Trading Wisdom 52: Not the Tools Themselves "The truth is that we constantly acquire and discard sets of tools. So we should not be fixated on one specific set of tools for all of life. Society, technology and the times change so fast that any fact, process or algorithm we learn at school is by definition not going to be useful for any length of time. The real skills that serve us are the ability to adapt, learn, apply the products of that learning, and participate in the discussions and challenges of the day. That doesn't mean that facts are useless, nor that specific tools don't matter. Unless you can demonstrate an ability to absorb and apply both, fast, you haven't actually gained the knack of becoming effective in a given environment." - Mark Shuttleworth, It's the ability to learn tools, not the tools themselves JS Comment: In the Matrix, there is a scene where Neo asks Trinity, "Can you fly that thing?", referring to the military helicopter on the rooftop behind them. She responds by saying, "Not yet", then speed dials her cell phone to instruct Tank (the human operator outside the Matrix) to upload a helicopter pilot training program into her brain. Her eyes flutter for a few seconds. Then she says: "Let's go." If only the ability to learn new skillsets -- pick up new tools -- was that straight forward. As it stands, a knack for 'metalearning' -- the ability to acquire new skillsets rapidly, and achieve functional tool capability faster than average -- is highly valuable across a wide variety of fields. The trader who can acquire and discard tool sets, without getting overly attached, is far more likely to survive (and potentially thrive) in changing market landscapes. Get Trading Wisdom via e-mail
Trading Wisdom 53: Technical Analysis Fact and Fiction "Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo... "There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders. "For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he's not going to take a patient's temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is -- whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge. "Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behaviors. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes." - Bruce Kovner, Market Wizards JS comment: Bruce Kovner pulled billions out of the markets, over multiple decades, before handing the reins of his fund, Caxton Associates, to the next generation of traders. As an academic in a past life, Kovner was known for his deep dive fundamental analysis -- but he also used charts extensively, as the Market Wizards excerpt shows. Those who dismiss technical analysis as useless are like those who say martial arts is useless in a fight. Perhaps they took a few classes, got their butts kicked at the brown belt level, and gave up... thus assuming the discipline has no value to anyone, even though this assumption is laughable. (As Bobby Deniro said in Heat, "When you assume, you make an ass out of you." Period.) Non-practitioner academics, on the other hand, tend to dismiss the value of technical analysis without any real market experience at all, on the basis of straw man research studies so obtuse they are more comedy than science. Consider, for example, the academic study (of which a variety have been conducted) that says "XYZ pattern is useless" because, according to X parameters tested over 5,000 instances of the pattern across a sample case of 500 stocks, the net result was unprofitable. The problem with studies like this -- and they all run into the same gross overgeneralization issue -- has to do with the irreproducible elements of experience, situation and context. For an academic study to say "X pattern over X thousand instances failed to work because we couldn't make it work" is similar to an armada of geeky lab-coated researchers testing a pick-up line by repeating it verbatim, in monotone, to thousands of women in hundreds of bars. Would their findings have any merit as to whether the line "works" or not? Of course not. Success depends on 1) who is delivering the line, 2) how it is delivered (the skill quotient involved), and 3) the spots in which they choose to do it (discernment and situational context). It is the same with various patterns and technical inputs, because all too often a pattern is not useful in a vacuum, but has value as an input along with a confluence of other supporting factors. It takes a trained eye to know when to pull a trigger versus when not to -- a qualifier that is obvious in so many other expert level fields, it is surprising the degree to which it is overlooked here. Last but not least, the credibility of TA is assaulted by those 'true believers' who claim charts, with the help of some magic juice, have guaranteed predictive power in foretelling a future event or result... but of course this is silly. On deeper examination, the assertion does not make any logical sense. Why would lines on a chart predict the future with guaranteed certainty, any more than goat entrails or chicken bones do? Where is the rational explanation for such belief? What one can say and explain rationally, and demonstrate successfully, is that certain patterns, in certain situations, have enough probability of producing a desired result as to make a trading wager profitable on a repeated trial basis. If, say, pattern Q against a backdrop of supporting factors X, Y and Z produces a profitable result 50 to 60% of the time -- or if the embedded risk / reward has an attractive enough multiple even with a less than 50% follow-through -- then the pattern has potential to be exploited profitably by the sufficiently skilled and experienced trader, who often uses a combination of fundamentals and technicals, along with good judgment, in a manner that no ham-fisted academic study can replicate. It ain't rocket science or voodoo. But it does require a discerning eye... Buy Market Wizards on Amazon Get Trading Wisdom via e-mail
