The Documents by Jack Hershey

The Kool-Aid color isn't blue. I should know. I developed the recipe.

Spydertrader's Hershey Kool-Aid Recipe:

8 parts Freshly Squeezed Texas Ruby Red Grapefruits

1 part Freshly Squeezed Tangerine

4 parts Stolichnaya Vodka

All Citrus plucked from the front yard. Vodka courtesy of a Ukrainian fellow on Campbell Avenue.

- Spydertrader

 

Nicely done.

- Spydertrader

 

BIAB... Need to make a run to the store...

 

Part III The Micro: Coarse, Medium and Fine

Within each activity of trading there are several levels of detail to be considered. The details
are classified like sandpaper as coarse, medium and fine. It may be seen in trading, and
using a minimalist approach (sufficiency) is the optimum. This suggests that when
circumstances, conditions, and situations are satisfied, no further effort is made to go into
more detail. Formalizing this concept in the mind takes some doing.

The specific partnership you will have with the market and the corresponding shared
responsibilities, are designed to help you realize the potential of this system. This potential
is measured in terms of mutual effectiveness and efficiency. The market offers a potential to
make money at all times through the singular mechanism of price change. Your job is to
realize this potential by being most effective and efficient. To achieve this goal is difficult,
and only comes as a consequence of expertise in knowledge, skills and experience.

This part of the paper lays out the process for acquiring knowledge, skills and experience in
detail. The general strategy is to go from the general (macro) to a routine (local) but, in fact,
changes in performance all occur on the micro level. This change in performance is
accomplished through a process known as iterative refinement.

Think of the performance
elements as wedges of a pie chart. Look down upon the pie and think of circling around the
pie lap by lap. During each lap an effort is made to improve some aspect of each wedge.
By making corresponding improvements in each wedge as you circle, it is possible to affect
general improvement in effectiveness and efficiency. Thus, when this process is viewed
with perspective, it may be seen that the path of iterative refinement is like a helix rising
above the pie. The wedges form columns and the goal is to become expert in all the
integrated aspects of making money.

 

A. Effectiveness and Efficiency

Two efficiencies control making money. The efficiency of the market to provide money
making opportunities and your personal efficiency in taking profits from the opportunity
presented. Your approach and its effectiveness comes from the efforts made to perfect your
methodology by refining it. To the extent that you devise a proper approach, you have more
or less opportunity as well. This paper used SCT as the example; the same applies to
position trading stocks but the circumstance has much less time related pressure.

The key factor for making money with a given approach is how well you use the approach.
Always trade by giving your best effort. Below are two considerations for making a best
effort. These are presented as the focus for maximizing profits and minimizing losses.

All trading comes down to acting as a consequence of completing a repeated four part
cycle: gathering data, doing analysis on the data set, making a decision based upon your
beliefs, and taking action based upon the decision.

Your approach contains all the ingredients to accomplish these four steps under all
conditions. All decisions come down to a choice of acting to trade or not acting to trade.
Your trading station is always set up for taking action any possible action. Usually, for most
trading platforms action is simply hitting the T on the appropriate row of the Order
Management display. The transaction is an automatic electronic sequence from which you
find out the results as they appear on the Execution chronological list.

 

1. Act To Make Money And Worry If It Was Right Later

You have a system within which you work. It is connected to the market in two ways. You
receive data continually regarding the market. As a human, you process it internally and act
when required. Also, you are connected to the market to be able to participate. Up to the
moment of acting, you control making money. When you have completed your portion of
the approach you use, always act accordingly and without regard for anything that could
follow.

As preparation to act you have processes that you do as a consequence of getting data
sets. After you have data, you do intellectual activity only. There is a hitch in the system that
is unwelcome when a person is focused on intellectual activity only. Feelings.
Unfortunately, your sensory system comes with more than just a sensing capability. It also
has a human protection automatic component (feelings) that goes back in time to a place of
long ago when humans had to protect themselves. Thus, feelings come to everyone as they
sense any and every thing. As you sense, you summon feelings and they also appear of
their own accord.

In this context, you complete gathering data and make use of it. You analyze it using your
intellectual knowledge and skills with respect to your approach. SCT uses sequences of
coarse (C), medium (M) and fine (F) measures. Within each level there are two subordinate
levels identified as level 1 and level 2.

At any point in any sequence or subordinate level, two things are under consideration.
Whether or not the money making is continuing or whether or not a flaw in the sequences
has occurred. Continuation of making money requires no action. Flawed situations require
appropriate remediation.

The key question on the table at all times during the gathering of the data you need is: What
do we need to know right now? As you go from coarse to medium to fine, you observe the
status of your data feed. This examination tells you what you need to look for to get the
answer to “What do we need to know right now?” You get the answers and now have a data
set for analysis.

Humans are processors all the while. You have what you need to know, and you then
express the status as a standard response that could be from an established set of
responses collectively listed and labeled “Say this when you see it”. The answers in your
data set drive you to pick the appropriate responses from the quaintly defined response set.
A status report is made that is composed of the responses you picked.

