Sunday, April 10, 2005

Waves

You could be cruising along in your classic Cal25 sailboat crossing the Pacific. A Tsunami passes underneath the boat. You probably won't even notice. The boat goes up a bit more than normal, then down a bit more than normal, then it is over. At sea a swell is not dangerous unless it crests or breaks. Where the waves get fun is close to shore. Check out this great sequence of shots.

In Finance we ride waves, up and down, it is normal; two steps forward, one step backwards. These waves are closely studied. Those who study them observe long waves, short term waves, inverted waves, etcetera. Sometimes they are easy to spot on the charts, in retrospect. The hard part is to guess where you are right now and which type of raise is controlling the action.

In poker your hands come in waves, you can look back and see their pattern. The problem comes when you try to apply that pattern to the next hand. Some one wrote recently about a person who told them they were on a rush, a poker term for a large wave. The writer replied, you were on a rush, who knows where you are this hand.

Three environments, but only in one does your perception of wave perception have a chance of helping you. Guess which one.

Yeppers,

In poker there is an advantage to playing aggressive, even if it is just in spurts. A player that believes they are on a rush will play more aggressively until the rush subsides. After three winning hands they may play 68o with a preflop raise, chasing out hands that might have hit the flop. If the flop is 3h 8d qh they may bet their middle button and chase out better hands again, that guess they might have an over pair. If they win on the river they will hear groans and complaints from those who folded. This will reinforce their faith in the power of the rush.

They have played better, and altered their table image, by playing a hand that statistically they should have folded pre-flop. Poker, like finance, is a people game. Sometimes logic doesn't win, But the waves are most dangerous just when they are about to end.

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