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I recently learned about the death of Barry Tanenbaum. I assume you have never heard of him, as that is usually the case with even the most successful of “cash game” poker players (cash games, or “ring games,” as in playing for real money and risking your money you have in front of you via casino chips, instead of a fixed tournament structure with tournament chips). Barry was an old school Texas Limit Hold ’em poker player, grinding out the profits year after year in Las Vegas, the city where so many celebrity/famous “tournament players” quickly ascend to fame, only to stumble over to successful cash game players to ask for money when they soon go broke. He had made some money early in his life in the pre-Sicilon Valley days in Cupertino, California, before moving to Vegas with his wife.

I played against Barry many times when I lived out in Vegas several years back, when he was a regular in the cash games around town. He was a fixture in the Bellagio poker room, $30/$60 Limit Hold ’em game, where the average buy-in to sit down was about $1,000, and the volatility you endured as a player could be up to several thousand dollars per session. He was a very solid player and clearly a winner. Unlike many crybaby “pros” who berate bad players at the table when they lose a hand, Barry was a total pro, maintaing a sense of humor and not going on tilt, while keeping the bad players happy and playing longer, thus giving him an edge over the long run.

A few summers ago, during the hot cash game action that takes place when the World Series of Poker (“WSOP”) comes to town, Barry and I squared off in a $100/$200 limit hold ’em game at the Bellagio which is, generally speaking, one of the bigger limit games you can find in any brick and mortar casino in Vegas or on the east coast.

I was honored to read him blog about a particular hand the next day, referring to me as an “excellent player.” It was rewarding for me to get that kind of respect from an older, accomplished player. The hand went exactly as he recalled, and I found it quite entertaining to experience and then read about the other two players in the hand. Even if you are not a poker player, I still recommend watching the speech he gave in the video above. Mike “the mad genius of poker” Caro gave the introduction. Barry discusses patience and grinding out “one big bet per hour,” which means, as an example, earning $60 per hour in the $30/$60 Limit Hold ’em game. The parallels to disciplined stock trading are plentiful.

Here is Barry’s blog post, told in first person, from July 2007 detailing a hand played against yours truly. The “UTG” player was actually a friend of mine and the “cute girl” was indeed a cute girl and very aggressive player. I included the other portion of his blog about those two after the hand that I was in, for entertainment value. Click here for the full post and his blog as well. (“UTG” refers to “under the gun,” the player at the poker table first to act in a Texas Hold’ em game, to the left of the small and big blind, “BB” refers to big blind, “JJ” refers to pocket Jacks, “late-middle” refers to my position at the table when I re-raised or “three bet,” as he says, with pocket kings before the flop).

I played some sessions of $100-$200 recently. With the WSOP in town, the game is better than usual.

Perhaps you would be interested in some laydowns I made. Here are a couple:

UTG (average player, not especially tight) raises. Excellent player three-bets from late middle. I have J-J in the BB and make a marginal call. Flop is 7-6-6. I check, UTG bets, good player calls, I call. Turn is a 7. UTG bets, good player raises, I fold. Probably should have folded earlier, but there it is. Oh, on the river, check-bet-call, good player shows down kings, and UTG confides to cute girl player on his left (these two will be back in this post) that he had J-J! At least I put in $400 less than he did.

They were not all laydowns. Here is a play I picked off because of table talk. I have the button and a new player posts. Everyone folds to the new player, who checks (though the book says raise). I have 9-7 and do not wish to get involved. so I fold. SB (guy on my left again) completes, and cute girl (who is wildly aggressive, and gets way too much respect from the others) raises. Poster calls. SB folds. Flop is something, She bets-he folds. Fine. But now guy on left says to girl, “Nice play. I was thinking of doing that.” She rewards him with Mona Lisa smile.

 

 

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The content below was from a post I originally published on March 3, 2011. Here is the archive. I am reposting it now to show how impressive the price action in both Visa and Mastercard have been this year, given the struggle of the overall market. MA was $261 when I wrote this post, and is currently $375. V was $75 then, and is now $96. I expect both stocks to be part of a new group of leaders, should the market breakout in the coming weeks. 

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Once known as reliable momentum names, notably Mastercard, the credit card players have recently become a much-maligned group, in the face if menacing regulatory risk out of Washington. However, a look at their charts of late is telling me to keep them on watch.

