Poker Edge - Pocket Pairs be His Downfall

I’m going to share with you one situation I identify as a positive expectation in many lower stake poker games. I’ll explain why it works, how I do the math, and how I play it.

First, what is a positive expectation? (If you’re sure you understand this, skip the paragraph). If something has a positive expectation, it basically means that if you employ the tactic, you have an edge. For example, say you have pocket aces and someone is willing to call all-in no matter what. While you won’t win every time, you will win far more frequently than the other person. Your expectation is positive.

Now, what is this situation I’m going to disclose? It begins with the fact that many people at the lower stakes are unwilling to fold aces, kings, queen, or jacks; and, not only that, but they will do nearly anything to play the hand. Because they do not want everyone to fold to them (who doesn’t hate getting aces, only to have no one to go up against?), they are willing to let you play for cheap. So, while your J8o has terrible chances against pocket aces, you’re only putting in the little blind. What you are doing is paying a big blind for a chance to win the other person’s entire stack.

Let me repeat myself. You are paying a big blind (or whatever meager amount they are charging you) for a chance to win their entire stack! Now, you may be scratching your head: “what do you mean?” Well, at the lower stakes, most people are unwilling to throw away a high pocket pair, especially aces. So if you hit something on the flop that overtakes the pocket aces, you’re gold. Even if you have to wait until the turn or river, the other player often won’t bet hard into you for fear of having you fold against their “monster.”

Let’s do the math. Say it takes you 30 times calling this guy to get something decent on the flop. You hit your winner, and he is going to pay out his entire stack, say 100 big blinds. So you pay 30 big blinds, and you win 100 big blinds. Or, you profit by 70 big blinds. I haven’t done all of the math, mostly because the players at the lower levels typically give me enough change to be somewhat sloppy, but I’m pretty sure this is a positive edge.

I like playing against tight scared (non-aggressive) players. I have a good idea of what they hold and they aren’t going to make me pay to see cards. Plus, they are willing to pay me once I have something. If you're one of those guys who will never fold jacks, queens, kings or aces, you may want to watch out.

Anyway, there are plenty of ways to increase your odds at the poker tables. This is one, but there are many more.

Cheers!

Reverse

6:44am No setups triggered this morning for my new strategy. I need to look into reverse fades and typical ranges so that I can trade more days using a similar system.

 Fell asleep. No trades. More research!

08-29-2012 (Late post)

6:37 Gap data kept me out of a few bad trades. Didn’t put me in any good ones. Money saved is good. Glad I got out of AAPL yesterday, I’d be in a world of hurt today. Also, had to move some of my stuff…my computer setup isn’t exactly how I like it. Going to be fiddling with that a little this morning. Watching AAPL, looking at technical data across the board, trying to find good entries, and reconfiguring my computer setup.

6:40 I think I’m going to expand my gap data to cover every symbol I have in my database. Will give me extra edge across the board.

12:05 Haven’t had internet on this computer most of the day. Just covered my GOOG short a second too early. Fuck. Lowered my morning loss marginally…

Okay. Going to test AAPL and AMZN. If I only faded their gaps, based on best stats, what kind of return would I receive? How to go about calculating it?

I want max return (including overshot). Return given just closing at end of day.

Which day is preferred? 

(analysis is removed because I can't just give away my work!!! :D)

Next day:

Something interesting happened this morning. AAPL(0,0,2010) occurred (date arbitrary). And it was a terrible failure for fades.  Of course, it says there’s a 50% chance of filling, but what is the chance for profit? I’m guessing lower…

I’m thinking I may be able to profit better off of ES for day trades. But keep analyzing AAPL, OXY, AMZN openings…now for some AMZN try prev_day = 0, type = 0 (~), 1,4 and prev_day = 1, type = 1,2

12:05 Just took a quick trade long in AAPL. Good job. I’m normally terrible at long trades (I grew up in 2008, shorting everything). A nice W setup with some increasing volume. I sold maybe a little too early, but my entry wasn’t the best, so my odds felt skewed. Nice little positive though.

12:48 Glad I didn’t stick around in it. Wasn’t planning on doing it, because the day has been down, but grabbing for extra chips can be tempting. Putting together my overall strategy, the gap one, which will be sparsely traded (only so many days it will work on), and working on more strategies to fill up the time and increase the account size.

