In light of some questions I have been getting about S&R trading, I thought I would share a story written by an FX trader from Nevada who goes by the appropriate handle, Vegas. He developed a system called the “tunnel method” which can be found elsewhere on FF as well as the internet at large. The point here is how do we apply the “truth” of the story to what we do here in this thread.
The story goes like this.
Recently, Vegas Jr. and I went down to MGM casino, on the Las Vegas strip, to play $3/$6 Texas Hold’em poker. It was on a Saturday afternoon, a typical weekend here in the desert of Southern Nevada. After about 3 hours of play we decided to quit and head home. I was up about $25 and Vegas Jr. was up about $75. As we passed through the casino on our way to the parking lot, Vegas Jr. noticed a crowd building near a roulette wheel. He says let’s go check it out.
When we get to the table I immediately see, on the screen of recently played roulette numbers, that the last 11 numbers are ALL red. A crowd is building and, of course, they start to bet black. When 15 in a row red numbers has been achieved, there is about $2,000 scattered on black across the table – none on red. When 20 in a row red numbers, there is about $15,000 bet on black – none on red.
Every single person at this table [about 100 people now] is now in shock and disbelief at what they are seeing. Cries of, “It just has to be black on the next spin of the ball …” can be heard booming nervously from those getting their asses handed to them. They bet more.
At 23 red numbers in a row, it takes the casino pit crew at this roulette table about 10 minutes just to get all the money off the table, and allow new bets to be made. We now estimate almost $30,000 is being bet on black. Next spin – red.
At the 28th spin, the ball finally hits a black number. Any cheers of joy? Not quite. Nobody has any money left to bet. On this spin about $50 is on black. Everybody else is dead-broke and mumbling to themselves. I look at the casino personnel working the roulette tables to gage their reactions to the above mentioned red run.
All I see are smirks. If I could read their minds, I know what I would hear first. It would start with “What a bunch of dumb-asses” and proceed from there.
After the table cleared, I approached the pit boss who was watching this event unfold and asked him his reaction. “No big deal”, he says, “This happens all the time.”
“Really?” I say.
“Oh yea, I’ve seen it go up into the lower 30’s [numbers in a row black or red] a bunch of times. My buddy, who’s a pit boss on the night shift, says he’s seen it hit 42 once”, he says. “What’s interesting is that nobody ever, and I mean NEVER, bets with it. They all want to fade it. Oh well, better for us”, he says as he leaves me standing there and goes off to check on something.
Vegas Jr. and I don’t say a word to each other on our way to the car. We’re literally in the car 10 minutes before either of us speaks. We each separately can feel the strong parallels this event has to trading. When we talk later about this, one word comes up: MOMENTUM.
Gambling is gambling and trading is trading and the two will never meet or should never meet, but the underlying point here is not how to gamble in Vegas but how to spot trends in a market and the proper way to address them once they have been spotted . The illustration is poignant to how we trade here.
Who among us here would not be better off today by using support and resistance to sell pullbacks on the Euro and Pound for the last two months as opposed to trying to pick a bottom? …In other words, "betting on red".
One of many colloquialisms that exists in trading says, “set it and forget it”. It has been used to describe more than a few trading systems and strategies. In my opinion, the only true strategy that falls in that category is "trend trading".
I will give an example. Last night as I was preparing for the evening forex festivities, I was reading through some research by IFR markets. On the GBPJPY they had listed a sell level at 194. I scrolled through my charts and I agreed that was a descent area to sell.
At that time the GJ was trading a bit below 192. I said to myself, "Hmmmm, if analysts other than myself, are looking for a pull back to that area and it's 200 + pips a way then how about a buy." Which I did around 191.78 and was subsequently stopped out on a trailing stop at 193.02 So you say, “Not bad, a 120 + pip trade.” But stay with me.
GJ never quite made it to 194. It peaked around 193.60 The important takeaway here is this. The buy, while successful was a countertrend trade. Had I did the "set it and forget it" thing and walked away, I would now be 500-700 pips underwater. (Assuming I had no stop loss in place or the market gapped over it) on the other hand if I had looked at the same info and used it with the trend (which is how IFR posted it) then I would have been looking for sell opportunities when price approached 194 and I would now be up 500-700 pips.
Did I know the GJ would fall that much in 1 day? ………………….Nope
Can I justify it fundamentally after the fact? …………………………Yep
Does that make me rich? ………………………………………….Nope
But if I'm positioned with the trend on longer term time frames then even when price pushes against me I can take it (assuming I am properly leveraged) because the "odds" are in my favor. When the Euro and Pound collapsed in July they didn't just tag a new high and fall. July marked the end of a couple months of consolidation up there. (The charts tell the whole story.)
So that's why I say trend trading is the only "set it and forget it" strategy. (and before you ask) I don't set and forget anything personally but I can sleep a bit better when I'm with the trend.
Here’s a few charts
The story goes like this.
