“It’s better to be the pigeon.”
So I’m sitting out on the back open air deck of a seafood restaurant last night and I notice a couple of pigeons waiting patiently for somebody … anybody … to drop some food or for the waiter to not notice that piece of bread on the floor … “hey you … yea you! … can you please pick up the dishes and get the hell outta here so me and my date can dine on that fine morsel of bread you’re standin’ by? … Honey, only the best for you baby!”
And it dawns on me at that instant that they are a perfect metaphor for a near perfect trading algorithm; those 2 pigeons had no idea “that table” they were eyeing would have food on or near it for them to eat when they flew in. They didn’t fly around following some couple, after months or years of research determining through spreadsheets and charts that “Yup, after careful analysis, I’ve determined this is ‘the guy’ to hang my hat on and follow around because he is careless with the food he eats and it will be ‘easy pickins’ for me to grab some much needed nourishment.”
But in reality, though, what the pigeon intuitively knows isn’t that “this guy” is the “mark”; what the pigeon knows is that “the restaurant” is the mark … “why am I goin’ there? Cuz there’s always food there you idiot! Why fly around working, looking for food when dumb ass humans just lay it around for us?”
And so, connecting the dots, you should be able to see what the 2 pigeons really knew how to do, and that’s spot opportunity. For the longest time, even when I was still studying and learning the biz from Bert and then moving to the trading floor, in essence I was the pigeon flying around doing useless research [application wise, not knowledge wise] instead of isolating and spotting optimal opportunity!
When writing the tutorial and in yesterday’s blog post, and today as well, I want to make certain you understand the subtle power of what it took … and that key step … where I “gave it up” … where I no longer said, “hey, I want to predict large spikes!” … and I might as well have been saying, “hey, I want to flap my arms and fly too!” … where like the pigeon I finally said to myself, “I JUST WANT OPPORTUNITY!” By defining all M1 candlesticks as “spikes”, means I can sweep the entire data set looking for the opportunistic conditions that always precede upper exhaustion hits and put myself in position to capture them.
How is that any different than the 2 pigeons sitting there waiting for somebody to leave so they can swoop in and take some bread crumbs or wayward French fries that the dopey kid at the next table dropped on the floor? They had no idea it would be “that table”, “those people”, and that “dopey kid” that would feed them at 9 P.M. Ok, when I capture an exhaustion move on any given day, before the day starts I have no idea “what time” or “what price” either. In both instances, we have given up the prediction “game” and isolated on the opportunity; in our case, not every spike goes to exhaustion and that is the reason one of the liquidation rules is to sell on an above average spike up since the trade started. That algorithm trading rule is a direct result of defining all M1’s as exhaustions and taking advantage of moves that fall under the scope of measurement with the exhaustion lines. As a result, we have no idea when a trade starts whether it will go up a little or a lot … not a clue … but what we do know are 2 key criteria; 1) the market moves a lot so it’s not as if a nice move up is something out of the ordinary, it happens every day and often, and 2) the M1 trading signals have “spotted” a shift in momentum and are now placing us in that necessary “opportunistic condition” to profit; we don’t need prediction, we have a market that moves and momentum on our side. Time to then wait and see what happens; and what happens nearly every day is that markets surprise and shock with the speed and scope most everyone didn’t see coming. We don’t need to see it coming, we just need to have the algorithm spot the opportunity, and the rest is taken care of thanks to the volatility of the market.
Subtle, yet so very important a distinction you need to understand because it is the reason the algorithm is so damn powerful and looks many times like you drew the market up yourself on a chart for profit purposes. And to prove my point, here’s the DOW30 yesterday afternoon with a great trade directly below [with commentary].
See the plum line slope change [while under the yellow line]? How close is it to the bottom of the move when the exhaustion move started and nobody had a clue? That distance is what we give up in impossible “prediction” to go to an “opportunistic condition” of a shift in momentum; and where does the market put in a top? Of course, right at the exhaustion line!
Turning to today’s trade … I’m not really expecting any market moves of significance this morning or doing any trading; the fireworks will come later in the afternoon when “big money” gets the inside skinny on the election and starts taking positions that will undoubtedly move the markets. If it’s a Trump landslide [despite the fraud] gold should start spiking, and the long positions put on in the DOW30 yesterday get taken off and the market slides [maybe big, who knows]. If Cankles wins, markets are the least of your worries going forward.
Here at the open, I’m giving it an hour or so to see what happens … if nothing, I’ll come back later this afternoon and most likely concentrate on the DOW30. So, not much to do today per the election results.
An hour and half in and it’s crickets … I’m outta here.
Have a great day everybody!
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