Wednesday, February 6, 2008

"Read your way to profits?" -- IFCN Wk 9 -Wed- Equity: $508.27

Yesterday a subscriber emailed me asking if there were any other books I recommend to read that might help improve the mindset of a trader.


One I heartily recommend is "The Black Swan" by Nassim Taleb. If any of you have read his earlier work, "Fooled by Randomness", you will be prepared for his unorthodox style for relaying ideas that are not common to a typical education. (Note: I urge any individual that thinks they are ready to trade as a career to read "Fooled by Randomness" before taking another trade.)

In fact, I won't do any personal consulting unless the other party has already read Fooled by Randomness.  You need to be able to think from a different point of view if you expect to profit from markets chock full of emotion and cross-information.

I really like Nassim Taleb. I definitely don't agree with everything he says, but I understand why he is trumpeting his views.

I have traded through the same time period as Nassim. We trade with similar utility functions, in that we primarily profit from outliers. It is a terribly difficult way to profit, but the benefit is you get to understand the true nature of the human race the way it truly is, a jungle.

As traders, we need to make sure to not be the prey.

When Taleb writes, he is often irritating. It is a device to make people think. Thinking is hard, and he knows that. But crucial.

Does he agree with many of the standards of measure that dictate "business as usual" in today's commerce? No, very few. Because he believes, and proves, that the normal limits that business and typical education instill on the rest of society are limits that you likely can't afford.

For example:
A belief that works just fine 99% of the time but might only be incorrect just once in your lifetime better not be one that can cripple you financially when you are 68 and can't recover. Or even the current generation of your neighbors at the same time.

Thanks to Nassim Taleb's The Black Swan, there is clear indication and warning that the world's foundations of thought, money and finance are not built on reality, but a form of "reality" that benefits a narrow slice of recipients.

For traders, this correct way of thinking enables you to see the edges that are automatic due to "normal" human thinking.

He does believe in 2 plus 2 equalling 4. He gives clear evidence that there is too much reliance on "what everyone takes for granted" structures which can evaporate overnight when it doesn't work for the "powers that be".

Far from being a conspiracy promoter, Black Swan exposes the culprit that makes one feel overwhelmed or victimised by unexpected events to be OUR unwillingness to accept the fact that life isn't a risk-free gesture and YOU have the responsibility to think for yourself. Or risk potentially dire consequences.

For all traders and those who have acquired or plan on acquiring something that they don't intend to lose.

Definitely not for socialists or liberals.

On to the Alpha account--

We entered, got stopped out of the FirstStrike trades in gbp/jpy, usd/jpy, gbp/usd for 60 pips each.

The current Alpha account balance is at $508.27. I am still in the following FirstStrike trades: short Eur/Usd and long Usd/Chf.

Eud/Usd: short@ 1.4763, stop 1.4823.
Usd/Chf:    long@ 1.0946, stop 1.0886.

In my personal trading account I shorted a bunch of Eur/Usd @ 1.4805, covering half of it around 1.4650, and still holding the rest at a breakeven stop. The narrow 60 pip range from Feb. 1 through Feb. 4 and breakdown early Feb. 5 forced me to lever up the trade a bit.   (I only had a 20 pip risk)-- which was rewarded, thank you very much. I can live a little this week, maybe take the gang out for a beer this weekend.   : )    (Couple more trades like this and I could take the rest of the year off. But, then what would I do?)

Waiting is the real job of a trader. One of these days we will see some really big moves.

Until tomorrow---

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: and tell me to which address you would like it sent.

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