Secrets of the “Knuckle Curve”


The widely followed S&P 500 futures market hit new highs yesterday after a disastrous start to 2016.

Yet there have been sectors in the market that hardly saw a decline in January.

Sectors like consumer staples (XLP) have been making new highs for two months.

Junk bonds (HYG) have been one of the big stories of 2015 due to low oil prices possibly bankrupting America’s fracking phenomena…and they’ve been chugging along higher, now with a series of higher lows and higher highs.

Country ETFs have been our best holdings in the Atlas Order global ETF strategy.

Both New Zealand and Peru have launched up over 15% in a short period of time.

This isn’t bear market behavior.

Listen: I’m a systematic trader. As such, I NEVER try to predict where any market, stock, ETF, or futures contract will go.

If I did, it would only be an educated guess, whereas some present their guesses as facts.

So how have I been able to outperform the market? How have I been able to get into stocks that have rocketed up shortly after?

Simply by reacting to what they are doing now and in the recent past.

When I was a pitcher in high school, I was known as a strikeout artist.

I averaged 1.5 strikeouts per inning pitched.

No, the majors never called. You see I was a “junk baller.”

A wicked good “knuckle” curveball, and a mediocre fastball doesn’t get you into the big show.

So I would throw a pitch depending on a variety of factors…but nothing influenced my decision as much as the count: how many balls and strikes the batter had against him.

If the count was in my favor (especially 0-2), I would pitch a slow, juicy curveball that would have the batter swing out of his shoes, only to see the bottom fall out and the ball end up in the dirt.

“Strieek ree! Yooooor owwww!”

Translation: Go sit on the bench.

Now did I know that I would strike ‘em out on that particular pitch?

Not at all.

In fact, he could have connected with the ball and sent it straight for my head (which happened more than once), so I better prepare for that right?

Or maybe he’ll hit a slow chopper that pulls the first baseman out of his territory, so I had better to prepared to back him up (or sit on the bench as a consequence).

Odds are that I’ll get a strikeout with a 0-2 count, but it’s not guaranteed.

When I get profitable “0-2” setups in the markets, I know that I’m not always going to make money.

I know that I won’t win every month, just like I knew I wouldn’t win every game.

But if I just keep placing my trades when the odds are in my favor, I’ll very likely have a winning season.

While I can’t guarantee fame, if you can string together a series of winning seasons, you could be as wealthy as just about any baseball player.

You can do that if you stop trying to predict the market, and start thinking in probabilities.

No, I'm not talking about those “made up” probabilities where a talking head says “I give it a 90% chance the S&P will hit 1650 by year end.”

That's code word for “I'm guessing, but I wanted to sound scientific.”

Trade smart,


PS. You can read this post and more on the Trading Blog here >>