Trading Wisdom 54: Form as Freedom "Far from wishing to waken the artist in the pupil prematurely, the teacher considers it his first task to make him a skilled artisan with sovereign control of his craft. The pupil follows out this intention with untiring industry. As though he had no higher aspirations he bows under his burden with a kind of obtuse devotion, only to discover in the course of years that forms which he perfectly masters no longer oppress but liberate. He grows daily more capable of following any inspiration without technical effort, and also of letting inspiration come to him through meticulous observation. The hand that guides the brush has already caught and executed what floated before the mind at the same moment the mind began to form it, and in the end the pupil no longer knows which of the two - mind or hand - was responsible for the work." - Eugen Herrigel, Zen in the Art of Archery JS Comment: Many traders who struggle -- and ultimately wash out of markets -- have a problem with "going from form to form," or method to method, without attaining true foundational proficiency in any of them. This is comparable to a would-be musician going from one instrument to another, each time quitting after six to twelve months... or a wildcat oil speculator, drilling dry holes all over the Texas panhandle, while never breaking 800 feet. (One could drill five thousand different holes, and still come to nothing that way.) There is a rush to reach proficiency, and premature desire to express a style, that winds up fueling disappointment. But the old calligraphy masters knew that, far from stifling creativity, early devotion to form facilitates true freedom of expression later. How deeply have you explored the form of your bread and butter market approach? Do you strive to attain "sovereign control of your craft?" Buy Zen in the Art of Archery on Amazon Get Trading Wisdom via e-mail
Trading Wisdom 55: Dominating a "Simple" Game "Marion Tinsley won a lot, too, but it wasn't because he was lucky. Tinsley was known as the greatest player of checkers (also known as draughts) in the world. In 1948 he was crowned as the United States champion; shortly before his death in 1994, he tied Don Lafferty and a computer program named Chinook for first place. In the intervening forty-five years, Tinsley lost only seven individual games for a near-perfect record. In two of those games he was defeated by Chinook. Despite the fact that he didn't play for long periods of time (he was a professor of mathematics at Florida State and Florida A&M Universities), he reigned as world champion in three separate decades. "Tinsley's success resulted from years of deliberate practice. In his youth, Tinsley spent eight hours a day, five days a week, studying checkers, and he continued to study the game, though less intensely, throughout his life. He cultivated a prodigious memory that allowed him to recall the flow of games he had played decades earlier. Tinsley was fiercely competitive and claimed that he could beat all comers, man or machine, as long as his health didn't fail him." - Michael Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports and Investing JS comment: The remarkable thing here is not the practice effort Tinsley put in -- though that is remarkable in itself -- but the fact a game as basic as checkers can yield such a dominant competitive edge. We are accustomed to the brainy chess champion, because chess is so inherently complex. (There are more hypothetical chess game outcomes than there are particles in the known universe.) Checkers, however, is just red and black discs jumping over each other. Where is the hidden complexity, the room for genius, in that? Tinsley's domination of a "simple" game -- over a period of nearly fifty years -- speaks to the hidden depths of mastery in any competitive endeavor. For certain activities, like driving a car, there is definitely a plateau of "good enough" where excess effort is wasted. Other activities -- like trading, investing, and poker for example -- can see tremendous rewards reaped by the deep dive into "simple" processes... Buy The Success Equation: Untangling Skill and Luck in Business, Sports and Investing on Amazon Get Trading Wisdom via e-mail
The markeet system is like checkers. Except there is no competition. Any trader can design the game he plays in trading with simple rules that always work. Chinook wasn't a complete set of rules. Tinsley didn't have a complete set of games either. The trader does not face either of these problems. The market is simply a three variable system.
humor makes people smile; good for you. I score trend cycles. Price determines the cycle frequency. Volume is twice the price frequency. A/D is twice the volume frequency. By assigning binary values to each, you can sum their values and get a scoring sequence. (1 for increasing or A) To trade long use the hold period as 7, 6, 5, and 4. To trade short use the hold period as 3, 2, 1, and 0. For carving the turns, make your hot list in order of increasing volume and choose from the stocks rising from the bottom through 1 to 0 to 7 at the top (All green in color after the turn from red to green). Anyone can guess the last four digits of my cell phone.....lol.... Surf can add a fourth valiable for its humor; three are good enough to double capital every 40 days in stock trading. Use my sort for the Universe as shown on TN. Its 100 stocks today. (both green and red)
Who are you talking to? If you're talking to me, considering I have posts of substantive content on this site dating back to 2002, i.e. more than ten years ago, such a guess would further cement the reputation of being a complete dumbass you have already worked so hard to build.