So now, let’s combine all this data together, look at drawdowns and whether a full position should be added right at the open, or if some drawdown should be expected, etc. Also look for overlaps, and which position should be taken or if it should be mixed (half and half, or some other mixture…etc).

Moving Stuff

Been moving things and the computer with my database and journal on it has not had internet connectivity. I didn't trade much today, anyway. I'll post some more stuff as I get situated.

Continued...Down day. Lessons learned.

(this is a continuation of the day started in the previous post...)

8:04 I wouldn’t mind taking another AAPL short on a decent pullback.

8:07 not a terrible exit on AAPL. I still probably could’ve gotten my original limit order. But not terrible.

8:10 I noticed a triangle on AAPL earlier. Reminds me of one I saw on the SPY last week, or so. I want to figure out a way to do a backtest on triangles…

8:22 I should’ve taken that run back up to ~672. Reading some books I got yesterday. Hmmm. Don’t FIZZ out just yet!

8:37 Entered another short. May be a little early. Not looking for a huge gain, unless things get really weak. Seems like AAPL strengthened a bit. Which isn’t good, but I’m in at the pop.

8:40 if you need certainty, you don’t want to be a speculator.

8:45 Argh. AAPL just doesn’t want to give it back that fast. Come on. Not asking for much…now we’re getting volume on the up thrusts. Guess you can’t pick tops and bottoms. Wish I had more capital to play these swings. Someday!

8:56 I’m getting thrusted into the ground. If it weren’t for earlier profits I’d been feeling way more pain. Looking for releases. Gotta remember, AAPL is a strong puppy.

9:17 put on a quick counter short for a scalp. Made some. I’ll probably scalp a little more. Hoping this breaks down, but not sure.

9:21 they’ve got us shorts under pressure. Again, account capital not great enough to take on a solid counter-trend position. But I’ve been down more than this in the morning. Hoping this is to appease the longs, get them to buy into it and then dump a little more. We’ll see…

9:26 crazed longs. I’m worried we’re seeing an upthrust.

9:31 could get a bit of a retracement in here. Enough? Or just more fodder?

9:33 I’m reading through some Niederhoffer and Stock Almanac. Theme? Self-reliance, and statistics.

9:47 was doing well. TICK came and smacked me in the face. We’ll see if this mini downtrend can continue…

9:50 setting up the database to do some intraday analysis on AAPL. I need better stats on this behemoth.

9:53 setting up for a double toppish sort of thing???

9:57 need to focus on small aspect. As profit comes in, I can expand.

10:08 Huge downticks. AAPL held, but it’s crumbling a bit. Updating all my intraday data…

10:19 Closer. Still a little till b/e. Then to profit? Got my intraday data updated. Now to look into AAPL  data.

10:28 Needs to drop about a dollar before I get my ideal fill. Not sure how it’ll go. Watching…

10:40 made a slight mistake on a backtest that gave an amazing number. Always doubt the extremely amazing, at least give it a second, third, fourth run…

10:43 Seems there’s a slight tendency (55%) of further downward movement after a movement 3 times the standard deviation from the norm downward on AAPL. (this only goes back to 7/17/2012)

10:51 seems like there’s a slight chance (53%) chance of negative movement after a positive 3 stdev move. Not the kind of stats you really want to base anything off of…especially without associated profit numbers. Guess you want profit numbers no matter what the likelihood of a downturn are. Haha. Unless its 100%.

11:15 Doing some analysis. But this market is really grinding me down.

11:25 Feel as though my odds are getting lower and lower as the day rolls on.

12:24 Days like this just kill me.

12:45 Closed out for a loss. Down on the day. Bummer, but I don’t want to hold overnight.

Terribly day on trust in my stats. Bad day on execution. I managed to limit downside. Loss about a dollar on AAPL. Not terrible, but I should’ve been positive! Especially seeing the SPY and SLB gap. Lots to learn. Lots to do. Working on a better backtesting system right now. I’ll be up at 6 tomorrow.

