I don’t play poker. I understand enough to see the similarities between those who play poker and those who trade, but I’ve never personally been compulsive with any card or board game, sporting or music competition. I am fiercely competitive with myself, but maybe it’s because I grew up an only child and just didn’t have basic sibling rivalry skills well-enough formed? Whatever the reason, I learned the art of observation.
Recently, I had the opportunity to observe the game of poker first-hand. I had been invited to a “friendly game” of neighborhood poker, where I was assured that straight-out-of-the-gate beginners were welcome. I was curious and saw this as a social experiment to test my thesis that there are really no “friendly” games as long as there are players that show up that ONLY want to win.
I sat down to have my first hand dealt and soon Buffet, not Jimmy, came to mind. I quickly realized the similarities between this card game and the game of stock/options trading. I related the dealer to a market maker. I looked around the table to size up who was green and who was not. I saw the dynamic between alpha and beta, husband and wife. I witnessed how money was valued as leverage.
But mostly it was Buffett who rang in my ears: “If you’re not the shark, you’re the bait”.
I may have known next to nothing about counting those cards on the table with the probabilities against the bluffing, but I did quickly figure out in three or four games exactly who was the shark, who wanted to be the shark, and who was naive or stupid enough to think they had any chance of becoming the shark.
And, most importantly, I knew exactly and early that I was the bait.
I knew I had no competitive advantage sitting in this game of poker with players who clearly knew this game and played it well, so there was no reason for me to compete. Fast forward to the stock market and folks who don’t trade professionally. They ask me all the time why I think I’m smarter than computers and big banks and the Cowboys with big bank rolls. It may sound strange to their ears, maybe even overconfident, but I have spent years studying this “game of trading”, so now I have a fairly good feel for where the sharks are hunting and hiding … and how to avoid and/or outwit them!
This Game, I Know
I then try to explain this Game of Trading, which is like trying to explain the game of poker to a newbie – it’s very complicated! I can say trading is a game of skill not chance, but they won’t believe me. I can go on at length and tell them how I swim along happily in this large ocean of sharks not feeling exposed to danger other than the voices in my head. I can tell of stories of how I learned how to avoid the sharks. I really confuse them when I explain how I think like one. As you can imagine there are lots of protests and strongly held biases to which I reply: “If you feel no competitive advantage in my game, then you shouldn’t be playing in my game.”
In the same way I shouldn’t be playing poker! I may get lucky, but I’m pretty much guaranteed to lose at poker in the same way a newbie is guaranteed to lose at trading – unless we put the time in to learn how to play. But in either case – newbie or pro, poker or trading, each player must ask the question before we put any chips down:
“Am I the shark Or am I the bait?!”
And as Buffet, or any poker game will teach you, if you don’t know if you are the bait, YOU ARE THE BAIT!!
To expand on that a bit, we traders/players also have to study the answers. If the answer is “I feel like the shark” a little too often, well you know what happens: over-trading kills capital. If the answer is “I feel like bait” a little too often, under-performance kills confidence. And right now this pretty much sums up the sentiment of investors in the stock market.
Both newbie and pro are making big bets on the future of the stock market. We have retested that ubiquitous SPX $2800 many times last year – JAN, FEB, MAR, JUNE, JULY, OCT, NOV, DEC – And here we are again in MAR 2019.
For some, this is evidence of a mounting failure that will repeat 1937’s huge downdraft and others believe it is a building up of energy to push up and above all-time-highs into a major new bull cycle not seen since 1991. I regret to inform you I have no competitive edge in this prognostication game of analogues and biased interpretations.
Market clearly has the competitive advantage and I am trying to stay on the right side playing along with it, not against it. I collect data and put into context arguments to support the bullish and bearish possibilities. I can have a structural bear thesis on the fundamental economic and earnings front all the while contrast that evidence with a clear recognition of strong positive price action with lots and lots of cash on the sidelines that could enter and act as rocket fuel. I can see how many position their portfolios for Armageddon fueled by doubt, fear and uncertainty for which there is cause. I can also see the positive effects of Bullish Passivity with the masses. Both strongly-held biases, however, are equally dangerous.
Fish The Edges With Me
To project a future of sky-is-falling or only-blue-sky is simply not within my constitution. So I tend to focus on what I am good at and right now that is feeling my way along the edges even during times when I see no competitive edge. Maybe that’s where I feel more capable and comfortable swimming. And encounter far fewer sharks.
Fish the edges. The edges of banks. The edges of seams. The edges of deep to shallow. The edges of warm to cold. The edges of day to night. The edges of seasons. The edges of your life. It all happens at the edges.—Mike Sepelak
And that’s what I plan to keep doing in my live trading room every day – fishing the edges, trading a system that has proven to offer a competitive advantage, and sharing my live trade alerts from my brokerage account in hopes that those who value and trust my analysis and market feel won’t end up as shark bait.
Thanks for reading and please consider joining me in the LaDucTrading LIVE Trading Room where I take macro and market-moving news, give it context, and recommend trade ideas from it. For additional education, I provide my LIVE Trade Alerts from Interactive Broker to clients interested in my Value and Momentum stock and option plays.
At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, we offer real-time Trade Alerts via SMS/email that frame the Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.
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