Recently, Vegas Jr. and I went down to MGM casino, on the Las Vegas strip, to play $3/$6 Texas Hold’em poker. It was on a Saturday afternoon, a typical weekend here in the desert of Southern Nevada. After about 3 hours of play we decided to quit and head home. I was up about $25 and Vegas Jr. was up about $75. As we passed through the casino on our way to the parking lot, Vegas Jr. noticed a crowd building near a roulette wheel. He says let’s go check it out.
When we get to the table I immediately see, on the screen of recently played roulette numbers, that the last 11 numbers are ALL red. A crowd is building and, of course, they start to bet black. When 15 in a row red numbers has been achieved, there is about $2,000 scattered on black across the table – none on red. When 20 in a row red numbers, there is about $15,000 bet on black – none on red.
Every single person at this table [about 100 people now] is now in shock and disbelief at what they are seeing. Cries of, “It just has to be black on the next spin of the ball …” can be heard booming nervously from those getting their asses handed to them. They bet more.
At 23 red numbers in a row, it takes the casino pit crew at this roulette table about 10 minutes just to get all the money off the table, and allow new bets to be made. We now estimate almost $30,000 is being bet on black. Next spin – red.
At the 28th spin, the ball finally hits a black number. Any cheers of joy? Not quite. Nobody has any money left to bet. On this spin about $50 is on black. Everybody else is dead-broke and mumbling to themselves. I look at the casino personnel working the roulette tables to gage their reactions to the above mentioned red run.
All I see are smirks. If I could read their minds, I know what I would hear first. It would start with “What a bunch of dumb-asses” and proceed from there.
After the table cleared, I approached the pit boss who was watching this event unfold and asked him his reaction. “No big deal”, he says, “This happens all the time.”
“Really?” I say.
“Oh yea, I’ve seen it go up into the lower 30’s [numbers in a row black or red] a bunch of times. My buddy, who’s a pit boss on the night shift, says he’s seen it hit 42 once”, he says. “What’s interesting is that nobody ever, and I mean NEVER, bets with it. They all want to fade it. Oh well, better for us”, he says as he leaves me standing there and goes off to check on something.
Vegas Jr. and I don’t say a word to each other on our way to the car. We’re literally in the car 10 minutes before either of us speaks. We each separately can feel the strong parallels this event has to trading. When we talk later about this, one word comes up: MOMENTUM.
Trading with the trend.
Gambling is gambling and trading is trading and the two will never meet or should never meet, but the underlying point here is not how to gamble in Vegas but how to spot trends in a market and the proper way to address them once they have been spotted . The illustration is poignant to how we trade here.
Who among us here would not be better off today by using support and resistance to sell pullbacks on the Euro and Pound for the last two months as opposed to trying to pick a bottom? …In other words, "betting on red".
One of many colloquialisms that exists in trading says, “set it and forget it”. It has been used to describe more than a few trading systems and strategies. In my opinion, the only true strategy that falls in that category is "trend trading".
I will give an example. Last night as I was preparing for the evening forex festivities, I was reading through some research by IFR markets. On the GBPJPY they had listed a sell level at 194. I scrolled through my charts and I agreed that was a descent area to sell.
At that time the GJ was trading a bit below 192. I said to myself, "Hmmmm, if analysts other than myself, are looking for a pull back to that area and it's 200 + pips a way then how about a buy." Which I did around 191.78 and was subsequently stopped out on a trailing stop at 193.02 So you say, “Not bad, a 120 + pip trade.” But stay with me.
GJ never quite made it to 194. It peaked around 193.60 The important takeaway here is this. The buy, while successful was a countertrend trade. Had I did the "set it and forget it" thing and walked away, I would now be 500-700 pips underwater. (Assuming I had no stop loss in place or the market gapped over it) on the other hand if I had looked at the same info and used it with the trend (which is how IFR posted it) then I would have been looking for sell opportunities when price approached 194 and I would now be up 500-700 pips.
Did I know the GJ would fall that much in 1 day? ………………….Nope
Can I justify it fundamentally after the fact? …………………………Yep
Does that make me rich? ………………………………………….Nope
But if I'm positioned with the trend on longer term time frames then even when price pushes against me I can take it (assuming I am properly leveraged) because the "odds" are in my favor. When the Euro and Pound collapsed in July they didn't just tag a new high and fall. July marked the end of a couple months of consolidation up there. (The charts tell the whole story.)
So that's why I say trend trading is the only "set it and forget it" strategy. (and before you ask) I don't set and forget anything personally but I can sleep a bit better when I'm with the trend.
Here’s a few charts
Attached Image(s) (click to enlarge)
Energy and persistence conquer all things! Ben Franklin
..... Nice info on suprising price action... You are the true mentor, who are willing to share your knowledge/experience sincerely with others , while some people in other trade are claiming to have spot a short on GY on yesterdays move...