You have all you need to deal with NOW. These chosen responses, collectively, are what
you use to analyze the moment. You draw conclusions about two things: whether the
moneymaking is “continuing” and whether there is a flaw in the process NOW unfolding.
Four rough possibilities exist.

You make a comparison with your beliefs. Your beliefs are comprehensive, deep and scope
and bound all possibilities. They have been “built” over time by learning, experience and
memorizing, and reasoning things out. You make all decisions by using your beliefs (what
you know) and comparing them to the four possibilities. You decide to hit T or you decide to
not hit T. The loop above repeats no matter which choice you make.

 

2. Not acting when you make the decision turns out not to make money
a lot of the time

This is a “repeated” decision making loop that yields consequences. Re-doing what you
already decided and at the same time postponing taking action is not in the cards, not ever.
A corrosive combination, if there ever was one.

Above in 1 you see a four part integrated process. There is never a time to throw the
process out the window by going part way through it, not completing it and doing an
alternative to the four step process.

Along side this aberration there is another phenomenon of trading that often is reported in
the trading world. It centers on monitoring an isolated element. Often a person will “see”
one thing and “act” immediately. Make a list of things you have seen and acted upon like
this. This is doing step one without any facts. i.e. gathering only one item of the data set
and skipping all else, then, with that single item, taking an action like hitting the T.

Now on the table here, we have two very diverse possibilities, one of which leads to and
includes the response list (“say this if you see it” list) and one that just says “Hit T’. In fact,
you can review and see the first list includes everything and the second includes only the
wrong response.

The one that includes everything does not achieve overt action like hitting T usually. The
one that has “Hit T”, unfortunately, includes taking action. The trader is going to be less
effective and less efficient as long as both are possible. This means making less money
over the life of the experience of trading. A trader must eliminate impulsive behavior as
soon as they have attained the skills and ability to operate using the four part routine.

 

3. Discipline

As with any approach it is a good idea to have everything down pat and under control.
Often this is called having discipline.
Things can get really ugly if you take care of business in everyway possible. Piles of stuff
need to be considered and eliminated.

The SCT Trading Synopsis (see Appendix D) gives a very tight and brief context it is a
holistic all inclusive approach. You can see how repeated sweepings of coarse, medium,
and fine allow you to monitor channels and all possible sequences. The Market Log
provides a data record that allows the medium control data elements to have a context; here
is where you get the stretch, neutral and squeeze values for the day. The DOM shows
translation price and the “end effect” of 2 pairs for “fine” control.

Learning is a process and through working to gain experience you arrive at having
“sequences” on all nine levels. Nodes and links make up the flow of sequences. The links
travel down the chains on each row. You come to understand that levels 1 and 2 contain
the details of some of the primary chains of coarse, medium and fine. To show the
connectedness, you can associate the details with their primary elements by linking and
feedback loops. Butcher paper or marking the chart is a way to take notes at the beginning.
When you get to “owning” it, you find that there are some well defined nodes that have
names and then you make the “connections”.

By “seeing” the sequences you get to believe what you learn. You develop reasoning and
then memory regarding what you believe. As you grow to trust the scene, you are able to
“work” on trading to make money.

Mentoring is a mechanism that shortcuts the process of learning to deal with “What do we
need to know right now?” “What are we looking for” is a bigger and closely related question,
of course, and that is not on the table exactly. It never is, it turns out. You can readily see
that at any time it can be frustrating for anyone to try to figure out what to look for. Making
money does not require doing a game like chess when you just need a box of checkers.
Actually because of how things work it is more like playing tic-tac toe.

The list of responses quaintly referred to as “Say this when you see it” is something to really
focus upon and get straight. A three-column cut would be something to savor if you were
using it. I would entitle the sheet as: Answer Sheet. The left column would be: “What are
we looking for?” the center column would be: “Say this when you see it” and the right
column would be a shaded thing entitled “Hit T” (where shading would be used for all action
results).

The construct for making the Answer Sheet is to know that you are looking for all the
possibilities of all the outputs of all the nodes on all the sequences on all nine levels. This
could be imposing.

Let's be pragmatic. You can decide to only make so much money. Be less efficient. In work
settings that are more or less striving to be effective, a person can divide up the effort and
pool resources. If the Answer Sheet were to be comprehensive it could get to be lengthy.
The alternative is to think it through.

 

B. Iterative Refinement

The general picture of the space for making money can be seen by overlaying four maps.
The maps are; knowledge, skills, experience, and risk. Each of these two dimensional maps
are carpets of cells. The two axes are determined to be sure the cellular structure stands up
to the test of providing total inclusiveness. It is not necessary to have complete definitions
of the maps before one begins the process of occupation. In this paper, “occupation” means
having ease and harmony operating in given regions or spaces.

Iterative refinement begins from day one where the person steps onto the overlaid maps at
the safest place. The continuing goal is to be successful at all times. Therefore, the
beginning is limited to the no risk region of the overlays. All people begin with their past
history and no more. Past history is a mix of success and failure and the baggage of failure
is best used as gained experience where the knowledge of failure is used to develop and
maintain avoidance skills. This is the classic picture of the farmer who steps in manure.
Stepping in manure once is ok, because you learn not to stop in it the second time. At all
times this paper will approach avoidance from a prevention viewpoint primarily.

