THE GREAT BANZAI TRADING TREASURE HUNT

                                           A Game Of Inche

No matter how much math you use, the time spent on development, the number of Ph.D’s on your payroll, the criteria you use; any algorithm [and by default the rules you impose] will at some point go surfing through the Banzai Pipeline. It’s a game of micro inches.

I thought I had laid out completely my “game plan” in prior blogs, but as has been shown by my staff to me yesterday, I didn’t.

We first mark the weekly open [Monday] with a horizontal line that is good for the week. From that price we add/subtract $5. So, if the open is 1300, we have 1295 and 1305. If the market is in this zone we liquidate all open positions, and do not initiate any new positions.

At the start of the week, new positions are initiated when the market makes a new cross of the yellow/plum line past $6 on either side of the open price. The reason I choose this value is to give a buffer from the $5 value.

Once we get into the week, new positions are taken when the weekly range expands or when the appropriate buy/sell signal is given via the yellow/plum line cross. Up and until Asia proves to me that there is something there to watch and trade, I do not follow the market during the Asian session. In addition, the first half of the European session in gold is usually quiet, awaiting the open in New York.

Yesterday, the gold signals crossed [sell signal] right around 1383 from the 1388 open. I didn’t take the signal because it wasn’t a clean signal for me. The next sell signal came late in the day about 35 minutes from the close; too late to really do anything.

Whenever there is an algorithm involved, there will always be “grey moments” [The Ghost In The Machine] no matter where you draw the proverbial line in the sand. If you choose $5, there will be days when it breaks from $4.96; choose $6 and there will be times when it breaks from $5.90. This is one of the big reasons I have always refused to endorse an Expert Advisor [EA] for trading. And these issues aren’t only limited to price; they are just as valid in regards to time.

                                        Not A Trading Model

So, for those of you who think I’m just sitting here relaxing in the sand while the market trades, what I’m doing is simply following the algorithm as best I can. Have patience, we will get our opportunities.

One more thing I want to comment on today.

Over at Zero Hedge [ www.zerohedge.com ] we finally have confirmation that the BLS [Bureau of Lies & Statistics] made up NFP numbers in October 2012 for President Chalky Gobbels. These people are despicable.

What’s it going to take to make the Amerikan Sheeple see the “handwriting on the wall”? What does it take to make you see that your wealth is under attack and for you to get the hell out of “Dodge City” and protect yourself from these robbers and thieves? The decline and fall of the U.S. right in front of your eyes; proof every single day.

Have a great day everyone.

-vegas

P.S.

Since Sunday night, I’ve gotten a blizzard of emails in the last 48 hours. I’m going through them one at a time and if you have written me I will get to your email ASAP.

THE IMPORTANCE OF BEING EARNEST

                                Serious Cat IS Seriously Serious

We all come to trading with different backgrounds, trading ideas, etc. What we shouldn’t argue is the math.

I’m specifically talking about people [traders] that trade short term. I’ll leave to the “guru’s” the job of figuring out where a market goes and trying to profit from their guesses [that’s right, guesses].

All of the things that bring people to trading, none is as important as making money for the day. I didn’t say making money on every trade. Nobody is going to make money on every trade, no matter how good their algorithm in theory or in practice.

I’m going to go way out on a limb here and predict that most of you reading my posts would loveeeeeeeeee to be a full-time professional trader making enough money to be financially free. Well, you can sign up here, and class starts right NOW.

I’m not presumptuous enough to think “my way” is the only way: far from it, as there are enough trading professionals around the world who employ their own algorithms either for themselves or for firms like Vampire Squid.

The problem you have is that NONE of these other people are about to “bring you into the fold” and teach you what it takes to get you where you want to go. I’m not talking about the EA hucksters and those that want to reach into your wallet.

Q: What is the most important element of trading?

A: Not losing significant sums of money.

Q: What is the second most important element of trading?

A: Being UP money at the end of the day.

The “ART” of trading is being able to 1) dodge cannonballs and avoid landmines [see previous post “Professional Cannonball Dodger”, 1/24/2012], 2) be disciplined enough to implement and follow my algorithm, and 3) learning how and when to walk away from trading and come back the next day.

For those of you who are relatively new to my posts, I ask you to please read “The Power of $1.50” [12/14/2011 post] about 700 times and “get” what I am saying. For many of you, trying to make money isn’t the only reason you trade; when in fact it should be the only reason.

