Sorry for the lack of a post last night, as the flu has started to run rampant in my house. I would like to take this opportunity to thank everyone who reads the blog and especially those that take the time to comment. I hope I am helping other traders with the blog, and keeping it a bit entertaining as well. If there is anything any readers feel would add to the blog, or any topics you want me to touch on, please feel free to make suggestions in the comments section

I hope everyone enjoys a wonderful Thanksgiving.


DT

Whether fairly, or unfairly, trading gets compared to gambling all the time. I think there are more similarities then most traders care to admit, as gambling has been made illegal by hypocritical governments who then sponsor lotteries, while Wall Street is revered as a place where an honest Joe can become rich by investing his hard earned money. Let's look at some similarities:

• Both deal in probabilities and on exploiting a mathematical edge over the long term.
• Both have periods where luck will override statistical probability.
• Both reward a small group while exploiting the masses.
• While odds are fixed in gambling depending on the game being played, and odds vary greatly depending on the market environment, both allow you to manage your betting to when the odds are in your favor.

I was reading through the comments on a great Trader-X post and I found it interesting how one of his readers compared the markets to the "house" and that the more hands you played, the more you would tilt the odds towards the house. I have a different view on who the house is in trading.

I think too many traders think of themselves as trading against the "markets". In reality, for every trade you make, there is another person betting that you are wrong. The exchanges are there to facilitate the trade, you are not trading against them. And although the majority of volume comes from institutions, there are still market makers and specialists who are human that manage each specific trade. So who is the house? In Gambling, the house is the Casino who is exploiting a statistical edge in order to make money in the long run. In trading, the house is the trader who is trading a system with a proven positive expectancy. In both, the house understands that they will experience times of loss, but that in the long run the odds will be in their favor. There are many different "houses" in trading, but you can guarantee that they have the odds in their favor.


So who is the gambler? The gambler is the person who bets without an edge, plain and simple. The gambler will win on enough trades to keep them coming back, but in the long run, the gambler will part with his money whether it's at a Casino or on E-Trade.

Another point was discussed limiting trading frequency. It is an interesting subject because there is a fine line between exploiting your edge, and over trading. In theory, when there is a statistical edge, it should be used as often as possible in order to have the luck factor neutralized. However, in trading, one has to be careful that taking too many setups results in taking mediocre or substandard trades, thereby reducing the expectancy of your system. However, if a system is traded faithfully there really shouldn't be any reason to limit the trades taken unless there are money management reasons for it.

Next time you take a trade, think about who would be on the other side of the trade and why they think you are wrong. Who is the house and who is the gambler?

Not much changed today in the indices as it was a low volume and trendless day. Here are a couple more charts I added to the watchlist.

Cerner Corporation (Public, NASDAQ:CERN)
CERN is coming back to test the breakout area and may bounce off the 20 sma here.


Freddie Mac (Public, NYSE:FRE)
FRE has given back the "Democrats take the house" rally gains but may be getting ready to bounce back higher. It is starting to become short term oversold, yet remains close to the recent highs.

Good Luck,

DT

I had a really hard time finding any interesting setups this weekend. With the indices up 6 and 7 days in a row, and overbought, I am not really interested in buying too much. With a short week ahead, I tried to look for some shorts, but couldn't find much there either. It looked like specialty retail was weak, but I didn't like any of the individual setups there. Some of the homebuilders are overbought already, but should find some support from traders worried they missed the bottom. All in all it looks like a good time for a vacation. Here are a few of the setups I found worthwhile.

CV Therapeutics, Inc. (Public, NASDAQ:CVTX)
CVTX continues to drift down and consolidate. I am waiting for a high volume day to give the signal that a move is coming.


Amgen, Inc. (Public, NASDAQ:AMGN)
AMGN dipped under the current channel and snapped back a bit. Volume increased near the lower channel which may show some accumulation.


AMREP Corporation (Public, NYSE:AXR)
Call me crazy, but it looks like AXR is ripe for profit taking. It has had a huge move over the past four months and is oversold and showing signs of weakness. Look at divergences in indicators, two bearish harami's over the upper band, and in an overbought market.


DXP Enterprises, Inc. (Public, NASDAQ:DXPE)
DXPE is a good example of how I look for previous candle patterns as support. Look at how three previous candles may be giving us a clue that support is coming.


OMNI Energy Services Corp. (Public, NASDAQ:OMNI)
If oil rebounds after the shellacking it got at the end of the week, then OMNI may make a nice move.

I can't remember the last time I had this few stocks on the watchlist, but if ever there was an unclear picture, it is now. While I expect some weakness this week, it probably won't be easy to trade it. Good Luck,



DT