Early and somewhat stressful...but decent

6:44 Should’ve taken the long SPY/ES, I’m thinking ES is the better deal now. I entered my AAPL short a bit too soon…fuck. I’m going to have to hold that into some red. Gotta hold off for a second.

6:45 Practiced some meditation last night. I’ve done it many times before, but haven’t really hit the “resonance” point like I did last night. Really nice feeling. I’m hoping it pays off.

6:46 Just hit that AAPL trade at the absolutely wrong time…stalling out the red. So that’s good. I’m looking for an eventual gap fill, or partial retracement of yesterday’s break up.

6:49 this could run against me hard…fuck. Good to get my thoughts down on ‘paper’…

6:51 I’m still in the red. But thinking of taking profit when I can. Watching TICKs; hit -550ish. I was hoping AAPL’s early weaknes would’ve extended more.

6:52 On a side note. The gap on the SPY did close. I should’ve gotten some green there. Oh well…

6:53 yeah I got in at almost the worst point possible this morning. Damn. It’s coming back, but I’m not sure how far. Looks like some negative sentiment in SPY. Hmm.

6:56 watching to see if any buying is coming in. Looks small if any. Might drop below my entry, especially with the SPY crapping out here…

6:57 Damnit. Huge down in the SPY but not in AAPL. Hmm. I am glad to not see huge amounts of buying. But I don’t like this strength. To be expected in AAPL?

6:59 Might just be the consumer confidence number? Hmm. Should be released. Now?

7:00 Come on AAPL. Don’t you want to follow? Definitely not strong. But not terribly weak either…

7:01 Reminds me. ANTICIPATE. Always anticipate. Makes for better trading than reacting. VIX shot up. Good sign for us shorts, albeit AAPL is acting strong than the index.

7:06 I don’t know if it’s a fake or not on the SPY. Huge volume in. Doji candle. But not looking good? Oh, there it kinda goes…hmm.

7:08 It’s really hard to separate when you have a position like this on. Holding it…

7:11 Guess I need to give the market some time to form. Still not looking terribly good on the SPY, but could be gathering strength.

7:13 will SPY get knocked down or strengthen up? That’s the question…

7:14 SLB is moving up toward its previous close. Gap close? My stats said a decent chance. I need to get some stats on drawdowns and continuation moves…would’ve given me more confidence. Plus I need strategies to get out. Otherwise I will definitely get frustrated by a single loss even if it works overall.

7:17 New study? Intraday retracements on AAPL? I want to find even more edge in this stock. I like its size and feel (despite my current red). I want to get better!!!

7:18 Hoping the SPY sputters here…

7:22 Was just thinking, it’d also be good if the SPY went up and AAPL didn’t move or went down. Hah.

7:24 GOOG gap is filling from the Samsung trial. Wish I took that instead of AAPL. Goddamnit. Of course, it could happen for AAPL too..i’m thinking AAPL faired a tad better. Still, not in too much red/pain.

7:29 SLB closed and then backed off.

7:33 Intermediate top in SPY? In poker I always have to watch it when I overthink my hand. Anyway, glad AAPL didn’t follow the market. Might get some pullbacbk in here…

7:36 got my limit buys in. Of course, that might just be optimistic (delusional?) thinking. I still think th strategy is okay. I want to go for a jog around the block…get these juices moving again. Might just do that. And grab some tea…

7:39 Ugh SPY. I need a walk.

7:56 Short walk. Some coffee. Looks like AAPL is about breakeven. Given SPY’s advance and its fall/stall, I’m holding it for at least a little more. I know when it’s positive I’m going to have trouble holding off. But let’s see how this plays out. Turning on some faster music to keep my mind from being understimulated (Music theory from yesterday).

8:00 Took the profit. Nice though J This will likely continue. And as I figured. I would be slightly frustrated with my early profit. But take it! Decent readcs on the market. Bleh exsecutions. You have five hours left. Take a breather. Look around. Enjoy the coffee.

continued in next post...

Trying the Journal

Sorry for the late post. I saved this on my desktop at home. Just getting home. Posting...

(Note: Since I’m on the west coast, all times PST)

Need to stay problem/solution focused.

What has worked? Research, practice, backtesting. Studying. Taking some reasonable risk.

7:41 took a trade in apple. Half size. Very quick, small plus. But good to get in the game. My sense was correct. Still watching it.

