EINSTEIN, DICE, & TRADING

 

“To be sure, one of his greatest theories!”

Albert Einstein, is famously quoted as saying once, “God does not play dice!”; 

simply put, he couldn’t reconcile the newly created branch of physics called 

 “quantum mechanics” [QM], with the real world cuz the entire premise of QM 

is probability theory, and the randomness found at the subatomic particle level 

threw him for a loop. Of course, we know Einstein was dead wrong … without 

QM, I wouldn’t be banging out this blog on my Laptop, trading online in 

milliseconds, and/or talking and doing a bunch of other things on my mobile 

smartphone.

Since trading any derivative happens in the “real world”, why should it be any 

different than everything else QM touches? Besides, if there was any scenario 

in any market, where profit could be 100% guaranteed on every trade, there 

would be no market cuz somebody would have all the money in the world 

… and clearly, nobody does or even comes close!

But, dear Albert, “what if you’re playing with loaded dice? … what then my 

friend”? Cuz clearly, stock indices, interest rates, and FX are manipulated by 

central banks via TBTF scumbag LP banks ...  where banks accumulate 

positions long/short, an appropriate “in the tank patsy”Apparatchik 

government Pie Hole then “jawbones” to the dutiful financial MSM to get the 

desired policy response … Rueters and/or Bloomberg, Fox Business News, & 

MSNBC flash the headlines, and literally a “nanosecond” later the U.S. Dollar 

drops/rallies large amounts of PIPS, stocks explode one way or the other, and 

the scumbag LP’s get all of the traders of the world to bail them out of their 

positions at the best possible “stopped out” price. In a simple nutshell, that’s 

how “modern day manipulation” works and is carried out.

Ask the regulators? ... pick any “alphabet soup” compromised, worthless, 

useless, & corrupt to the core agency you want, and inquire what they’re doing 

about it, and they’ll be quick to start a 10 year internal investigation and “get 

back to you” … and when they eventually lift their collective heads away from 

their computer screens the 3 minutes a business day when they aren’t watching 

midget porn, or playing solitaire, they’ll tell you the scumbag banks were 

buying on the way down or selling on the way up, and had nothing to do with 

the news, and therefore it’s impossible they were manipulating the market. “It 

would be easy to call them morons … instead, think of them as enablers, looking 

the other way for a bag full of cash to suddenly appear in their trash can some 

morning out in suburban North Virginia”.

And as I said on Friday, anybody remember the last time the FED “fat finger” 

bullied gold & silver massively lower, since President Empty Suit AND 

Grandma Yellen left? “Me neither”. Sure, you are 100% guaranteed to 

continue to get buy/sell stops hit off in the precious metals, simply cuz it’s the 

nature of markets, but it isn’t the FED or the BIS. Similarly, the banks are 

absent from crude oil … aside from doing some CFD “arbing”, what’s their 

function here? Short Answer: There isn’t one. 

Now, don’t misunderstand, the government isn’t gonna let any large physical 

commodity market go “belly up” … they’ll be in there buying futures “some 

how, some way” ‘till your eyes bleed, simply cuz whatever they may potentially 

lose via hundreds of thousands of contracts, it’s “chump change” compared to 

the massive disruption that would be seen by big-time corporate bankruptcies, 

unemployment in the millions, and loss of corporate dividends from millions of 

people … and this is what happened in February 2016, when the FED essentially 

saved the U.S. oil industry, when WTI went down to around $25 per barrel from 

approximately $105 per barrel little more than a year and a half earlier. So, 

there is a “skew” to the downside in physical commodities, not seen on the 

bullish side … “it ain’t going to zero” … meanwhile, the upside is generally 

unlimited in scope, cuz if there is no supply, you can “jawbone” all you want 

and it isn’t gonna make any difference to price.