Iterative refinement can be best accomplished from the viewpoint of BE, DO, HAVE. The
approach will be to operate as if we are expert money makers, that is, we BE expert money
makers. The process of DO ing will then be done in the context of correct knowledge and
skills as experience is obtained over time. The culmination of BE ing and DO ing, is to,
finally HAVE expertise.

The combination of using the four level map and a BE, DO, HAVE orientation allows a
person to always operate in a known environment. By being extremely concise and clear on
the scope and bounds of this environment at all times, a person can operate in a process
where achieving success is optimized. At the beginning of the effort to become
knowledgeable and skilled at making money, a person starts from scratch plus their past life
experience. Initially, it cannot be expected that there is any probability of success. During
this initial period relative change is the greatest and, as time passes, relative changes
continue to diminish. Starting out is the high impact period.

Building more successes upon past successes is the key for an effective and efficient
growth process. It is essential to step onto the map where there is no risk. Once trading is
completed (successfully and repeatedly) in the no risk arena, a corner stone has been laid.
The definition of this corner stone is dimensioned by doubling the initial capital while position
trading. In commodities, by limiting trading to one contract and only trading high velocity
trends by entering late and leaving early. A high velocity trend is defined as a trend of
uniform velocity bars that are maintaining a relative high money velocity during a natural
cycle periodicity.

This, coincidently, is the definition of least risk which is termed no risk in this paper. For
stocks this can require as much as forty days to accomplish (8 trades at 10%). In trading
the ES, this would be equivalent to making one point per day for forty days. To invest forty
days under these restrictive requirements provides a corner stone that insures success.

Thus, the first mile stone in acquiring knowledge, skills and experience is to double the initial
capital that is in play. It is not unlike spending 40 days on the desert, a hostile environment
to be sure. Being in a boat during a flood could be construed as having the same value. At
this time the initial capital must be removed and spent on any existing need or want. The
effect of doing this is to achieve two factors.

Whatever the initial capital was, at the time it
was put in the market it specifically denied or prevented the learning trader from exercising
the utility of that capital in any other way. By removing it and spending it, the utility has been
totally restored. Secondly, the capital in the trading account from this point on will be
construed as 100% profit. Viewing the total capitalization of an account as comprised totally
of profits defines success. Everything in the account is present as a consequence of
success. All that remains from this mile stone onward is to become more effective and more
efficient. This will be done by improving what was used to achieve the first successful mile
stone.

Thus, there are parallel both ways (stock and commodity trading) in acquisition of
wealth, knowledge, skills, and experience. This concurrent effort and strategy allows for the
building of the interconnection among the parts. A routine has been established to get to
the first milestone. This routine will be repeated with enhancements until the routine is
capable of extracting the real potential that the market offers. Eight levels (see Appendix C,
The 8 doublings) illustrate the strategic application of specific enhancers. The initial capital
and the money velocity obtained in the first doubling represent the base line for the
doubling. It may be easily seen that this beginning majorly denies any trader from
participating in the market to any extent.

Ordinarily, the market does not operate on a no
risk level. To accomplish the eight doublings, the learning trader goes through the process
of using more and more of the regions of the map. The regions can be envisioned as the
isobar atmospheric regions of a weather map. Everyone begins at the lowest pressure (no
risk) region. The corresponding elements for a given risk zone all fit together as a
comprehensive collection. As additional zones of risk are added, corresponding
enhancements of knowledge, skills and experience are gained. Therefore, it can be seen
that the driving force of iterative refinement is risk. As more and more risk is entertained,
and handled, greater and greater effectiveness and efficiency of the trading market occurs.

 

Conclusions

There are lots of ways to make money. The spectrum is broad and the results have an
equally broad range of effectiveness and efficiency. The strategy depicted in this paper lies
at the end of the distributions of these two considerations. One thing that can be said,
however, is that any progression of trading improvements that one might have, would be to
move in the direction of this approach.

The underlying concepts and constraints of Building Minds for Building Wealth, a Paper,
involve a holistic approach that integrates all physiological and psychological personal
human aspects with the dominant market theories Efficient Market Hypothesis (EMH) and
Adaptive Market Hypothesis (AMH). The fundamental concept of making money based on
price change is backed up by the rational precept that the most effective and efficient way to
do this is to be in the market at all times and to be on the right side of the market at all times.
This is best achieved by continually knowing what is going on and acting accordingly. This
leads to the conclusion that trades are taken and held throughout price change trends. As
trends change trader positions are changed accordingly.

This is the opposite of the view of AMH which predicates “the only way to maintain an edge
is to continually innovate”, as spoken by Andrew W. Lo, Finance Professor at MIT Sloan
School of Management.

The division of responsibility between the trader and the market is defined based upon the
demonstrated truths of the market that are understood, used, and responded to by the
trader. This requires that the trader obtain information (market data sets) repeatedly. Such
data sets are then compared with the market truths by the trader (analysis). Analysis results
are used for appropriate decision making based upon market operating characteristics
(market truths). Finally, decisions are acted upon in a timely manner in harmony with the
market’s activity.