TEACHABLE MOMENT @ TRADER CENTRAL

                                         Staff Is NOT Immune

It all started last Saturday morning; after I got up and walked the dog I started to feel progressively worse for wear. By Sunday afternoon I was a basket case of aches, chills, fever, and a head overflowing with the runny stuff. I called the staff together [-vegas Jr., Chief of Staff Milton Waddums, and Cousin It] and informed them they would collectively be trading my account [Replitrader] until the walls stopped moving and I could actually perform something resembling human movement.

My instructions were simple; follow the rules of the “Long Term –vegas Big Bang Algorithm” and pick the most active times to be together and watch the market for trading signals. The KISS method had been invoked [Keep It Simple Stupid], meaning no multiple lot trading, just 1 lots.

When the Mrs. finally tucked me in I told her, “They’ll screw this up beyond belief”, and then proceeded to zonk-out into Nyquil-Afrin-Advil-Sudafed never-never land. I really don’t remember much of Monday through Thursday; only that the dog came in when chicken noodle soup was delivered. Everything was pretty fuzzy. On Friday I felt much better, but the Mrs. wasn’t buying it and refused to let the staff in for consultation, and ordered me to either sleep or watch some TV.

It was this morning I got clued in to what went on during the week and what action was made in the account. Long story short: We’re hedged up from Monday with a 10 pip loss on a 1 lot.

I “consulted” with each member of the team this morning, and the end result was that they were pretty despondent about the results for last week. I then brought them all together for lunch today [along with the Mrs. and some of her friends] at our hangout seafood restaurant and really tried to inspire them.

My staff members are very intelligent people, with many College degrees, that can think creatively, and last but not least are very fine people. They hang around me, can bounce ideas and other market thoughts off me, have been with me at speaking engagements, and have been able to learn how to trade first hand. Each and every one of them has a burning desire to succeed, be successful, and ultimately mange funds some day.

Yet, they failed.

Some of you probably think I really got after them and gave them a floor-trader tongue lashing that they wouldn’t soon forget. You would be wrong!

What I heard from them was 1) “I thought [or we thought] ….”, 2) I [we] weren’t quite sure …, 3) “This can’t be happening” ….., 4) This market isn’t behaving like I [we] thought” … Anybody see a pattern here besides me?

Where in the algorithm is there a section on what you [or any trader] think? Where does the algo require thought? Thought has already been done; I did that outside the framework of trading.

There, but for the grace of God, go I.

It was so long ago [sometime around March 1981], but I am pretty sure it was somewhere around the 100^th day of my trading after I created [after months of weekend and free time analysis] my original algo when I was a floor trader.

I spent over a thousand hours of research developing the original algo, and was absolutely convinced it was my key to floor trading success.

I would get to the floor, trading would start, and the algo would give a signal. Okey dokey fancy pants, what’s it like to be in your skin now?

                                    Maybe The Circus Is Hiring

Doubt, indecision, and thinking followed by intense regret and anger. On the train rides back home [about 1 hour out to the suburbs] I would just beat myself up unmercifully.

“Algo wins, you lose; what a dumb-ass! Why can’t I follow it?”

“I rack my brains everyday to no avail; no real money. The algo is killing it! What is wrong with me?

Then came a day where my brains cost me about $400, and the algo nailed it for an approximate $1,700 win in just under 2 hours. Seriously, you could have fried eggs on the back of my neck.

The next day, on the train ride in, I just let everything go. “I can’t take this; no matter what I do, no matter what I think is the right trade based on the charts or somebody buying or selling in the pit, it’s almost always wrong. The mental pressure here… my parents …. my family …. paying the bills … being free from corporate Amerika … everything is at stake here for me.”

Yet, here is the algo churning out great profit each and every day.

I GIVE UP!!!!!

And with that admission, a great weight is lifted off my shoulders, as I immediately realize the algo has done the work and all I have to do is follow it!

I know in my heart that if I don’t follow the algo today, I’m out of the trading biz and asking people, “Would you like a hot apple pie with that combo meal?”

That first day I made about $350 [if my memory serves me correctly] and I was happy. On the second day I made over $1,000, and I have never looked back.

I gave up caring about money; I gave up thinking [i.e. trying to be an analyst]; I gave up listening to others; but most importantly I devoted myself to following the algorithm like a Kool-Aid drinker in a religious cult.

It’s the HARDEST EASIEST money you will ever make.

Now, I absolutely know with certainty, that if it can happen to me on the trading floor, to my staff now, that it is affecting a great many of you as well.

Here is my advice: been there, done that – GIVE IT UP!

Will it be hard? Hell yes, especially for veteran traders who have bad habits to break to begin with. For you newbie traders, let this be a blessing in disguise.

All can be right with your trading universe because you have in your possession something more valuable than money; you have within your grasp the ability to escape government and corporate tyranny. What can possibly be more important than that?

Have a great day everyone.

-vegas

P.S. And yes, I’m fine now. I have a backlog of emails from the week to get at, and I will get to them tomorrow [Sunday]. So, if you have sent me your comments/questions during the week, my answer is on the way.

MAKING TROUBLE PAY

                       Does The Market Know Your Middle Name?