I think that, for me, getting into the market—for better or worse—pumps me up and gets me thinking.

8:00ish passed up on a GOOG trade. Spread seemed large (probably standard), caught me a little off guard. Good setup and would’ve been nice trade…good job on seeing it form. Terrible job at taking the odds.

Idea: emotional regulation by music.

9:30 probably should’ve waited. Bought some GOOG. Going to see if I can get another push up on it…

9:40 GOOG spread is so fucking wide it kinda freaks me out…plus the market isn’t moving as well as I’d like.

9:43 Finally small positive. Not sure if this is going to last on GOOG. But I don’t want to short change myself…hmm.

9:46 I think GOOG definitely has the potential to go higher. Taking my gain, because there’s just no volume. Makes me a little nervous. But I’ll keep my eye on it.

9:47 Yeah. A slight pullback. Might get going again, but I got out at a decent position.

Also, I have some ITW on from earlier. Nothing large. Down negligibly. A Stewie suggestion. Could give me a few bucks over the next day.

Thinking of grabbing some soy milk for breakfast and a yerba mate…The short walk to the store might do my heart some good.

9:51 Good short term call on GOOG. Getting shoes on. Heading to the store.

10:18 Long walk. One store closed. But I’m back. Closed my ITW. Although it is putting in somewhat of a bottom, I guess. I just don’t like these tiny stocks. Canceled out my small AAPL gain this morning. Still up for the day. GOOG is pushing back up again. AAPL too.

Note: I feel as though AAPL is better money than GOOG, but entirely sure. Small test: check average spread throughout the day.

10:24 Yeah. ITW popped back up. Haha. Maybe I’ll get a hang of these smaller stocks someday. Right now, I think I’ll stick with more liquid ones.

10:34 made some hot cereal. I keep checking back on ITW. Gotta stay away from those. Wasting my time! Driving me crazy!

10:42 Huge  approx -920 $TICK reading. I had to check ITW. Got slammed a bit. I’m happy. Haha. This emotional swinging is why I should stay away from these little guys! Despite my wishes, I’ll probably look at it at least 10 more times before the end of the day…

~10:50 a little early on my SPY short. Or a little late, as I didn’t catch the last bit of drop. Wanted to see if we would head a little lower. Small position and small loss. Negligible. But testing waters. I guess.

11:03 took a small loss. Just not worth the uncertainty. Now I feel as though I’m going to check back and forth comparing my exit price to the current price throughout the day! Not again. I gotta cut it off and start anew. Leave old trades in the past, more or less.

11:09 Tempting to hit something. Taking a step back for a sec.

11:17 There’s my leg down in the SPY! Just had to give it a chance. Probably jumped the gun on entering too…

11:22 Canceled my subscription to Stewie. I love his trading chatroom and his trading history is really good. I just don’t think small stocks fit my personality very well…Plus, at the moment $50/month, though cheap, is a bit too much, especially considering all the other sources and research I have and do…wish I could find a decent trading room, though. When I’m a little more successful, I may join back just for the trading room. Nice having a social outlet throughout the day.

11:37 Tempted to call it a day. Still another hour and a half of trading left.

11:47 quick scalp in Apple. Misread p/l and got out a little early, I think. Anyway, up for the day. Calling it quits :D Holding onto profit and giving myself a rest. I’ll do some research later.

Don Miller and the Comeback Mindset

I used to read Don Miller's Trading Journal regularly. It kept me going in a way that Fear and Greed Trader kept me going, albeit in a slightly more personal manner. His struggles and triumphs were made public and, most importantly, showed that such a trading endeavor as he undertook could be accomplished. In any case, I've begun reading through his journal entries, start to finish, in an attempt to further strengthen my own goals and self-driven trading course. 

I'll probably be making many connections between my own trading adventure and his (and others', but his is definitely a well thought out, extensive and well developed journal). Right now I am trying to determine what drives me forward. Don Miller posted a "Cornerstone" post in which he discusses how he can become sloppy when ahead. I have experienced this as well, especially in my poker playing. I want more growth--faster, especially after a couple good sessions. My equity subsequently drops because I push too hard and take unprofitable and slightly profitable hands/positions and place too much money behind them. I typically lose money, and enter a stage of withdrawal. Luckily, when I do come back to playing poker, I play better than ever. I would like to avoid the cycle, if possible.

