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Spread
Scan Issue: January 3, 2006 - Volume 125
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Joe Ross Spread Trading Newsletter.Each week we present spread trading examples and opportunities in order to help you become a more professional spread trader.
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Dear Spread Scan Subscriber:
Our Team at Trading Educators is offically on vacation from December 15, 2006 through January 15, 2007.
We are continuing sending out Spread Scan. However, we will not include a Spread Commentary or Previous Spread Trades in our issues # 123, 124, and 125. We will start writing the Spread Trading Commentary officially again in issue 126, on January 10, 2007.We hope you will continue your subscription with us.
Thank you for your understanding.Your Team at Trading Educators
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"Hey Joe! I’m a pretty good poker player. Can the way I’ve learned to think playing cards be applied to trading the markets?"
Well, let’s see! Let’s say that in seven card stud, a man bets the $50 limit into my hand which consists of two pair, but none exposed. He has four hearts showing, and from what I am holding I know it could not become a straight flush. The odds of my hand making a full house on the seventh card and beating his heart flush, is 10%. Do I fold my hand?
The correct procedure is to count all the money in the pot. If by putting $50 into the pot I could potentially reap a reward greater than $450, 9 to 1 or 10% odds, I should call the bet. Let’s say there is $680 in the pot. I should call the bet. This actually happened to a friend of mine, and he filled the hand and won the pot.
If soybeans trade four cents below the open, they should close below the mid-range about 80% of the time. Trading this method on a day after the 80% probability fails increases those odds slightly.
So, yes! Just as a poker player knows the odds of filling an inside straight, a trader should know the odds of winning in a variety of trading situations. Keep the odds on your side. You will not win every time, but you will consistently win. Over 80% of the time, the e-mini S&P will do what after they open? Do you know? You should! I know, but you need to find out. You need to find out what happens in any market if it gaps open. Hint: it will not be the same for every market. You need to find out how far prices will move most of time when something that is repetitive happens in any market. This is one approach you should be taking when you trade: what happens when such and such occurs; how often it happens; and finally, how much do prices move when the event does happen!
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads is complex and carries a high degree of risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders!