Are the odds in your favor?

How I learned to surf the markets for fun and profit.

Hi friend,

Doesn’t it bother you that the market is so unpredictable?

I mean, I love that it produces so many opportunities for us to invest, but I would also love to find a more stable system, lowering risk so I could invest savings I’m supposed to keep safer.

After becoming a momentum trader, I took two approaches to try to control my sanity.

First, I hired a team to build an app for me that would cut down the time I spent researching and monitoring.

Second, I started studying market cycles.

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Market cycles are based on the theory that history rhymes.

One of the best explanations I have seen for why the economy goes in cycles is by Ray Dalio in this video “How the economic machine works”.

In summary, we humans get overly ambitious when times are good. This throws our system out of balance. Eventually, things are forced to rebalance causing bad times until we pull ourselves together and find a way to get out of the slump.

Somewhere between reading Ray Dalio’s Principles and George Soros’ The Alchemy of Finance, I remembered a tiny anecdotal paragraph from the Rich Dad Poor Dad book that likely would go unnoticed by many.

Robert Kiyosaki was talking about not figuring out the stock market but that it would be viable for people with financial acumen or sophistication.

He then mentions a friend investing on both the upside and the downside using something called Elliott Wave Theory.

When I first read the book I didn’t pay much attention to it, probably I wasn’t ready for the knowledge.

Now that I remembered there was this theory I got curious, since if I could switch between bull and bear market investing more predictably, I would have solved my initial risk issue.

Elliott Wave Theory is based on the observation of Fibonacci-like patterns in certain price graphs. Elliott Wave Analysis consists of counting the waves and identifying the patterns. Once you have the patterns you can evaluate the probability of which patterns will follow.

Fibonacci patterns are observable in nature so I figured it would make sense for humans when we think of the market as a global sentiment gauge and the wisdom of crowds behavioral theories.

For me, this was a true level-up in investing.

Being able to see the Elliott Wave patterns in markets is like having gained x-ray vision into what might happen.

The key thing to understand is “might”.

We cannot know what will happen or exactly when, but we know which developments are highly likely at times.

In a game of probability, we want to look for ways to skew the probabilities in our favor, and I found Elliott Wave Analysis to be extremely helpful when coupled with good execution.

How are you skewing the odds in your favor?

What behaviors are putting the odds against you that you could consider changing?

Good questions for this week.

Have fun and make profits,

Chris

Thank you for reading! :)

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