The weekly chart of Mastercard shows a textbook, multi-year symmetrical triangle near its apex. Note how all weekly moving averages are relatively compressed and are all below price, offering support. I am looking for a break and hold above $260 to validate the bullish move out of the triangle. In a similar vein, Visa’s daily chart shows price breaking out above all moving averages today, out of a descending triangle. Once again, all of those moving averages are now compressed and firmly below price, which usually portends a big move higher.

Both names can run much higher before they even come close to approaching multi-year highs.

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The Nasdaq Composite (first daily chart below) is gapping directly into that key 2,600 level. On the one hand, it is a plus for the bulls to partially fill last week’s gap. However, I do not see a high probability trade in going long a gap into what is likely to be an area where overhead supply will dominate. I expect 2,600 to continue to be a tough area for the bulls to conquer, without putting in some more work first. Even if the bulls keep running, the chart is sloppy and needs to tighten up to meet my criteria.

The second chart is the Dow Jones Transportation Average. It a good sign for the bulls to see it back above 4,700, and they are pointing to the strength in the trannies to supper their case. Moving above 5,000 remains the line in the sand for a true breakout.

Finally, the Euro/Yen currency cross, which I have been pointing to as a proxy for global risk appetite, is unimpressive today given the news and action in the stock market. I would have expected a much more potent move from the Euro given the kitchen sink approach by central banks.

In sum, there are still troubling signs underneath the hood of the car. Only price pays in the stock market, so the Euro and Nazzy are not reasons to short just yet. However, they are charts to monitor to see if they resolve in favor of the bulls…or not.

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Last New Year’s Eve, I gave one final prediction for 2011 in this post. Here is the text:

“There Will Be Head Fakes”

-chessNwine 12/31/10

Accordingly, please use caution headed into the next several weeks. There is nothing wrong with taking a wait-and-see approach to start the year.

HAPPY NEW YEAR

Given my style as a technically-driven trader who is best at reacting to price and momentum, it is tough for me to make bold predictions seriously. I was having a bit of fun in that post above, but my sense was that 2011 would, in fact, be a difficult year for just about all market participants. Your style may very well be different from mine in terms of making bold predictions, and that is fine by me. I just try to stick to what I do best.

We have a little more than a month to go in 2011, and there have indeed been plenty of head fakes in both directions at various points throughout the year. Although it sounds, and can most certainly be, boring to say and do, protecting capital has been the far more important discipline to practice this year than growing it. Usually, that means staying in heavy cash and keeping a tight leash on positions.

And that brings me to my next point: The most important and least discussed aspect of trading is bankroll management.

“How do you pay the bills while in heavy cash?” is a question I often see on the Twitter stream from traders who believe they must trade all day, every single day. First and foremost, if you are an active day trader then you are going to, naturally, be more active than I am as a predominant swing trader. Beyond that, though, if you trade full-time then you should have, at the very least, six-to-nine months of living expenses set aside in the event you are trading lightly or are on a nasty losing streak. To state the obvious, unlike other jobs where you are an employee working for a salary or hourly paycheck, in the market you are risking capital each and every time you try to make money.

If you think about it, anyone can label themselves a full-time stock trader. It is only when you deal with the inevitable losses, especially the ones that come quickly and throw you for a loop, that you find out if you are a true professional. In addition to temperament, i.e. not going on tilt, being properly bankrolled is a must if you are going to trade full-time. Not gambling with the rent money is one of those old axioms that will never become obsolete, given how many will be forced to find religion through the school of hard knocks in the market.

There are plenty of talented traders out there who blow up their accounts not because they got outmaneuvered by the guy (or robot) on the other side of their trade, but because they were simply not bankrolled properly and felt compelled to overtrade in poor market conditions to try to “pay the bills.” Well, I have news for you: If you need to trade to pay your electric bill and utilities, then you are in the wrong profession. Being properly bankrolled also gives you the peace of mind that you do not have to, in fact, trade all day, every day. Trading is gambling, although your definition of gambling may differ from mine. The market owes you nothing, and society has exactly zero sympathy for those who have the capital to trade/invest and lose it all (unless you are a giant bank, in which case you can rely on a bailout from Uncle Sam).

If you do not have those six-to-nine months, at a minimum, of money set aside, then no amount of technical or fundamental analysis will keep your back from soon being up against the wall.  In addition, position sizing is an important subset of bankroll management, which I will discuss in another post. In easier, trending markets, mistakes are easily forgiven by Mr. Market. But those markets eventually morph into nastier ones, where there is much more of a premium placed on details and discipline. We all make bad trades and stray from our discipline at times. The key is quickly re-focusing and striving to improve.