What you need to come to grips with is that when you have a great day [more than $5.00 / oz in profit], your profit potential, and by extension your earnings, will forever increase exponentially! This mi amigos is the POWER behind trading.

Sure, we have plenty of days that are mediocre. We also have plenty of days that are downright awesome. Every single time we have an awesome day, your projections for financial independence is many steps closer.

What starts out as chump change [maybe $10 - $20 per day], quickly becomes more important [$50 - $100 per day], highly important [$250 - $500 per day], and then downright mind blowing [$1,000 + per day]. Six months after you start, you’re making more in one day than you made in total for the first 2 months when you started

The objective of my algorithm is to put you in a position of first NOT losing money, and then positioning you at the right juncture of price and time to catch the move of the day. It is a cumulative process, maybe making one trade or several, to accomplish our objective of making money for the day. Having done that, it’s time to walk away!

I know what some of you are thinking because I live rent free in your head.

“Oh c’mon vegas, $1.50 or $2.00 don’t mean diddly squat. Get me in there with the big boys and let’s do some tradin’ man!”

“OK, great! I’ll see you in a couple of weeks when I’m ordering a double cheeseburger. And yes, I want fries with that.”

Have a great day everyone! Read my comments on today’s trading at http://vegaspamm.blogspot.com

-vegas

ZENO’S PARADOX MARRIES THE TWILIGHT ZONE

                                      Through This Door ……

If you are a trader, at some point you’re going to feel as if you passed through this door into something you wished never existed.

Meet Zeno of Elea, a Greek philosopher, who posed the famous tortoise and hare thought experiment. For those uninitiated, if you want to get from A to B, and go half way each step, you can NEVER reach B.

Although Zeno didn’t know it at the time, what it boils down to is mathematical limits, integral calculus, and discrete functions.

In trader parlance it means this: sooner or later the math will fail you and you have to make a decision that has no mathematical basis. I touched on this in the post “Non Computable Trading”, and its application is the reason I would never “EA (expert advisor)” my algorithm. You will eventually find a problem that can’t be solved without human intervention. This isn’t something unique to my algorithm; it exists FOR EVERY ALGORITHM.

I am, of course, referring to those days even the trading Gods would have a hard time making money. You buy, it goes down NOW; you sell, it goes up NOW. Repeat the process over and over until you feel like Rod Serling is living rent free in your head. No matter what you do it’s the wrong decision and bad goes to worse very quickly.

 

               Use Your Imagination. What Can Possibly Go Wrong?

You take that first little step and dream up something you think just might get you out of this mess. Losses are mounting, and you need a solution fast. Double up?  Triple Up? “Nahhhh, tried that before in silver and it didn’t work.”

I got an idea! “Yea, sell the Swiss Franc against my long gold position; that’s the ticket!” Gold goes down, the Swiss Franc rallies; you are now doubly hosed. At this point it will take you 6 months to dig your way out of this mess and it’s only 10 AM; still plenty of time to make the situation far worse.

Many years ago I labeled these types of problems as “discrete information packets”.  The “DIP’s”, as I call them, creep into the trading realm when you start to get extremely small price movements that change the buy/sell signals in your decision making. No matter where you draw the proverbial line, you will always at some point, have to deal with the DIP’s.

When you prepare ahead of time, before they appear, you won’t have to guess when time is of the essence. It is because of this, when I initiate a new position coming into the trading day, I will either profit from the upcoming move, or my stop will get taken out. Minute changes in the buy/sell signal around price changes that are very small will not influence my decision.

So tell me, how do you program this into an EA [on the MT4 trading platform] while you are sitting on the beach drinking pina coladas? You can’t, and 3 hours of this and your account is down 30% from chop-chop and nothing has happened. You and Zeno have just gone through the door and are officially in the never-never land of account destruction.

From the trading floor you eventually see every human emotion. I’ve seen the DIP’s cause tears, laughter, denial, and delusion among professional traders. Check the horoscope in the paper followed by a 900 toll call to Madam Zulu for guidance.

                                            It’s Never Easy

You must have the necessary courage to avoid these types of situations. They can easily spiral out of control and ruin your trading account. For some of you newer traders, this may seem patently obvious, so why write about it?

Nobody ever starts the day looking for the Twilight Zone trading door. Successful trading is a process, not a collection of lucky bets. Decide what you do ahead of time and CONSISTENTLY APPLY IT.

