World Cup Trading

The small print: this newsletter is mostly stories, pop-psychology, and half-baked trading ideas. This is NOT financial advice. Best to think of this as a community of like-minded gamblers. If you are having a punt, make sure you restrict your trade size to whatever change you can find down the back of the couch.

Let’s play a game.

Which one of these is actually a useful market indicator:

When a country gets knocked out of the World Cup, its stock market tends to fall.

On 7 July, USA lost 4-1 to Belgium. The next trading day, all major US indices finished in the red.

It seems football loss = red candles.

Legend has it, when an NFC team wins the Super Bowl, stocks finish the year higher.

But when an AFC team wins? Stocks fall.

Is there an element of truth to this?

Imagine your friend tells you their entire trading strategy is based on the phases of the moon:

Full moon? Sell.

New moon? Buy.

You’d probably think they’d suffered some kind of head injury.

But is there any actual evidence to back this up? Are any of these ideas valid?

The surprising answer is… yeah, kind of.

Let’s take a closer look, and let’s see if any of this is actually tradeable…

This is Fake Signals, Pt. II.

Let's check the results:

So what's the point of all this? Why are we talking about the moon so much?

Because our brains love patterns. Which can make it hard to tell what's causation, what's correlation, and what's just coincidence.

You've probably seen this old classic:

The two lines move together, but it doesn't take a genius to realise ice cream doesn't attract sharks - there’s no causation.

Problem is, markets are a bit more complicated...

And if you get causation and correlation confused when trading, it can do serious damage to your portfolio.

Take online hype and stock prices for example:

An online surge in ticker mentions often happens alongside a rising share price. But is the hype causing people to buy, or is the rising price attracting attention? Maybe some news catalyst caused both? Is the move just starting or have you already missed it?

The correlation might be obvious. The causation, not so much.

And until you know the causation, it’s a dangerous trade.

Now, we know we aren’t exactly dishing out Alpha by telling you trading is complicated.

But here’s the good news: there’s a few ways to trade causation / correlation…

Tonight, Spain play Argentina in the World Cup final.

We love Messi. But for our money, Spain are coming away with the win.

We thought about shorting Argentina through puts on ARGT, but even by our standards that would have been a loose trade.

And anyway, we couldn’t bet against the GOAT:

We’ll just watch the price action on Monday instead…

Trading Causation / Correlation

There’s a few ways to do this:

We’re keeping our powder dry this week. No trade.

But we are gonna start an experiment, in the name of science:

With algos, AI, and quants running riot these days, we think the only real trading edge left for normies is sentiment / psychology.

So we’ll be watching online hype. WallStreetBets, Reddit, SwaggyStocks - looking at mentions, trading volume, price action. Seeing if a reliable pattern emerges:

Maybe the trade is jumping in before the hype peaks. Or maybe fading it when mentions and price action start falling. Or finding the point where price action and sentiment begin to diverge…

If we find something, it’ll be posted here in the coming weeks.

There’s psychological traps everywhere in life. They shape how we think, how we make decisions, and spend money.

But enough of that- let’s gamify this:

💲💲You’ve a few spare dollars to put into the market, and there’s two stocks on your watchlist.

One company’s all about gambling - an online betting platform. It generates a huge amount of cash, and has a solid balance sheet.

The other company develops clean-energy tech. Good mission. Huge potential TAM. But not all that profitable yet…

The answer - and the psychology behind it - will be revealed in the next edition.

Last Week’s Answer:

If somebody pitches you a trading strategy based purely on the lunar cycle, you should probably back away slowly.

But strangely, there’s stats to support this type of trading. We reckon the only lesson here is that even ridiculous-looking correlations can have convincing stats. That’s what makes false signals so dangerous.

Thanks for reading! See you next edition 👀

In the meantime:

Have a friend or loved one in your life who’s really bad at making financial decisions? Then tell them that (indirectly) by sending them this newsletter.

And finally, got a topic you want us to cover? Reach out and let us know.

Stay solvent out there

Jack