newspaper article are the best contra indicator

Discussion in 'Trading' started by heilbronner, Mar 19, 2004.

  1. There have been lots of bullish articles about the silver market, lately. So I'm short silver since yesterday. articles claim that everybody is long silver, e.g. Buffet, Gates and Joewhothefuck, and that the trend is up. I just don't care. Some newspapers are just perfect about being totally wrong. The same has been true to Euro/Dollar some weeks ago.
  2. All the recruiting companies have broken to upside with several bearish stories on job scene.
  3. Brilliant comment! Couldn't agree anymore!

    When everybody is long, go short...
  4. I've already taken some meaty profits out of silver today. :p
  5. Kaizen


    Has anyone else noticed the pattern with you. Start some new thread, with some banal cliche'd insight followed with a paragraph or two about you taking a position one way other other with rarely any info on where you got in, how long your looking to be in, where your looking to get out, what size of a position you took, etc, etc.

    Then as soon as the thing goes up or drops a percentage point or two we get the post on how you've already taken a nice score out of the position?

    Personally I don't even think you can trade silver futures with your ameritrade account.

    Since spot silver is up roughly 10 cents today prehaps you could explain to all of us how you took profits out of it today when your obviously suggesting that you were short.

  6. Mecro


    Look at it like this. In the long run, silver is a good investment. I have read (not from mass media) about silver ready for move about a year ago and if I had any capital whatsoever I probably would have invested.

    At the moment, with silver praises on CNBC and numerous papers, the smart money wants to take their profits. So hype it up and pass it over to the idiot money. Let them sit it out and have their capital tied up and when it's time again, get them to sell by praising something else or bashing silver as a dead investment. Then it starts all over again.

    Great plan when you think about it.
  7. Hey dude, this wasn't a market call. It refers to the fact that newspaper writers are wrong most of the time. Apart, if I make a market call I always give the exact entry in RT and exit in RT, too. If you doubt this check out my old postings, please do it. If you are saying that I don't give info where I got in when I'm doing a market call, you are just a liar. Regarding size I don't have to post which size I'm trading, and IMHO that's not your business either.

    Short yesterday@ 7.4650.
    Short today@ 7.629.
    Covered @ 7.512 and @ 7.427.

    I will continue to trade silver from the short side, but I won't make market calls here on ET.
    Hope this helps, enjoy yourself.
  8. EtfTrader

    EtfTrader Guest

    Heilbrenner's entire rational was worth all but $0.10. Some long winded paragraph about silver.

    Then all of a sudden the newspapers and newswires stopped printing silver articles and Heilbrenner got paranoid and covered for $0.10.

    I guess thats more than $0.02.

    You have no conviction and are a complete joke.
  9. Everybody in trading knows that -so it's rather become a sort of conventional game so that people could feel: how intelligent I am I have decoded the message that I should do the contrary :). Analysts jump on that kind of news and sent to millions of subscribers telling them they are the priviledged ones who know the thruth and that what is exposed is a lie. For me the medias are playing the double talk they know perfectly that their message will be interpreted A on the public side and -A on the other side. In both case it's herding by the medias.

    I don't follow medias only after the fact or for amusement.

  10. (Source:

    1.2.3 Example 3: "Beauty Contests" and Iterated Dominance

    In Keynes's famous book General Theory of Employment, Interest, and Money, he draws an analogy between the stock market and a newspaper contest in which people guess what faces others will guess are most beautiful: "It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree, where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth, and higher degrees" (1936, p. 156). This quote is perhaps no more apt than in the year 2001 (when I first wrote this), just after prices of American internet stocks soared to unbelievable heights in the largest speculative bubble in history. (At one point, the market valuation of the e-tailer bookseller Amazon, which had never reported a profit, was worth more than all other American booksellers combined.) A simple game that captures the reasoning Keynes had in mind is called the "beauty contest" game (see Nagel, 1995, and Ho, Camerer, and Weigelt, 1998). In a typical beauty contest game, each of N players simultaneously chooses a number xi in the interval [0,100]. Take an average of the numbers and multiply by a multiple p < 1 (say p = 0.7). The player whose number is closest to this target (70 percent of the average) wins a fixed prize. Before proceeding, think about what number you would pick.

    The beauty contest game can be used to distinguish whether people "practise the fourth, fifth, and higher degrees" of reasoning as Keynes wondered. Here's how. Most players start by thinking, "Suppose the average is 50". Then you should choose 35, to be closest to the target of 70 percent of the average and win. But if you think all players will think this way the average will be 35, so a shrewd player such as yourself (thinking one step ahead) should choose 70 percent of 35, around 25. But if you think all players think that way you should choose 70 percent of 25, or 18.

