The Daily Market Forecast... Math Meets Psychology

Thursday’s Results: The short at 3920.75 ran for 39.50 with only 1.25 points adverse.

Quick Tip: Math Meets Psychology

Much has been said about the similarities between trading and gambling. Much is true. All is not. A fabulous book you should read about this topic is A Man for All Markets by Edward O. Thorp, an accomplished mathematician, author of Beat the Dealer, and acclaimed hedge fund manager.

When Thorp tested his blackjack card counting system in the real world, financed by two wealthy (and greedy) millionaire businessmen, he uncovered a significant “edge” that you can and should apply to your trading.

His backers wanted him to bet big right from the start. Thorp opposed this idea. He was logical and methodical. Betting big before having confidence didn’t make sense to him. He started small and slowly worked his way up to the big bets. His backers were annoyed but Thorp insisted.

The system was a success in the real world. Afterward, Thorp wrote this: “Betting only at a level at which I was emotionally comfortable and not advancing until I was ready, enabled me to play my system with calm and disciplined accuracy. This lesson from the blackjack tables would prove invaluable throughout my investment lifetime as the stakes grew ever larger.”

As Benjamin Franklin said, “Wise men learn by other’s harms; Fools by their own.” Are you trading in an emotionally comfortable risk range?

Today’s Best S&P Turning Points:

Sell 4018.50 stop 4023.25.

Buy 3898.50 stop 3894.75.

Trade Fearlessly,

Mike Siewruk

P.S. What’s more important in trading? Math or emotions? Learn how to change your unwanted behavior here.