Jeopardy! is a game show where three contestents compete in
providing the question to answers under topic headings. Since you need to answer with a question,
you need to form your response in the form of a question like “Who is Alex
Trebek?” That would be in response
to “He hosts the long running game show where contestants answer in the
form of a question”.
“Who is James Holzhauer?”, would be the response to the answer
“He is on pace to becoming the highest earner in Jeopardy! history”
The last 10 days on
the show has seen a professional sports gambler named James Holzhauer race
through the games without much competition.
His 10 day total winnings are $697,787 or $69,778.70 per day. That pace
is more than double the all-time record holders average. That record holder won 74 consecutive days
and amassed $2.52M over that period.
That comes to $32,054 per day
If Holzhauer were to
go 74 days without losing, he would win $5.16M. Judging from his results to date, it may
become his full time job for the entire year.
He is without competition. No one
In Jeopardy!, the
subject categories are broad in topic like “Shakespearean Plays”.
They could also have clever/fun topics. For examples, the
category heading might by “All my Ex-es” and the contestants will be
told that the answer all start with letters “Ex”. There are categories that suit the contestants skill, and
other that don’t.
There are two rounds with round 1 having values for correct answers from $200
to $1000 or $15,000 in total on the board.
Round 2 has values from $400 to $2000 or $24,000.
If a contestant were to answer every question correctly, he would win
$39,000. So how can Holzhauer haul in
$69,778.70 per show so far?
The cumulative totals can be leveraged higher
as there is one Double Jeopardy question in game one and two Double Jeopardy
questions in game 2 (three in total). Those questions allow the contestant –
who is in charge of the board (i.e. answered the last question correctly) – to
wager up to his current winnings. So if
the contestant has $5000, he/she can in effect wager $5000 (and double his/her
The game ends with
Final Jeopardy question – another leverage opportunity - where the contestants can wager all or part
of their total winnings (again on a determined topic).
To win the game, you need to have broad
knowledge on many topics. You also
need to be ready to press a button with
your thumb, on a hand held devise as soon as Alex Trebek finishes reading the question, and do that ahead of
the competition (i.e, you need to anticipate and react).
Oh, you also have to
hope you are right as a correct answer is rewarded with a dollar value, but a
wrong answer leads to a negative value. The higher the value, the higher the
dollar risk. Finally, it does help to utilize leverage opportunities.
Since getting hooked on the show this last week, I started to think if traders/trading relates to contestants/the Jeopardy! game?
through some key similariities from the two. Hopefully it will help you up your game.
outline a game plan for traders. That game plan is to trade trends and keep fear to a
Trends are where the most
money is made and lost. It is essential that you stay on the right side of
a trend. Don’t do it and you lose
money…fast. Look back on your
biggest losses and I guarantee it was because you traded against the
Jeopardy!, the trend is knocking it out of the park in category topics that you
know. I am not great in “Famous
Play Writes” but “Masters Champions” or “Technical
Analysis”, would be topics I would ride the trend with lots of
trading you define your risk, and limit your risk using technical tools. A trend line or 100 day MA are implicit
“lines in the sand” that say bullish above, and bearish below. If you know that line is your risk line, and
you look to limit your risk by trading near it, then do the final step of
accepting the risk in your mind. Once you accept the risk, your fear should disappear.
Because you are doing that process, and your risk is limited, you
have a greater chance to “make more than your risk”. All of which, should lower
Jeopardy!, the most successful players, like James, are defining, and
limiting risk on each question read (“Do
I answer it or not?”), and also accepting that risk every time the button is
pressed (i.e. I am 80% sure but I accept that risk of loss).
A statistical fact from James Holzhauer’s
performance to date (CLICK
HERE for interesting game facts and comparison to another super contestant), shows he has answered 341 questions correctly with 13 incorrect
That is incredible win/loss
percentage, and it does come with outright knowledge, but you can understand why
he is so fearless. He has defined and limited his risk, and accepts the risk by pressing the button.
You can’t be successful in trading
without knowledge, nor the desire to learn.
One of the more frustrating things I
hear from traders is how they lost money buying some signal provider. A signal provider is NOT knowledge. They tend to be the opposite of knowledge. You
need to learn to fish for yourself.
At Forexlive, we all try to teach, coach, and mentor, with not only
timely information but trading knowledge.
I could tell you to sell the EURUSD on a
break of the 1.1282-84 area, but I also show you the chart that has the
200 hour MA and a swing area converged at that area. Hence a break would shift the bias to
the downside. The price should go lower. I post everyday about the same stuff, and show the same stuff too.
One of the things that James Holzhauer said on one of the shows when asked how he prepared, was the he studied topics that he was most uncomfortable with. He is already incredibly smart, but he had a desire to make himself better in things he was not good at.
Now he also said that there is a limit to knowledge. You can’t learn it all. There is stuff that borders on the absurd in knowing. For example, knowing all the Canadian birds in existence would be a waste of time, but knowing the Loon reside in every province and territory and is on the dollar coin, would be something too know.
In trading, if you know too much, you can lose track of the obvious that is going to allow you to win the game.
Know what you need to know in trading to win the game and know it well.
3. Practice. Practice. Practice.
In trading, the longer you do it, the better you become. You learn when to trade. For example
- You learn that Friday’s can be the worst of the times to trade, while Tuesday’s to Thursday’s can be great times.
