The Day I Lost a Shit-ton of Money, Part I

Exactly, small moves that George Soros wouldn't blink at are the bread and butter of these guys. I think of it like a sea of fish, these guys are almost the smallest tuna out there and they find the food the bigger guys don't want.

FWIW: Whoever allowed you do to that unsupervised is just as guilty as you. Separation of duties and all that.

Guys, you are missing the mark on technical analysis. It's not about forecasting where the prices are going to be, it's about forcing yourself to follow a set of rules instead of following your emotions.

There was an article on HN sometime ago about the practices of some old tribe to choose where to sow the crops for the next year. The practices were totally random, like watching the clouds, where a bird would fly, etc. Well, researchers eventually realized that those practices actually ensured a truly random selection and that was the best strategy. A non random selection, that is any possible bias, could have exposed the tribe to the possibility of a negative bias in selecting terrains and the risk of multiple years of bad crops which would have led to extinction. A random strategy would led to a bad year here and there and offer better chances of survival. But humans cannot make decisions truly randomly so they need a rationale system that helps them make random decisions. We are not that different from computers in this respect, but I am going astray now, so back to topic.

The markets are full of people trading based on their emotions. A stock is going up, greed and fear of missing out kick in and people buy high. A stock is going down, panic and fear of losing kick in and people sell low. People are psychologically wired to make bad decisions in the stock market, they have a negative bias. If you can find a rationale system to follow you will make better decisions than the crowd following their emotions and take their money.

Traders know very well that the first rule in the market is that everything can happen. They also know well that for any chart there are TA "rules" that say buy and other that say sells. They also know that a method will beat the guy with no method.

This at least is my theory, I have never practiced TA but I saw my father throw away tons of money with it and invariably the losses were caused by a few trades where he did not follow his rules but convinced himself to bend them a little. And he preached all the time that following the rules was the only way to win.

You are your worse enemy in the markets.

There are actually ways to beat roulette.

1. Observe the motion of the ball and the wheel between the time they start moving and the time betting is closed, and use physics to calculate where the ball is likely to land. Bet accordingly. This was proven effective in the early '80s [1].

2. Record a lot of outcomes on a given wheel to learn its biases. Bet accordingly. You might think it would be hard to surreptitiously gather all the data you would need, but it is made considerably easier because you do not have to be surreptitious. Casinos love people who are taking notes--99.999% of the time it means that is someone who has some idiotic system that they think will let them beat the house, and casinos want to encourage such people.

There was an episode of the wonderful documentary series "Breaking Vegas" [2] that covered this method, focusing on a family that practiced it. They were making a lot of money until the Las Vegas and Atlantic City casinos banned them. American casinos can ban you for winning too much, even if you are not in any way cheating. They switched to Europe, where the casino regulators prohibited the casinos from banning them without cause, and "winning to much without cheating" is not cause. The casinos tried moving the wheels to different tables to confuse the family, but the family had spent so much time looking at each wheel they could recognize individual wheels be wear patterns and place the appropriate bets. It was pretty cool.

3. My favorite, even though it was flat out cheating. This was also covered on a "Breaking Vegas" episode. Before I explain this cheating method, we need to take a look at an older cheating method that is no longer effective. That was "past posting" or "late betting". In past posting, you place a bet AFTER the outcome of the event you are betting on has been determined. So in roulette that would be placing a bet after the ball has fallen into its final slot.

Of course, that would be hard to do. The risk would be too high that the operator might have noticed that there were no bets on that particular number when betting closed. So what you actually did was modify a winning bet after the fact to make it bigger. You put, say, a stack of 3 of the lowest value chips on a number. If that number loses, you lose those chips. If it wins, the rest of your team distracts the operator, and you swap that stack of 3 low value chips for a stack that consists of 2 low value chips on top and 1 high value chip on the bottom.

There was a guy who was doing a lot of past posting on the roulette tables, back before they had constant recorded closed circuit TV surveillance. The casinos suspected he was doing something to cheat, because he was winning more than they would like (but not enough to get banned), but they couldn't catch what he was doing.

Then surveillance came, and when he would win with a stack of 2 low value and 1 high value chip instead of paying right away they would detain him while they pulled the tape and reviewed it to see if they could see any shenanigans. He had to stop past posting. His career as a roulette cheat seemed over.

And then he had a brilliant idea. Instead of cheating by converting low value winning bets into high value winning bets, why not go the other way? Convert high value losing bets into low value losing bets!

The new plan was to place bets consisting of a high value chip on bottom with some low value chips on top, with the low value chips positioned so that the operator would not see the high value chip. It would look to him like a stack of low value chips.

If their bet lost, they would swap the stack for a stack of all low value chips. If their bet won, they would not touch it, and point out to the operator that there was a high value chip there so they would get the right pay off.

The casinos were, of course, very suspicious. They recognized that they were dealing with a known past poster, so every time he won they pulled the tape...and the tape showed that no one had come near fiddling with the winning bet. The high value chip had been at the bottom of the stack from the moment the bet was placed.

He got away with this for a ridiculous amount of time, with the head of security from one of the major casinos reviewing every win and getting quite frustrated at not being able to catch how the cheat was working. I forget how he finally got caught.

BTW, I highly recommend "Breaking Vegas". They profile some remarkable people, some who cheat, and some who won legitimately. A couple neat examples.

• They have an episode on dice dominators. These are people who, through great practice, can roll the dice at craps with such control and consistency as to get the outcome they want much more often than by chance.

• They have an episode on a man who took up counterfeiting slot machine tokens. The casinos detected this because they were getting high token counts at the end of the day, but they could not tell which tokens were counterfeit. They sent batches back to the manufacturer, and the manufacturer said that all the tokens that were sent were real.

His downfall was interesting. He was playing a slot machine that took something like $25 tokens, and the machine jammed. He moved over to the next machine and continued playing. Security happened to see that on camera, and that made them suspicious. The normal behavior when someone loses a $25 token to a jammed machine is for that person to get mad, and go find casino staff to seek a refund. No one just moves over to the next machine and keeps going--unless that $25 token isn't worth $25 to them. Hence, the guard thought he might be looking at the infamous token counterfeiter. They followed him to the parking lot when he left, and when he opened the trunk of his car that he had boxes full of tokens for all the major casinos.

[1] http://en.wikipedia.org/wiki/The_Eudaemonic_Pie

[2] http://en.wikipedia.org/wiki/Breaking_Vegas