Jul

16

I found there are many similarities between trading and playing poker (Texas Hold'em).

1. In both games, at first one is presented with an opportunity. In trading, this is the time one starts to decide whether one should make an entry; and in poker, this is when one is dealt with the first 2 cards. One calculates at this time the chances and the expectations and makes a decision on whether to proceed and how much money to put in.

2. While holding, one is constantly presented with the potential possibilities to win or to lose. In trading, this is reflected by the ups and downs of the equity value; and in poker, every new card coming to the table alters one's chances. During this time, one constantly calculates the chances and the expectations and makes decisions on whether to continue holding and whether to add or reduce one's position (in poker one can't reduce).

3. At closing, in poker, this means the final showdown; and in trading, this is when one has to close out the position. Only at this point, the possibilities to win or to lose are realized.

Probably one crucial difference is that in trading one does not have a way to bluff, unless one is a heavy weight in the market. But it is quite the same in both games that one is often bluffed at.

John Netto responds: 

I feel compelled to respond given I have used both mediums as a way to make a living. No comparison between poker and trading is complete without examining the ancillary issues such as transactional costs and liquidity.

In poker, the house takes a rake on every pot and for every orbit (time the dealer button goes around the board), a player must post a big blind and a small blind. The rake can be as small as 5% and as high as 20 percent given the venue and size of the pot.

In trading, one might pay a small fee for software or data, but on a percentage basis, this is substantially less. Overall, these are real factors for a number of professional cash game players in computing their positive expected return.

Liquidity is another issue. You are at a table with 8-9 other players and the higher the stakes go, the more seasoned and experienced the players are.

Therefore, assessing the "volatility" of a table is critical as a trader who likes to be long a lot of gamma, I like to be in games where the players are looking to gamble and mix it up in a lot of pots and chase down their draws at bad payouts.

May

20

This chart of 10 Yr Treasuries reminds one of the very kind companionship that Mr. Pitt provided to Aubrey and myself up the lazy river in Disneyworld Orlando a year ago. One wonders whether there are any regularities in it. vic

Anatoly Veltman comments:

One may observe the consecutive higher lows throughout the multi-year uptrend. One concludes that any first lower low will serve to produce technical downtrend of significance; at that time get out. Easy money!

Jeff Watson adds:

I'll say it again, the mistress never gives away, "Easy Money," and there is no such thing as easy money for the non-Flexion.  One suspects that those who make "easy money" in the market have some kind of Faustian Bargain in effect. I have to fight  tooth and nail for every quarter cent.

John Netto says:

Jeff- start studying market positioning and how the market is structured before large Econ data releases and Fed announcements. Being aware of this will point out asymmetrical situations which tend to provide profits at a much higher  velocity.

Jeff replies:

John, thank you very much for the most enlightening market lesson I've had in 35 years of trading.

Vic Niederhoffer is skeptical:

One is content to eke out any profit let alone one at a higher velocity. When I can unravel the meaning of Mr. Netto's post, I mite be poised to become a wealthy man.

John Netto clarifies:

The Chairman has asked me to provide further detail on what specifically i'm referring to by putting oneself in trades where  the velocity of P and L can appreciate at a greater intensity based on identifying market asymmetries.  Take the most recent nonfarm payrolls number. During the beginning of the week we saw estimates around 150,000. The day before  we saw ADP miss … estimates were then lowered for the nonfarm payrolls number from 150,000 to 140,000 by the Street.

We saw a rally in the bond market and some weakness in equities with the S and P sitting around 1585. This was the first sign  of how the market was positioning for what was believed to be a weak jobs report.

The number beat consensus coming in at 165,000 and with the market surprised by the results and positioned the opposite way,  bonds sold dramatically and equities put in a gap up, go up day - with neither of those markets returning to the scene of the crime since. As a professional trader supporting myself from my trading P&L, understanding market positioning is one of the  big ways I generate P&L. The aforementioned example was particularly lucrative.

Jun

17

Rocky asked this question once a year or so ago about the outlook for the Euro after one of the many EU/peripheral events, and I thought it was a good one. So how might we measure and estimate, and what are people’s expectations for moves on Sunday-Monday following the Greek elections?
I am of the opinion in the medium term the elections don’t even matter. But, that is a different topic and exclusive of any short term opportunities.

Anatoly Veltman writes: 

A quick note on S&P: I think current risk is enormous (due to recent complacency).

Paolo Pezzutti writes: 

I think that we have to be aware that if Germany accepts the eurobond concept, Europeans will buy a lot of time although will only delay to pay the bill. That may have a significant impact on eurusd and equities. Not sure how likely is that, but as the situation worsens pressure on Germany increases. Especially after that in France, an important player, it prevailed the idea that socialists can improve things by increasing public spending.

John Netto writes: 

Long gold / short silver. I've been working this position for most of this week and it is telling us about some of the macro variables at play. This ratio is currently shy of 57 and can ascend to 60 given all of the global macro variables at play. Silver has been trading very heavy and under most circumstances I put together, the long gold short silver one helps me take on the sort of risk-adjusted exposure I like…

GL in the markets…
 

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