Innovative Trading - Day Trading

THE SECRET OF THE GAMBONI

The secret of the Gamboni is the secret of how to survive in the financial markets. Understand it ... really understand it ... and you are on your way to success as a trader, speculator, or investor. So, here it is.

Joe was a card player, a good one. He was so good, in fact, that he had to move from city to city and find games where he wasn’t known in order to play for high stakes. One afternoon, in a bar in the suburbs of Chicago, he’s shooting the breeze with the bartender and asks, “Say, where can I find a good card game around here?”

“What kind of stakes are you talking about?”

“Big,” Joe says, “the biggest game you know about.”

“Well now, I hear there’s a game out in the farm country. It’s a bit of a drive, but these particular farmers play for big money. Let me make a call and see if it’s OK.”

So the bartender makes the call, and then gives Joe directions to the game. That evening, after a long drive, Joe pulls up to this barn in the middle of nowhere. Tentatively, he walks inside, tiptoeing around the fetid piles on the floor. At the back of the barn, he spots a partially open door, with light and smoke pouring through the opening. The familiar rush of anticipation and energy sweeps through him as he enters the room and introduces himself.

Farmers in overalls sit around the table, chewing cigars and puffing their pipes. In a quick glance, Joe estimates the current pot to be about $40,000 - perfect. So he sits down. “Ante up,” says the farmer holding the deck of cards. And Joe begins to play.

About an hour later, Joe is holding is own. He is about even when he draws three aces and two queens - a full house. With a large pot already on the table, he raises $15,000. The next two guys fold, but the leather-faced farmer across the table calls him and raises another $15,000, without so much as batting an eye. Joe, certain that the guy us bluffing, calls the bet and lays down his aces-high full house. The farmer lays down junk: three clubs and two diamonds of mixed numbered cards. Joe, suppressing a smile, starts to rake in the pot. “Wait just a darn minute,” says the farmer, a stern and reprimanding tone in his voice. “Whattaya mean, wait a minute,” says Joe, “you got nothin.”

“Take a look at the sign over your right shoulder,” smiles the farmer.

Joe looks:

THREE CLUBS AND TWO DIAMONDS CONSTITUTE A GAMBONI, THE TOP WINNING HAND IN THIS ESTABLISHMENT.

Joe is really angry, but after all, rules are rules, so he continues to play with what is left of his holdings. About an hour later, he draws three clubs and two diamonds ... a Gamboni! He bets everything, and on the final round of betting with the same leather- faced farmer, he has to throw in his solid gold Rolex to make the call. The farmer turns over his cards, a queen-high spade flush. Joe turns over his Gamboni and starts to rake in the pot.

“Hold it there, fella,” says the farmer, his grin cutting deep lines in his cheeks. “But I got a Gamboni!” cries an exasperated Joe.

“Sure ‘enough, but look at the sign over there,” and he points over Joe’s left shoulder.

Joe looks:

ONLY ONE GAMBONI WILL BE PERMITTED PER NIGHT IN THIS ESTABLISHMENT.

Joe, broke but thankful for the invention of credit cards, leaves the barn with dung on his shoes, and the leather-faced farmer drives his tractor home feeling the weight of a solid gold Rolex on his wrist.

So the secret of the Gamboni is this: if you want to win, you’ve got to know the rules; and also, you can’t win if you’re not at the table.”

Reprinted by permission of J. Wiley & Sons.

Excerpts from Trader Vic - Methods of a Wall Street Master. See enclosed reading list. Any gambler will tell you that to make money you need to keep the odds in your favour, and the same is true in trading, there are no certainties, only probabilities. To win, you need to speculate when the odds are in your favour, so succeed you need to accurately predict and play the odds. You need to know how to place your bets to maximise your profits and keep your losses small. To do this you need a disciplined trading plan. The following rules, if followed, will help you keep the odds in your favour, know and follow the rules and you will succeed. If you break any of the rules you will end up losing money.

“Luck, continued the gambler reflectively, is a might queer thing. All you know about it is it’s bound to change, and it’s finding out when it’s going to change that makes you.” Berte Harte - The Outcasts Of Poker Flat

We stated earlier that when we trade we confront an unstructured environment and, to operate effectively, we need to create a structure for ourselves. The reason we need rules is we need to combat the destructive emotions referred to earlier and give us discipline. Assuming you have educated yourself and developed a trading method, you will now need to execute it with confidence, entering and exiting trades in a consistent manner. Without rules your emotions will dictate your decisions and lead you to financial disaster.