Luck is not a variable in “The Vegas BFSG Algorithm”. Remember “The Marble Game?” Las Vegas was built and functions on probability gross margins of less than 2%. The algo operates on much higher probability histories than that. Treat trading as a business, not as a money losing hobby.

Today’s Action & Wrap Up

Yesterday afternoon, I emailed ALL algorithm traders and made sure that they knew the algo had turned bullish and was therefore in “buy mode”. You people out there that think you can piggy-back the signals by what you read in the “Today’s Action” section can forget it. I’m not going to give you enough to be able to do that. It’s simply not fair to all the people trading the algo. Download the algo - IT'S FREE FOR HEAVENS SAKE!

Our first buy signal came at 12:10 AM [Chicago time] at 1738. Stop was placed at 1733.90, just below the low that occurred in the Asian session at 11:20 PM at 1734.62. At 12:50 AM [Chicago time] we got a liquidate signal at 1738. So, here we had a scratch trade resulting in $ 0 / oz.

At 5:45 AM [Chicago time] we got our second buy signal at 1739. Stop was placed at 1735.80. The market then went into melt-up mode.

Now, I am going to reiterate a point that I hope, with today’s action, has been reinforced into the trading part of your brain. I have stated this before so many times, I can’t remember them all. YOU CAN NEVER, EVER TRADE GOLD OR SILVER WITHOUT A STOP SOMEWHERE. NEVER!! Whether it is a stop-loss on a buy/sell new position, or a trailing stop with profits locked in, you just can’t trade without stops.

Some of you have to learn this the hard way, and today was that day if this describes you.

I have the algo coded specifically for those events that have the highest probability of occurring. At today’s high, the algo missed the top. The high was 1756.07 bid on the HotForex platform. It came close at the close of the candlestick in giving the signal, but it just wasn’t there with enough information to justify a closing of the long position. In other words, the math missed it with a “DIP”.

OK, so we just melted up and went over 1750; what to do next? Well, the first thing is to raise my trailing stop, which I did to 1749. Why 1749? Because it is right below the low of the candlestick that went straight up to 1756, and it is the most I’m willing to give up from being long at 1739. In other words, remembering what I have said earlier in this post, I’m not going to risk the gain I have; I don’t care what anybody says I’m not going to watch a good gain become a small gain or a loss. Fugetaboutit!!

I got a ton of emails this morning from algo traders telling me that they got out anywhere from 1748 to 1755. The reason? “Dude, I’m up big money!! I’m taking it!! And you know what? Good for you!!

Now, go code this into an EA! Good luck with that OK?

About the worst trailing stop you could have had is at 1743, just below the low of the candle that started the rally at 7:20 AM [Chicago time]. If you didn’t use a stop, or didn’t trail it properly because you got lazy, then you gave up money for nothing. You simply can’t justify giving up more of the gain than that without being stubborn and somewhat delusional. Who cares about the reasons for the drop off the high. It is what it is!! It’s more than $13 / oz off the high for cryin’ out loud.

Again I say, go code this into an EA! Good luck with that OK?

Today provides the perfect example of the things I have been writing the last couple of weeks. If you plan on being a professional trader, you have to take this post and tattoo it on the back of your eyelids!!

Based on where most everybody got out, and I realize this is wholly subjective, for purposes of reporting algo performance I’m going to go with a liquidation of 1749. Gain on this trade of $ 10 / oz.

Message for Skeptic Cat: “Go eat some grass and throw up that fur ball.”

Since we had a scratch trade earlier, gain for the day is $ 10 / oz.

Ka-Chinggggggggggggggg!!  [Patient Bear must go rest now Mr. Market. Thanks for the memories]

Have a good day everybody.

-vegas

TRADER LIFE: PART I

                   Hey Mom, I’m Gonna Be A Commodity Trader !!

It was as if, when I told my Mom my career intentions, she heard, “Hey Mom, I’m gonna sling heroin and crack to Junior High kids down the block. I got a great network of guys to supply me, no chance of trouble of course, and everything is gonna be great!”

                  Ladies, Meet My Son The RICH Commodity Trader

Fast forward 1 year, 3 months, 6 days, 12 hours and 23 minutes and I’m buying dinner for my parents, where my Mom is telling everybody who will listen what a great guy I am, and ohhh by the way, he’s single and is a RICH trader.