What makes crude oil unique [both Brent & WTI] in trading markets is the 

breadth and scope of the size of both suppliers of crude, and the users of crude 

… in other words, you got some very “bigly & yuge” corporate users, as well as 

quasi government accounts that dwarf other commodities … add it all up, and 

the world easily trades over 3 million futures contracts a day … that’s 3 billion 

barrels of oil, valued at approximately $200 billion dollars … and while FX has 

$7+ trillion a day, you can’t “CNTRL-P” a barrel of crude oil … at some point, 

you gotta either deliver it or take delivery of it, and that makes all the 

difference in the world.

So, “does God play dice” with trading markets? “Yup, cuz by induction [proving 

the negative of the premise is false], there wouldn’t be a market if he didn’t, and 

last I checked, it opens tomorrow for another week of action”. So, how can we 

trade and profit from something that’s completely random? “You can’t in the 

long run … ask me now about the price of oil in June 2020 and I can’t give you 

any probability at all I’m correct in my analysis ... But, in the short term, you 

can’t have $200 billion a day sloshing around the swimming hole and not expect 

some ripples from the waves, and it’s these “ripples” of momentum we play, cuz 

in the past over many time periods, human behavior plays itself out in splendid 

glory [or stupidity depending on your point of view] like a broken record … it’s 

called a markets personality”!

Remember, markets at their core, are simply manifestations of human greed 

and fear … nothing more nothing less … strip away what you think you know 

about them, cuz you don’t know Mr. Jack Squat, and you quickly realize that 

players with more commas in their equity run than you have zeroes in yours 

are calling the shots, and mimicking them cuz their money powers markets up 

and down, might be a really good idea … any way you want to slice it up and 

analyze it, it becomes a 2 dimensional vector field of “force” 

[a/k/a buying/selling] and “direction” [up or down], where we know from the 

past how players operate over time, and the limitations imposed upon price. 

Can this suddenly change? “Certainly, and this is how God plays dice … it’s the 

unknown timing of a change in trend that you know is coming but can’t isolate 

with 100% certainty, and in the process drives traders insane … in the end, all we 

are left with is the choice of either being the “casino”, or the “customer”.

Turning to today’s WTI crude oil market …  a triple trend change today sees 

the normal volatility in WTI expand quickly. Algorithm worked very well today, 

but my execution on one side of a trade blew up in my face … lesson learned.

A handful of trades today, and if I had taken the loss quicker, we’d be up money 

on the loser … PAMM down slightly today, about $135, or a little less than 0.3%.

Spreads today not an issue, as 4 cents was the standard and didn’t fluctuate 

much … got filled with zero slippage on everything … not happy with myself 

for fighting the market on one of the trades [the largest loser], but liquidated a 

short position very near the bottom of the break lower, very near the bottom at 

that time … and for what it’s worth, the algorithm called that liquidation.

Including today’s action, going forward look for volumes to be on the 1 - 3 lot 

size, and ± P/L to be over 0.5% pretty much every day. Anything under ±0.5% 

for the day on equity can be considered “scratch”, negative or positive, activity 

… we’re trading 1,000 to 3,000 barrels at a whack, and when the pony runs, 

which it does often and with severity, we can expect to see PAMM performance 

exceed +5% for the day … gone are the days of miniscule gains, cuz it isn’t or 

doesn’t do any of us any good. I’ve got risk controlled extremely well via the 

algorithm signals, so it’s a recipe for massive gains over time.

So, only thing about today’s trading  I’m disappointed in, is me … a couple of 

minutes I can only describe as a “brain fart”, led to a larger loss than I expected 

… “shoulda, coulda, woulda”  in crude oil is a “death wish”, so it’s basically a  

“one off” that isn’t gonna be repeated. Other than that, again the algorithm 

couldn’t have done a better job if I had put the price changes on the chart 

myself, so it really is doing a fantastic job of nailing this market. Market has 

died into the New York afternoon, and the spread looks to widen here to 5 cents 

… that’s it for the day, unless something happens I’m not expecting … I’m outta 

here … until tomorrow mi amigos … Onward & Upward!!

PAMM Spreadsheet will be posted early tonight directly below.

UPDATE 9 P.M. EST: PAMM spreadsheet directly below.

 

 Have a great day everybody!

-vegas

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