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Molly’s Game is a movie that has nothing to do with the markets, but every trader should see it, for this one scene alone.
The movie centers around a life of brilliant Olympic skier, who after a career-ending injury, stumbles into the world of high stakes poker, running games for various celebrities and businessmen in LA and then NY. In this one scene in the movie, a very good poker player gets bluffed by the worst player at the table and completely loses his composure. The poker term for it is “going on tilt”. He starts gambling wildly desperately trying to get his stack back.
It’s truly painful to watch as loses hundreds of thousands of dollars on one bad play after another. Although the scene has nothing do with the markets, it instantly resonated with me as I remembered all my own moments of going on tilt after the vagaries of the market got the better of me. Just one bad fill, a to-the-pip stop that then went on to hit take profit, or one just missed take profit that then went on to stop me out were often all that was needed to trigger a nasty bout of revenge trading that left me considerably worse off than I was before. Molly’s Game will be forever seared in my mind as a testament to the fact that no matter how well you know the game, the true enemy is not the market but your own psyche.
All throughout the scene, Molly is begging the poker player to walk away from the table, but of course, he refuses. This made me think about Vegas and the fact that they love to serve you free drinks on the casino floor. Why do you think they do that? Because they know that the longer you stay at the table the greater the chance that you will give back all your winnings and your starting bankroll as well.
The market is very much the same way. It’s not that most of us can’t win at trading, it’s that most of us can’t keep the winnings we make because we stay at the table too long.
For the past few weeks, I’ve been running a continuous trend EA desperately trying to make it work on a 24-hour basis. The setup was extremely sound but inevitably it gave back all of its winnings on the very last trade of the cycle as it sold the lows or bought the highs. Regardless of the safeguards in place, the EA could not apriori anticipate the change of market regime. Finally, I realized that no EA ever could. That’s why in the history of all EAs there has never been a continuous EA that has ever made money, because as I’ve noted a million times, all algos are simply divided into two types of strategy -- continuity and mean reversion and for an EA to make money continuously would be like saying that a person can sleep and be awake at the same time ( side disclosure -- when I was younger I used to sleep with my eyes open, which freaked out more than one of my camp bunkmates, but that is not the same thing).
Anyway as soon as I realized that the problem with my setup wasn’t the strategy, but the fact that I kept running it too long, I changed my tactics completely and made my EA single trade only, entering the market only when evidence of a new trend was appearing. In a sense I started trading like a good poker player, entering the game only when pot odds favored my cards while perfectly willing to sit out any hands that did not meet my criteria.
+99.1 pips in live trading on BOE Rate Announcement day in less than two hours of stress-free work.