“Of course he’ll BUY your dinners ladies. DUHHHHHH. Honey, please come over here and sit and chat with some new friends I found for you !!”

Now, you know I can’t let this pass. The sheer hypocrisy here is like the size of the iceberg the Titanic hit. So, on the way home I quiz me MOM.

“Don’t you remember how you felt when I told you last year I was going to trade for a living?”

“Of course I do dear.”

“Well, now you’ve flipped 180 degrees. A little hypocritical isn’t it?”

“Of course NOT honey. Besides, just deal with it, OK? Deal with it!!”

Me Mum. Whaddaya say to that?

Now that I’ve explained the family side of trading, let’s move on to relationships, shall we?

  Your Wife Mistress Girlfriend Woman When You Don’t Make Money

At least they are honest about it. Your job is to make it, and their job is to spend it. There’s a philosophical simplicity to it that can’t be ignored. They’re gonna say to you, “Well, why get up if you aren’t going to make money?” or, “Get back in there and don’t come out ‘till your up money”.

              You Made Money Today? Good Job!! Now, Fork It Over

“Honey, that was great.” You may now resume normal life. So it goes.

You are going to have to make money in up markets, down markets, sideways markets, markets that are totally nuts, markets that are napping, technical markets, rumor-driven markets, etc., etc. If you are a one-trick-pony you aren’t going to make it.

                             No EA Is Going To Get You There!!

Go ask all those people, in the last couple of years, who have thrown money at “EA’s” [Expert Advisors - computer trading programs], that trade their account via a predetermined computer program sitting on the brokerage house’s computer system. 

Pay $799, or maybe $1599, install and go sit on a beach drinking a cocktail and do nothing! It's free money don't-cha-know?

  

                                  EA Customer Service Center

Here is the truth. EA’s are crap. The banks run the stops and the slippage in fills are aweful. Trade 1600 times in a day, and the money you lose adds up quickly. All the promises were based on hypothetical trades done on demo servers.

Want your $1599 back? Just call the Customer Service Center at 1-800-ohh-nooo. I’m sure they will answer the phone.

Your trading plan should incorporate an algorithm that consistently allows you to be in a position to make money. It should be thoroughly vetted for weakness and losses, and you should have a very good idea what is at risk. It should let profits run when appropriate, instead of always going for a predetermined profit. It should be easy to implement and follow, and not need a PhD in Math to understand. Hopefully, trading can be visualized so that you can easily know what to do.

Most importantly, it was created with a trading philosophy backed by logic and NOT OPTIMIZED WITH PAST MARKET DATA TO FIT A PROFIT OBJECTIVE.

And.

AND.

AND, it has been traded with real money, with real verifiable trading results. While hypothetical results are interesting, they don’t mean squat.

Now, where does such an algorithm exist? [Don’t make me answer this.]

 Today’s Action & Weekly Wrap

                       Buy, No Sell Wait Sell, No Buy, Oh Crap!!

It never pays to think when trading. Gold was on a roller coaster today, putting in the dreaded “round-tripper”, with new lows, new highs, and then new lows again. What’s a trader to do?

First sell signal came at 5:15 AM [Chicago time] at around 1727, with a stop at 1730.50. Within the hour, we got stopped out for a loss of $ 3.50 / oz. Market raced higher on Euro rumors that caused equity prices to spike. Gold followed suit and made new highs.

Second sell signal came at 6:20 AM [Chicago time] at around 1730. A while later, we got a confirmation of a bottom [liquidate short position] at 1723. This signal bottom I talk about in the algorithm manual. Our gain was $ 7.50 / oz.

Our net gain on the day was $ 4.00 / oz. [It’s Friday, meaning I’ll take it and run as fast as I can away from the computer.]

Let’s recap for the week:

            Monday           + $ 3.00 /oz.,

            Tuesday           + $ 18.00 /oz.,

            Wednesday      + $ 12.00 /oz.,

            Thursday          + $ 12.00 /oz.,

            Friday              + $ 4.00 /oz.

NET GAIN FOR THE WEEK + $ 49.00 /OZ.

JUST ANOTHER 49% FOR THE WEEK !! 

And yes, I'm going to say it again: if you aren't trading "The Vegas BFSG Algorithm", what are you waiting for?

Have a good weekend everybody.

 -vegas