So now, the latest drama is the pending statement from the FMOC. Sometimes, if I didn’t know better, I just might think we all traded in a soap opera …
Following some downbeat comments from the San Francisco Federal Reserve, there are expectations that the Federal Open Market Committee could move for more easing when it meets today. While the target fed funds rate is effectively zero, the central bank could try quantitative easing, where it increases the money supply by means other than rates, such as buying government bonds.
Ya know, it all makes sense, even if I don’t like it. Media makes money when folks tune into or read the news, and nothing draws peoples’ gaze like a “burning building.” Enough said …
Switching to a more interesting topic, I have a parallel today that I now find helpful in keeping my approach to trading steady. Of course, it derives from my other gambling outlet – poker.
I have been playing poker much longer than I have been trading, so, sometimes, I feel just a bit embarrassed when I have a moment of lucidity while playing. I mean, one would think by now I would have learned everything there is to learn about a simple game played with 52 cards. Well, apparently, there is always something to learn in poker, as there is in life. I guess this is the spice that keeps it all interesting.
Sitting at the final table of a tournament the other day, my mind started calculating something that it had not really contemplated before – how many ways could I lose this pot? Normally, my thought process in poker is to look at how many ways can I win. How many “outs” do I have that will give me the winning hand? Actually, it is the same process for trading. One finds potential trades and then uses his or her tools to determine the trade with the highest probability of success – how many ways can I win? The question, I have is this – does anyone consider how many ways a trade could go south? This notion popped into my head the other day when I was playing in that tournament. I looked at the board, considered my cards, and thought, how many ways can I lose? Yes, I have always considered what cards could beat me in a pot, and I have always tried to ascertain what cards the remaining players in the pot might have, but I have not really counted the ways I could lose.
Now, this distinction seems subtle, but in that tournament, the subtle difference between thinking about my opponent’s possible cards, or the cards that cards that could still come, and actually counting the ways I could lose escaped me. All I wanted to do from then on in any hand was see the whole “layout” in what seemed to me a new light. It seemed to me that the picture became bigger, that the focus became sharper. It appeared that I had found another tool to help me calculate the probability of winning through understanding the clarity of what could keep me from winning. The result of this “epiphany” is that I now fold hands that I might not have folded before. Comparing my “hand” to the number of ways I could lose helps me to see the true value of my hand. It removes the blinders I often have on when I see only the “win.”
I now think about my trades in this light. The process is still forming, as trading is so much more complex than poker, but it is forming. I have another trading “tool,” yes, and, as well, one more thing to learn and master.
Trade in the day; invest in your life …
