher all day. He comes back, tells everyone what rotten maggots we all are, sells his 10 from the opening 7 hours ago and walks out to go back to the exchange bar.

Over the next couple of months, this little opera plays out every day at the open and every day at the close. Some days are heads [buy 10] and some days are tails [sell 10]. Every day this guy wins.

After about the 20^th day, other locals get there early to discuss the coin flip. “Hey, it works!”, one trader says to another. Serious, professional traders nod their collective heads in agreement. “Man, I sure hope it’s tails today”, says another, “because the market needs a break here.” Serious, dedicated, professional traders nod their collective heads in agreement.

His nickname was “Magic”, and boy did he have a golden touch. All of a sudden, hot-chick-clerks started saying hi to him, other traders wanted his opinion, and he took it all in and played it to the hilt. The-10-minute-before-the-opening Broadway play was an exchange phenomenon. Guys from other pits, that didn’t open until 9:00 A.M., would show up at 7:10 to see the coin flip. What started out to cynicism was now witnessed by hundreds of traders with anticipation.

Heads! [and the buy orders would get filled out] Tails! [the sell orders appeared]

This went on for weeks, several months, and never a losing day. People shook their heads, said this was nuts, and yet when that coin went into the air it had their FULL attention.

Magic Looks Confused

One day, Magic comes in and he can’t find his 1 oz. Kruggerand. His arms are in a flurry as he checks every pocket 6 times in the span of 3 seconds. Time is ticking towards the open. Another member says, “Hey here’s a quarter, flip this!” In his drunken stupor, Magic grabs the coin and throws it about 20 feet in the air. It hits the pit floor and lands “HEADS”.

“OK maggots, we’re going higher today. Screw buying 10, I’m buying 100!! Noooo wait, 200!!! To the moon Alice!! Somebody open this market!!

Ten minutes later he gets his wish and he buys 200 contracts [20,000 oz.] from an offering group of commercial brokers. He laughs cynically and tells everyone, in drunken English, what stupid, idiotic morons they all are. He checks his fills and stumbles out of the pit.

Gold ends the day $25/ oz LOWER, and nobody ever saw Magic again.

I have no idea what ever happened to Magic. About 2 weeks later, on that infamous early morning Friday in October, I almost had my “Magic moment” when I lost 70% of my account in 45 minutes. Both events forced me to challenge myself and search out and find “reality”, and at the same time discard “illusion”.

In some way, shape, or form every person reading this will go through the same process and come to very different conclusions.

Markets never are what they appear. We live in a quantum universe of probability functions and distributions. There never was and never will be certainty. What separates professionals from the hobby traders that feed the beast money is a sense of finding a market’s reality. Not always, but most of the time, and that is all we can ever ask for from trading.

Don’t be the trader living with Magic’s illusion.

DESTINY

The CHOICES We Make, Not The CHANCES We Take,

Determine Our Destiny

Today’s Action & Weekly Wrap UP

We came into today’s action with the algorithm in “sell mode”. Our first sell signal came at 12:40 AM [Chicago time] at 1708.50. Within a couple of hours we had a confirmation bottom [discussed in the manual and also Appendix IV] at 1705.50. Net gain on this trade of $ 3.00 / oz.

Our second sell signal came at 7:00 AM [Chicago time] at 1717. Within the hour we had a confirmation bottom [discussed in the manual and Appendix III] at 1711. Net gain on this trade was $ 6.00 / oz.