- You learn to understand non-trending markets and how to trade them.
- You learn how to recognize and trade trending markets.
- You understand how to target and what reaching a target, allows you to do with your stop.
- You learn to respect failures.
- You learn when to trade bigger (leverage up) or when to trade smaller (or not at all).
As you start to trade, you haven’t done enough practice. You have not been punched in the gut, made all the mistakes, learned from your mistakes.
It is not good enough to read Romeo and Juliet, it is to know by repetition the families are the Montagues and the Capulets, and that Hamlet caused the deaths of Polonius, Laertes, Claudius, and two acquaintances of his from the University of Wittenberg, Rosencrantz and Guildenstern.
In Jeopardy!, if you know Presidents and State Capitals and Shakespeare, and the most famous movie lines, you see things more clearly as well.
Practice. Practice. Practice.
In trading you need to anticipate.
In the hourly chart from above, it is easy to show – after the fact – what happened. However, the most successful traders were already anticipating the potential break before it happened in that chart, and were “buzzing in” with a trade as it is breaking the 200 hour MA, or looking to lean against the level on a bounce
In trading, if you don’t have an idea what the future looks like before it happens, you will be reacting too late. You need to anticipate by being prepared on what to do.
Below is the minute chart of the price action from the EURUSD with the overlay of the 200 hour MA at 1.1282. The price fell below the 1.1282 level on the weaker PMI releases to 1.1271 and then bounced to 1.1279 before moving lower again.
Why do we see that specific price action?
Traders, who anticipated, were waiting to sell below the 1.1282 and/or willing to sell on the correction against the 1.1282 (i.e. at 1.1279). They were anticipating what might happen next after the break (with defined/limited risk too). If the price moved back above the 1.1282 (say to 1.1288 oor 1.1289), they would likely bail. The price never got there, and they rode the trade to the downside.
On Jeopardy!, the most succcessful contestants are already anticipating the answers under a topic. If it is Shakespeare, “Who is Rosencrantz and Guildenstern?” are right there in their brain. If they are Masters golf experts, they are anticipating Jack Nicklaus, Butler’s Cabin, Pimento Cheese sandwiches, Bobby Jones, Magnolia Drive, Amen Corner, Verne Lundquist, bikini wax (if you know the Masters, you can understand each of those).
Moreover, the best contestants are anticipating when to press the button.
Traders pressed the button to sell at 1.1277 to 1.1279 today.
You need to anticipate.
5. Reading. Listening. Processing. Reacting.
In trading, you need to read (both fundamental information and charts). You need to listen to “the market” through the price action. You need to process and you need to react.
Now most traders out there don’t have the real-time headlines, but you do have the ability to read about other things that potential could move the market.
I read Forexlive, the first thing every morning. I read the WSJ and other news sites. I don’t want to overload, but I need to read. Being aware is part of being a successful trader. You need to read and understand.
Successful traders read stuff. That can be fundamental or simply charts.
Successful traders also listen to ‘the market’ through the price action and tools. The price action – and tools applied to the price action – do not lie. If the price in the USDCHF is making new highs since March 2017, don’t ask me “Is the USDCHF a sell?. You are not listening to “the market”, but are instead listening to the devil in your mind saying “sell because it is high”.
LISTEN to what is happening. If the story changes, the price action and tools will tell you. I promise.
Succcessful trader also process and react. Processing and reacting are what you need to do to trade. If you can’t process and react, you are not going to trade.
The same is true for contestants on Jeopardy!. They need to read and listen to the question, process the answer and react, by pressing the button and answering in the form of a question.
Read. Listen. Process. React.
The final thing I want to talk about is leverage. I am a little hesitant to list this as most of you are not at the point where leveraging up is a good idea. However, more experienced traders who have mastered all of the above, can successfully leverage positions.
In order to leverage a position, it should
- ONLY be with the trend.
- Occur when you already have great trade location (in profit) on an existing position
- Be accompanied by fundamental bias in the same direction
- Be relatively early in the trend (you don’t want to leverage up after 800 pips)
- Be entered on a retracement against a KEY, KEY level, or on the break of a KEY, KEY level in the direction of the trend,
- Have risk that is well defined, and at such a key level that you are sure if breached, would send the price the other way.
- Be accepted firmly by you (no wishy washy).
In Jeopardy!, the biggest differentiating factor with James that is allowing him to break all the 10 day records, is he has mastered 1 to 5 above.
James Holzhauer has a:
- Game Plan
- Incredible knowledge
- He has practiced
- He anticipates
- He reads, listens, processes. and reacts.
He has all the skills.
So that allows him to leverage up.
Below are his statistics from the Daily Doubles over the first 10 days:
A total of $218,199 of his $697,000 has come on Daily Doubles alone. That is leverage.
Those earnings have allowed him to have an average score at the end of the 2nd round $48,020 (remember there is only $39,000 on both Game 1 and Game 2 combined), and an average lead of $35,780.
His average wager on the Final Jeopardy question has been $22,361. By that time, he has locked up a win on 9 out the 10 shows he has been on.
Success in trading, and lots of other things in life – even Jeopardy! – have a lot of similarities in common.
As you progress as a trader, a good exercise is to read about experts in things other than trading, and try a see the similarities in each. You will find that you learn from them. That in turn will allow you to take the next step in your trading journey.
Wishing all a Happy Easter and Happy Pesach.