Think of any market [Oil, FX, etc.] as an empty balloon. When the week starts on Monday, air starts to go into the balloon; as price starts moving up and down throughout the week, the new highs and new lows that are put in make the surface of the balloon expand and get bigger. The increase in surface area is volatility.

We know from the historical data what this probabilistic weekly volatility will be, and so we set out to capture it with the algorithm.

When I do speaking engagements I almost always bring up and ask attendees to give me a show of hands for those who started trading and then blew the account up when they got in trouble; and yes, there are a lot of hands in the air!

                                       Watching People Trade

The main premise of the “Long Term -vegas Big Bang Algorithm” is the singularity of the weekly open. If the algo is followed, there simply is no room for big “trouble”. All of the logic and mathematical “brain work” has been done; the probabilities calculated and analyzed; our risk defined; the MQ4 file visually plots [on the 5M candlestick chart] the exhaustion and yellow/plum lines respectively; it’s all there for you to see in real time.

Over many years, unless a market has a paradigm change that diminishes its usefulness as a viable financial derivative [e.g., short term interest rate futures because of the Fed’s ZIRP], its inherent volatility can be mapped and taken advantage of, IF [and this is a big if] you can reduce risk and stay out of big losing trades.

No matter how you want to characterize a markets personality, it really boils down to 2 states of being; normal and excitable. The yellow/plum lines and the crossover rules that apply to them in the algo really do a good job of mapping normal behavior; the aqua/red exhaustion lines guide us when price action goes into excitable mode.

Once a position is established [usually Sunday night or Monday morning], most often we are then guided by the behavior of the yellow/plum lines. How you choose to handle this “behavior” will ultimately effect your profit potential. No matter what you do, your action in this regard will fall into 1 [one] of 4 [four] courses of action; choose the one that best fits your risk tolerance, personality, and the time you can give the market to trade.

FIRST POSSIBLE COURSE OF ACTION

You do nothing. You know there is an approximate 94% probability of the week’s high/low being at least 200 pips from the open, and so when the 35 pip threshold is breached you take a position and stick with it and ignore everything else. 6% of the time you live with the consequences, whether that is a loss or smaller profits.

Personally [and this is just me and not necessarily you], I reject this option because I absolutely can’t sit there and watch a 150 pip profit turn into a breakeven [or losing] trade; I’d be climbing the walls looking to hang myself from the ceiling fan.

SECOND POSSIBLE COURSE OF ACTION

You hedge [or liquidate] on every crossover.

I personally reject this scenario because the Asian session for WTI is notoriously choppy when there is no oil related news in the marketplace; your account most likely is going to get “chopped” with a thousand paper cuts before anything of substance happens.

Last but certainly not least, let me know how staying up and alert to what the market is doing 24/5 works out for you. Send me a photo of yourself on Friday morning.

THIRD POSSIBLE COURSE OF ACTION

You are un-hedged and have open positions when the week’s high/low is expanding; the subsequent crossover of the yellow/plum lines you hedge and keep them on until the high/low continues to expand.

This is a conservative approach to the algo and limits your trading to those times when the week’s high/low is expanding to where we know it must go according to the historical data. However, you have to be there when that happens, so unless you are prepared to be in front of the computer screen for upwards of 16 hours a day until the week’s range is put in, when you miss a move it’s going to impact your weekly results.

FOURTH POSSIBLE COURSE OF ACTION

You choose the times you are un-hedged with open positions and follow the yellow/plum line crossovers during that time. If you miss a move so what? Opportunity is infinite!

This is the option I choose to trade my own account along with the Replitrader.

The aqua/red exhaustion lines are calculated using standard deviations from a time sensitive mean, in conjunction with Fibonacci numbers and ratios, to give us price areas [in real time] where the market has a high probability of stopping or reversing.

Currently, WTI Crude Oil CFD has a risk model [RM] of 1 on the 5M candlestick chart.

There are 4 RM’s in the algo; if you find market price continually breaching these lines on an intraday basis [aqua for slightly more conservative traders, and red for slightly more aggressive traders], simply adjust the RM from 1 to 4, or 4 to 1 depending on what action is taking place.

These exhaustion lines [aqua or red and any RM] are for hedging positions and NOT for reversing positions. The purpose of the lines is NOT to pick tops and bottoms; the purpose is to cover open positions and give us maximum profit potential via historical probability.

I want to be very clear here; neither my algorithm nor Vampire Squid’s HFT with 20 million lines of code can eliminate all potential losses from trading. I can’t eliminate all losses from the hedges, and not every yellow/plum line crossover is going to work.

Let market price = A, the yellow/plum line crossover = B; if the market makes a move up or down, you will absolutely get the proper appropriate crossover, so we can say with certainty that A = B.

However, we cannot say that B = A. Why? A crossover does not make a market move higher or lower. Markets are not mathematically commutative. So, we live with potential small losses to capture the volatility we know is there.

Big trouble is not for me, but for those who structure their trading activity ignoring probability and volatility in any market they choose to trade. There are no moral victories in trading.

Have a great day everyone.

-vegas

P.S.

I should have the Replitrader page up and going this week; I will link to it when it is finished.