Investing and Poker

Our decision to go long again at 1331 is paying some nice dividends, with SPX up over 30 points in the past two days.  If we can hang on through tomorrow, we should be up over 50% since inception (March 22.)

A little reminder…  a few days ago I announced a 37% discount to the first 37 new annual members in celebration of our 2nd quarter results (up 37%!)   If you’re already a monthly/quarterly/semi-annual member, we’ll just tack it on the end of your current membership. If you’re already an annual member, tell a friend and earn 3 free months when they sign up.   There are still 11 spots left, so grab ’em while you can.  This deal ends tomorrow, when new rates are announced.  To sign up, click here.

In my old days on Wall Street, this would be a great time to start indexing.  Institutional asset management is all about beating your benchmarks and quartiles, and every manager I know would absolutely sit on a lead like this and ride out the rest of the year essentially owning the S&P 500.  But, you all know me better than that, right?

I am an ardent believer in the chart patterns, channels, harmonic patterns and technical analysis that have enabled us to capitalize on rather than fall victim to volatility.  It’s hard work, for sure.  I start around 5:30 am and often nod off around midnight — still charting.

But, the results are worth the effort.  We certainly won’t be on the right side of every move every time; my goal is to get most of them right by sticking to our proven methodology, and avoid being sucked into positions based on hope or fear.

One of our members (known here as Beach Justice) is a professional poker player;  he recently offered me the following sage advice:

There’s a saying in poker: “Don’t be results oriented,” which simply means that just because your play didn’t work out and you lost the hand, that doesn’t mean it was wrong, and thus you shouldn’t bitch about it.  Profitable situations in poker get annihilated by low-percentage cards all the time, but if the expected value of the play was positive, that’s all that matters and the profit will be there over the long run.

Trading the is the same way, just because a particular forecast doesn’t work out for whatever reason, it doesn’t make the position a bad bet.  If I make 10 trades with an estimated 3:1 risk reward and I get stopped out on all 10 of them, as long as the analysis was good that’s fine.

Anyway, as simple as that concept is, I never see traders discuss it and just thought it might be helpful in teaching trading.  We’re here to take good gambles (and on, learn how to find them) but all a good gamble does is offer an edge, it doesn’t guarantee it will pay off every time.

Perhaps a blog about something like this will reinforce to any readers (or haters if you somehow have them), that it won’t always work out, and there’s nothing wrong with that.  So just a suggestion in case that’s helpful.

Thanks, BJ; it’s extremely helpful.  Because, I have no interest in sitting on our lead and/or playing it safe.  God willing, we’ll keep doing what we’re doing and the results will sort themselves out.

And, thanks to all of you for your emails yesterday.  I will strive to make my posts more succinct for those who want the headlines, and still offer excruciating detail for fellow chart rats.

More charts coming shortly.

UPDATE:  3:30 PM

Not much going on since this morning’s ramp.  Still long, still looking for higher.   Though we tagged the .618 of the most recent dip, so we can expect the usual pull back.  Keep an eye on the 15-min channel for signs of anything more than that.

I’ve been scanning various indices to see what, if anything, they might have to say — ideally in harmony, if not in unison.

First, let’s orient ourselves to the longer term channels.  The set shown on the first chart above stem from some pretty authoritative fan lines from the 2007 top and 2009 bottom.

So, when we chart the various upside targets based on channels and trend lines, they’re not the least bit arbitrary.

TL 3 is the top fan line off the 2007 top.  TL 2 is parallel to another fan line off the top.  TL 1 is pretty obvious, and has already been broken anyway.  And the purple channel guiding the upside since 1266 is formed by a fan line off the 2009 and another line parallel to it.

The most likely turning points as we continue upward will be the intersection of these fan lines and key Fibonacci levels — such as the .786 at 1389 and the .886 at 1404.  Remember, 1404 is also the target level of the inverse H&S pattern from June — indicated in white.

The purple channel itself allows for any of these potential targets, whereas the rising wedge that had been under construction maxed out around 1404.  That wedge still resonates with me, because so many wedges, when they break down, go back and tag the original apex price level.    Here’s what I mean:

The same thing just happened on DX in a very nice payoff to our call of a top on Tuesday [see: Update on the Dollar.]

It’s happened so many times to me that I actively look for it now, and I find it interesting that a pretty clean RW can be drawn with a 1404 apex.

From current prices, the various upside targets represent only a 2.5 – 3.8% increase for SPX.  The other indices are similarly positioned.  NYA, for instance, needs only 3.5% to reach its inverse H&S target, or 4.3% to reach its Fib .786 at 8091.

DJIA needs 1.3% to reach its .786 and 2.9% for its IH&S target.

And, RUT is only 6.9% away from its .786 and IH&S target, both of which are at 821.

Bottom line – not much further to go before it’s do or die time.  I have to run out for a meeting.   I’ll post more later if I can.







Investing and Poker — 4 Comments

  1. yes, very cool post. and cool the reference to beach_justice. sitting out makes complacent. my experience is that it’s all about edge and rhythm.

  2. I’ve seen it firsthand at the blackjack tables.  Massive positive count (good for the player), have a max bet on the felt, get dealt a 20 or 21 only to have the dealer backdoor a blackjack (10 up, ace in the hole) that you can’t insure.  Sweep the bets.  Player had the edge, but it doesn’t always work out.  Sage advice from a professional card player–more traders should learn to approach trading a setup with that mentality.  Thanks Beach Justice!

    • Thanks EWTN glad you liked it. 

      Glad I was able to contribute to in some small way.  I’ve learned (and continue to learn) a lot here so its nice to be able to add to the site.