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Monday, June 4, 2018

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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