THE HUBRIS OF VICTORY

                                             Trading Defined

“There is nothing alive more agonized than man of all that breathe and crawl across the earth.”

            -The Iliad, Homer

In one of my favorite quotes from The Iliad, the Head Honcho God Zeus is speaking to the horses of Achilles’ chariot, who are distressed at the death of Patroclus.

And while “The Gods” can comfort the horses, man is tormented by the consciousness of the arbitrary nature of “The Gods” decisions, yet utterly powerless in doing anything about it. Our ultimate agony is “fighting the fight” and knowing we must lose.

Well, welcome to trading then.

“C’mon, raise your hand – how many of you feel like some extra terrestrial being [Zeus maybe?] is ROTFLMAO at watching you trade and lose?”

“Wow, that’s a lot of hands.”

What brings us to the game is the “sizzle and smell of the steak”. What terrifies us is the reality that not every piece of steak is filet mignon.

There are times in every trading market [and boy does it sure feel to me like I have been through a few months of this] when breaking even or just losing a hair feels like victory; where the trading Gods test your ability and humility in suffering all of the human conditions and vices.

In more ways than one, every trader eventually stares into the abyss at least once; usually over a career multiple times. What you do next is key to your survival.

Now, a lot of you won’t really listen to what I’m going to tell you. I realize most of you think you are ‘special” and that “this time it’s different" [the 4 most dangerous words in the English language], but a lot of former “Masters of the Universe” are now uttering “Would you like to upgrade to a combo meal?”

1)      Lower volume and leverage immediately,

2)      Recognize “Houston, we have a problem”,

3)      Look for the defects in your trading algorithm and understand what they are,

4)      Make changes to eliminate risk without giving up profits [easier said than done], and

5)      If a market becomes “untradeable”, move on to another market.

“So, if I’m in this kind of situation, when does it end?”

“When it does.”

Have a good day everyone. Be back to full time trading and posting soon.

-vegas

WHEN LOGIC FAILS

                                             When 2 + 2 = 22

I have seen just about everything when it comes to twisted logic and superstition regarding trading. Back in the day when I was part of the “Masters of the Universe” crowd roaming the exchange floor, off the wall superstitions were the norm.

I’ve posted before about “Magic” and his magical Kruggerand [ The Magic Market As Illusion, December 9, 2011 post].

I once knew a guy who refused to change socks and shoes, for fear of breaking his succession of winning trading days. He wouldn’t take ‘em off; not even to sleep or shower. He’d put plastic bags over his feet and shower. Up in the traders lounge, at the clearing house, one day his “luck” ran out and he took his shoes off; his feet were green from the color of his socks soaking into his skin.

So, why do people do this?

If logic mattered in trading, everybody would be a winner. Markets consistently let us know most people have to lose. Since most people lose money trading over time, brains and logic can’t be the answer to success. Sound logical? [Uh oh, we’ve wandered into another logic dimension.]

As humans, especially college educated rational decision makers, we have a very hard time squaring this circle; this is why doctors and lawyers make for the worst traders in the universe.

Superstition lends itself to us when we can no longer comprehend the forces behind an actual outcome.

“Oh boy, made money on that trade.”

“Yea, must be the socks.”

The markets have the largest sea of money chasing prices ever known to man. It is the perception of events that create market ups and downs, and the momentum chasing it. It ain’t logic.

After all ….

                                              I Rest My Case

Have a good day everyone.

-vegas

P.S.

Think gold was a little disappointed in Weimar Ben today? Gee, who could have ever seen that coming?

ASYMMETRICAL TRADING

                                         USS Federal Reserve

Back in the day when I stood in a trading pit and was a member in the “Masters of the Universe” club, one of the very first things you learned was to be early. Early made you money; early saved your life; late led to losses, and the inevitable fatal insult to a trader which was leaving the business for a real job.

“Would you like fries with that order?”

The stark reality in trading is markets go up differently than they go down. Stair steps up; out the window down. Falling isn’t so bad; it only does damage when you hit the ground.

More than any other manipulated market, gold gets skewed lower much, much faster compared to when it rallies. Take any 5M candlestick chart and look at the breaks and then look at the rallies. If you are selling on the way down or buying on the way up, good luck with the extra slippage if your timing isn’t totally impeccable.

Add in the USS Federal Reserve, and your trading rowboat gets lost in the wake.

Which means that you have to be one of the first rats off the ship when it takes on water; it doesn’t matter if price goes any farther. With the Central Planners in charge, being late liquidating your trade could mean gaps of anywhere from $4 - $20 with the outlier of maybe $50 - $70 [remember Feb. 29?].

I guarantee if you get caught in one of these the first thing that hits you is denial.

“Dude, this can’t be happening.”

It’s the nature of asymmetrical trading. Planning for it can help you sidestep the large landmines that litter the landscape. Don’t fall into the trap of thinking that a market “has to do something”; that is only an idea in your head. Reality isn’t mirrored around your opinions.

Ultimately, the only reality in trading is up money or down money. Opportunity cost is the cheapest form of capital to lose [like in zero] and happens to all of us every single trading day. Being early out of a move usually guarantees better prices; allows us to “book” the profit; and keeps us objectively focused on price.

“Oh yea, it eventually makes you rich too. Duhhhhhhhh.”

Have a good day everyone.

-vegas