    In analytical game theory, players do not stop this iterated reasoning until they reach a best-response point. But, since all players want to choose 70 percent of the average, if they all choose the same number it must be zero. (That is, if you solve the equation x* = 0.7x*, you've found the unique Nash equilibrium.) The beauty contest game provides a rough measure of the number of steps of strategic thinking that subjects are doing. It is called a "dominance-solvable game" because it can be "solved"--i.e., an equilibrium can be computed--by iterated application of dominance. A dominated strategy is one that yields a lower payoff than another (dominant) strategy, regardless of what other players do. Choosing a number above 70 is a dominated strategy because the highest possible value of the target number is 70, so you can always do better by choosing a number lower than 70. But if nobody violates dominance by choosing above 70, then the highest the target can be is 70 percent of 70, or 49, so choosing 49-70 is dominated if you think others obey one step of dominance. Deleting dominated strategies iteratively leads you to zero.

    Many interesting games are dominance solvable. A familiar example in economics is Cournot duopoly. Two firms each choose quantities of similar products to make. Since their products are the same, the market price is determined by the total quantity they make (and by consumer demand). It is easy to show that there are quantities so high that firms will lose money because flooding the market with so much supply will drive prices too low to cover fixed costs. If you assume your rivals won't produce that much, then somewhat lower quantities are bad (dominated) choices for you. Applying this logic iteratively leads to a precise solution.

    In practice, it is unlikely that people perform more than a couple of steps of iterated thinking because it strains the limits of working memory (i.e., the amount of information people can keep active in their mind at one time). Consider embedded sentences such as "Kevin's dog bit David's mailman whose sister's boyfriend gave the dog to him." Who's the "him" referred to at the end of the sentence? By the time you get to the end, many people have forgotten who owned the dog because working memory has only so much space.11 Embedded sentences are difficult to understand. Dominance-solvable games are similar in mental complexity.

    Iterated reasoning also requires you to believe that others are thinking hard, and are thinking that you are thinking hard. When I played this game at a Caltech board of trustees meeting, a very clever board member (a well-known Ph.D. in finance) chose 18.1. Later he explained his choice: He knew the Nash equilibrium was 0, but figured the average Caltech board member was clever enough to do two steps of reasoning and pick 25. Then why not pick 17.5 (which is 70 percent of 25)? He added 0.6 so he wouldn't tie with people who picked 17.5 or 18, and because he guessed that a few people would pick high numbers, which would push the average up. Now that's good behavioral game theory! (He didn't win, but was close.)

    What happens in beauty contest games? Figure 1.3 shows choices in beauty contests with p = 0.7 with feedback about the average given to subjects after each of ten rounds (unpublished data from Ho, Camerer, and Weigelt). Bars show the relative frequency of choices in different number intervals (on the side) across ten rounds (in front). The first histogram shows results from games with low-stakes payoffs (a $7 prize per period for seven-person groups) and the second histogram shows results from high-stakes ($28) payoffs.

    First-round choices are around 21-40. A careful statistical analysis indicated that the median subject uses one or two steps of iterated dominance. That is, most subjects roughly guess that the average will be 50 and choose 35, or guess that others will choose 35 and choose 25. Very few subjects chose the equilibrium of zero in the first round. In fact, they should not choose zero. The goal is to be one step ahead of the average but no further and choosing zero is being too smart for your own good!

    Although the game-theoretic equilibrium of zero is a poor guess about initial choices, players are inexorably drawn toward zero as they learn. Behavioral game theory uses a concept of limited iterated reasoning to understand initial choices and a theory of learning to explain movement across rounds.

    The beauty contest has been replicated in dozens of subject pools (see Chapter 5 for details), including Caltech undergraduates,12 trustees on the Caltech board (including a subsample of corporate CEOs), economics Ph.D.s and game theorists, and readers of business newspapers (the Financial Times in the United Kingdom, Spektrum in Germany, and Expansion in Spain). The results in all these groups are very similar: Players use 0-3 levels of reasoning, and few subjects choose the Nash equilibrium of zero. Comparing Figures 1.3(a) and 1.3(b) shows that increasing the prize by a factor of four, leading to average earnings of $40 for a 45-minute experiment, has only a small effect. (In the high-stakes condition there are more low-number choices in periods 5-10).

    The limited iterated reasoning measured in these games provides one explanation for persistence of phenomena such as the stock price bubbles Keynes had in mind. Even if all investors foresee a crash, they do not "backward induct" all the way to the present. They guess that others will sell a couple of steps before the crash, and plan to sell just before that exodus. This reasoning process does not unravel all the way (because doubt "reverberates"), which explains why bubbles can persist even if everyone knows they will eventually burst. Allen, Morris, and Shin (2002) make their argument precise and Camerer and Weigelt (1993) and Porter and Smith, (1994) show that bubbles can happen in the lab.
    #10     Mar 26, 2004