In regards to trading, I experience something similar to Don. Losses pump me up and sharpen my mind. I have had some days where I started out at an unfortunately large loss, only to make it back and more. If I were to not have had that loss, many of these days would rank among my best.

I'd like to implement a similar strategy to Don's. Something to keep my mind sharp and my trading disciplined. I'm going to play around with the equity curve idea and see what works best for me.

Enter?

"If you are holding a position that you would never open as a new order, there's a good chance you are holding more for psychological reasons than logical ones."

- Brett Steenbarger, "The Pyschology of Trading"

This is one thing I do well. I tend to ask myself this constantly before, while and, even, right after I am in a position.

On my goals

I posted yesterday that I wanted to "finish making a viable gap system". While not 100% complete, I have made significant progress. I posted some numbers on Gödel's Market in relation to the SPY, but I have run the tests for the top 50 on the S&P500 and have it set up to run for any stock I want to test.

I'm excited.

I still need to run profit, date, drawdown, over-extension (past the gap) and other analyses, but this is a step in the right direction. Hell, with a little work, I don't see why this can't be the start of the simple "automated trading" program I wanted to write. I wouldn't let it run on its own with real money, at least not yet. But, it would be a nice project. And some day...

SPX, BPSPX

I find it interesting that the BPSPX hasn't caught up to previous highs. Wish I had more data (back to 2000, perhaps), but it may suggest this is not a top.

Alerts

I need to set targets and notifications on stocks so that I don't get hooked to watching the markets all day. A chart here or there is okay, but too many detracts too much. I need the time for more research.

I tried using IB's alert system today. I'll set it up with my watchlist from now on. It gives me the heads up faster than visually scanning a list of tickers/charts.

Some Goals

1) Finish making a viable "gap" trading system.
2) Create viewer for gap days through Python (drop down list of gaps with graph shown when selected)
3) Better automate historical data download from IB
4) Download options data on at least SPY and top 50 (or so) S&P500 stocks at various strikes
5) Read Quantifiable Edges' daily newsletter every evening
6) Keep up with Stewie's trading suggestions every day

7) Make a trading plan for every day.
8) Make a simple computerized trading algorithm with python. Nothing complex, just a prototype.

Notes: After working more on the gap stats that I posted to Godel's Market a while ago, I decided to do some research. The Gap Guy does a lot of gap trading, and reading through some of his posts and his book has given me a few additional ideas for filters. I'm still a ways from something solid, but I'm definitely strengthening my system.

Trading Journal

This is going to be my trading journal. I also write http://godelsmarket.blogspot.com, but that is less personal and goal-oriented than I hope to make this blog.

Right now I'm reading through some TraderFeed posts (like this one) to help me format a successful journal. I have been trading since 2008, have written blogs, have done analysis, and have worked for a hedge fund in San Francisco. My undergraduate degree is in Mathematics from UC Berkeley, and I have some background in computer programming, albeit mostly as a hobbyest.

This journal is my greatest step forward--a step from rugged amateur to professional.

Professionalism is my goal.

As for the title, I'm not looking for guaranteed wins, or riskless gains. I'm looking for situations that provide me with positive expectation, a la the mathematical concept. There are many ways to go about deriving the likelihood of positive expectation existing among any specific trade. I use computer programs such as MySQL, Python, Excel, and others to aid in building quantitative data-driven positive-expectations.

In addition to these quantitative analyses, I also have extensive experience trading individual stocks and indices. While I cannot explain every trade I take, I often notice positive edges emerge throughout the day. They tend to be on smaller term time frames, but occasionally occur extra-day. I also take trades like these, because my experience has shown that such internalized edges provide positive expectation.

Last but most important. I am looking to survive. I take risk very seriously and do whatever possible to minimize risk when situations change, my edge diminishes, or is even lost. It is easier to lose a dollar than make a dollar. And it is easier to make dollars the more dollars you have. I aim to balance risk wisely, so as not to make my trading ventures any more difficult than they have to be.

Thank you for reading.