However, failing to adhere to bankroll management is worse than a mere blunder in a chess game–It often amounts to leaving your King exposed to get checkmated by the market. And that will ultimately be the take-home lesson for most traders from the market as the year 2011 comes to a close.

 

 

 

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The inherent flaws in our capitalist, mixed economy are similar to that of the American judicial system–While far from perfect, they are the best systems out there and, by and large, work well most of the time. As you will find during every other secular bear market over the past one hundred years, when the going gets tough and the flaws of the system are exposed for all to see, there are serious questions raised as to just how durable capitalism is.

Pure, unbridled capitalism only works when the overwhelming majority and powerful participants have a certain moral backbone. Doing business in good faith sounds like a basic concept, but with the dot-com and debt bubbles we have seen in recent years trust has evaporated like boiling water thrown into below-freezing air. Corrupt, pirate capitalism with no conscience allows the worst of the worst to exploit the system and threatens to bring everything down, even those playing by the rules. Just as Thomas Jefferson often discussed during the founding of America, the motivation to contribute to society and do right by each other needs to come from within individuals and encouraged by those around them, rather than being thrust upon them by the King of England or a central government in general. Beyond that, the increased commingling of government-business interests has further added corruption to and depleted morality from the system. Indeed, government is just as culpable in corrupt capitalism as any institution.

At the end of the day, though, the market wins out, as you cannot fool all of the people all of the time. History says that the market has a few more years, at least, to cleanse the excesses from the system during this secular bear. The fact that the problems we face are becoming more apparent and widely-discussed is a sign of progress, but there is likely much more work to be done. Stocks will fluctuate, as they always do, but my belief is that we have a long ways to go before we have another August of 1982, off-to-the-races-for-a-secular-bull-market moment.

Until that happens, central bankers and politicians can try all they want to keep the ATM machines working and prevent full-scale social unrest. While they may or may not be saving us from the abyss, I am certain that the only thing that can eventually pull us out of the malaise is capitalism…with a conscience, where trust and good faith become more prominent in doing business. And that can only come from within communities, within social circles, within families, and within the individual.

On this Thanksgiving Day, it is a good reminder to recall how the Pilgrims found capitalism in its purest form:

The fall of 1623 marked the end of Plymouth’s debilitating food shortages. For the last two planting seasons, the Pilgrims had grown crops communally–the approach first used at Jamestown and other English settlements. But as the disastrous harvest of the previous fall had shown, something drastic needed to be done to increase the annual yield.

In April, Bradford had decided that each household should be assigned its own plot to cultivate, with the understanding that each family kept whatever it grew. The change in attitude was stunning. Families were now willing to work much harder than they had ever worked before. In previous years, the men had tended the fields while the women tended the children at home. “The women now went willingly into the field,” Bradford wrote, “and took their little ones with them to set corn.” The Pilgrims had stumbled on the power of capitalism. Although the fortunes of the colony still teetered precariously in the years ahead, the inhabitants never again starved.

That passage is from page 165 of Nathaniel Philbrick’s bestselling book, Mayflower: A Story of Courage, Community, and War (New York: Penguin Books, 2007, paperback edition).

I hope you all have a happy, safe, and enjoyable Thanksgiving.

 

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It is no mystery by now that we are back inside that summer trading range on the S&P 500. Even though the shorts are having their way, the nature of being inside a well-established price range is that there remains considerable risk to either direction. By many indicators we are currently oversold. Beyond that, sentiment seems to have turned soundly cautious, if not outright very bearish. All of that means nothing, though, when the bears are able to ride the momentum of a downdraft. As we saw last summer, Mr. Market seems to have a knack for laughing at indicators and sentiment at the most inopportune of times.

My main focus, as it has been for much of 2011, is in largely playing defense and engaging in a hit-and-run trading style, be it to the long or short side. Given the lack of a clear, sustained trend throughout this year, I want to be prepared for anything, and The PPT algorithm is as great a tool for that as any. I am going to hold off on any potential short swing trading ideas at the very least until some of this oversold condition is alleviated via a bounce. Despite how harsh the selling was on Monday morning, the bullish seasonality should not be dismissed just yet.

Hence, here are five long trading ideas. Note that if the bears remain in control of the market then I will take a pass, as at least eight out of ten stocks move with the broad market, and breakout plays tend to fail in bearish overall markets. That said, if the bulls can finally stabilize things and push us back above 1220 on the S&P I am going to look at these standouts.

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