illogic of the market

Discussion in 'Psychology' started by heidegger, Oct 10, 2007.

  1. Why does the market so often seem to move illogically? Why does "counterintuitive" (read illogical) trading so often seem to be more successful than reasonable trading?

    Answer: To trade logically means to trade rationally on the basis of the available information. But the information available to most traders is out of date compared to the information available to the chosen few who have access to critical facts before the general population does. There are those on the inside who have access to critical government data before the rest of us do and thus their trading, which is massive and determines short-term market movements, seems illogical to the rest of us.

    We've all seen entire sectors move counter to prevailing logic only to find a few days later some crucial piece of information justify that sector movement. The monied insiders were trading against what seemed rational because they knew something the rest of us didn't.

    This doesn't mean that counter-intuitive trading will guarantee you success; it tends to be so that when critical news that contradicts what is generally understood is imminent that trading against reason works.

    The effect this insider trading has on the market is to add an element of apparent randomness to market movements, but this randomness is only an illusion created by the influence of an uneven distribution of critical information.

    We all know Government is rife with crooks. Why would we think government insiders would play it straight when there's so much to be gained by these insiders exploiting their advantage?
  2. The markets move illogically only in the present, in hindsight, it moves just as you would expect. Because the market foresees the future, while most trades only can see the recent past to guide them towards the future.
  3. What you're saying doesn't seems to contradict what I said. It's only after all the information is disclosed that the logic becomes apparent. You say "the market foresees the future" but he market is not a conscious entity and is incapable of foresight. What's really going on is that insiders foresee the future because they have better information.
  4. xxxskier

    xxxskier Guest

    i'm sure someone will come along and rip me for saying this...but "the market" is simply a bunch of people buying and selling to each other. now you need to ask the next question, do people always operate using logic? if you know, you have the answer to your question.

    i've seen many traders come from "logical" backgrounds...engineers, lawyers, etc., and unless they are truly systems traders that never ever stray from their system, these very logical and intelligent people often struggle to maintain consistent profitability, and/or break out to the next level.

    inmho, in the world of trading, 1 + 1 does not always = 2.
    trading is as much art as it is science.
  5. Because of the enormous numbers of persons trading there is a statistical cancellation of the effects of randomness caused by individual traders' situations, especially in very liquid stocks. The illogic I'm referring to manifests when the market moves contrary to the generally perceived conditions. We saw a recent example of this when imperiled financials made a significant move just prior to the announcement of a rate cut.
  6. xxxskier

    xxxskier Guest

    i certaily don't mean to pick a fight here, as i'm sure you're probably smarter then i am (no're probaably an engineer, lawyer, scientist type and i'm not). but i think you are making this much more complicated then it needs to be. again, i have seen many highly intelligent and successful people really struggle with trading.....which also defies logic.

    maybe if you want to write a book on the physics of trading this might be a fruitful endeavor for you, but for me the only question really is this: what do i have to do right now to continue getting paid by the market. i'll leave all that intellectual stuff for the other guys.
  7. Aisone


    Trading is about price disparity imo.

    'Insiders' have little to no clue what that means and are of little threat to traders who are constantly opening and closing positions based on value etc.

    Frontrunning breaking news is a different story tho, and I've gotten railroaded bad a couple times during trading sessions (and 3 times have gotten sucked in before a trade halt.) But even those are few and far between.
  8. If it seems to you that the market moves illogically then you are not seeing clearly.

    The moves are very logical when you consider the objectives of the players and the tactics they use.
  9. the idea that the market should move "logically" rests upon many fallacies (similar to the absurd efficient market hypothesis.)

    look up the term "economic man". man does NOT trade (or invest) as "economic man". that's why, among other reasons, buffet can do so well, as can many smart traders.

    man is panicky, greedy, emotional, fearful, cocky, stubborn, etc.

    all of these traits are manifested in his trading, and in the aggregate of all traders, investors, hedgers, etc - the market.

    also, if markets moved "logically" then ALL it would take to be a successful trader would be to think "logically". frankly, that is much easier than successful trading (defined by me as beating the indexes, with less risk, given similar leverage).

    i find in INVESTING, that to be successful, one can employ a relatively simple, rational approach and do very well

    however, in trading, one is dealing with a different time frame, and different issues. basically, you are trying to game other traders, and suss out what big money, long term, and short term players are doing/will do.

    frequently i ask myself "what would the retail trader do here". that helps me determine what NOT to do.