Archives of “consensus” tag

rss

How good is your WHY?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #

I’ve been taking a minor natural break in trading over recent weeks, and in the meantime I’ve been pondering the power of the “WHY” I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.

What’s your WHY?

I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.

So you can have no reason to enter, or you can have a wrong reason to enter.

Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.

They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?

Probably nobody, except a handful by pure chance.

There’s more to say on this, but ponder your WHY when you pull the trigger. How good is that why?

How good is your WHY?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

I’ve been taking a minor natural break in trading over recent weeks, and in the meantime I’ve been pondering the power of the “WHY” I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.

What’s your WHY?

I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.

So you can have no reason to enter, or you can have a wrong reason to enter.

Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.

They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?

Probably nobody, except a handful by pure chance. (more…)

Specific Observations for Traders

  
Economy, Education
#  #  #  #  #  #  #
  • If you find yourself holding a winning position, adding up your profits, and confidently projecting larger gains on the horizon, you are probably better off exiting the trade. The odds are that the trade has run its course.
  • When entering a trade with a market order and your fill is clearly better than expected, odds are it will end up being a losing trade. Good fill, bad trade. Get out!
  • If all your ‘trading buddies’ agree with your expectations regarding the next big move, it probably will not work out. If everyone’s conviction level is as strong as the consensus, do the opposite.

 

A Brilliant New Speech, George Soros Reveals The Exact Moment That Angela Merkel Started The Euro Crisis

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

His key warning:

In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends. By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support.

He ends with a plea:
We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.

June 02, 2012

Ever since the Crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed. But there is no consensus on the causes and the extent of that failure.

I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore.

Scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of any statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results.

Social events, by contrast, have thinking participants who have a will of their own.  They are not detached observers but engaged decision makers whose decisions greatly influence the course of events. Therefore the events do not constitute an independent criterion by which participants can decide whether their views are valid. In the absence of an independent criterion people have to base their decisions not on knowledge but on an inherently biased and to greater or lesser extent distorted interpretation of reality. Their lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics. (more…)

An important lesson

  
  Education
#  #  #  #  #

 

It is that I am, in one sense, ‘wired to lose’. Being of a contrarian mind, I have a tendency to ask ‘why’, to look at the other side of the coin, stay away from the herd, etc. In itself, this isn’t a problem, but trading is as much about getting in as getting out, and looking at my trading behaviour retrospectively I can see that I tend to establish trades that are usually against the consensus or trend with the result that I often have to endure some pain in the short-term; however, when and if the trade eventually goes my way, I am way too quick to close the position, because the contrarian in me is again telling me that the consensus is wrong. I simply don’t give enough room for the trade to carry on. It’s absurd. I know I can’t have it both ways and I realise that I need to have less of ‘me’ in the trade. I’ve only just realised this, so it’s a bit late. Nevertheless, a useful self-analysis if I ever return to trading in a meaningful way.

Rosie’s Rules to Remember (an Economist’s Dozen)

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. In order for an economic forecast to be relevant, it must be combined with a market call.
2. Never be a slave to the date – they are no substitute for astute observation of the big picture.
3. The consensus rarely gets it right and almost always errs on the side of optimism – except at the bottom.
4. Fall in love with your partner, not your forecast.
5. No two cycles are ever the same.
6. Never hide behind your model.
7. Always seek out corroborating evidence.
8. Have respect for what the markets are telling you.
9. Be constantly aware with your forecast horizon – many clients live in the short run.
10. Of all the market forecasters, Mr. Bond gets it right most often.
11. Highlight the risks to your forecasts.
12. Get the US consumer right and everything else will take care of itself.
13. Expansions are more fun than recessions (straight from Bob Farrell’s quiver!).

The Five Investing Essential Truths

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

5-number

Markets are notoriously hard to read and people see only what they themselves want to see.

Bulls will find reasons why certain stocks will go higher, while at the same time, Bears will find many reasons for the same stocks to go lower.

The seldom-admitted truth is that most of the time, markets exist in some indeterminate state!

The main thing is that you cannot trust consensus and you cannot rely on the “Establishment.”

You can’t find refuge in the herd and you must resist the urge to join the crowd.

Your passion of the moment will most certainly create a disaster over the years!

On the other hand, if you do stick with the following five essential truths, you do stand a better than average chance to invest profitably:

1. Markets are unpredictable and ill-suited to forecasts.

2. Long-term fundamentals are key.

3. Investor emotion leads to volatility.

4. Valuation discipline should guide investment selection.

5. Perspective and patience are always well rewarded.

 

12 Points about About Investing from Howard Marks

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

MUST READ1. “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” Psychological mistakes are at the same time the biggest source of danger for an investor and the biggest source of opportunity when other people succumb to those mistakes.  If you can keep your head about you when everyone else is losing theirs, you can profit in ways which beat the market. Howard Marks: “The absolute best buying opportunities come when asset holders are forced to sell.”

2.  “Rule No. 1:  Most things will prove to be cyclical. – Rule No. 2:  Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.” Nothing good or bad goes on forever.  And yet people extrapolate sometimes as if a phenomenon will go on indefinitely. “If something cannot go on forever it will eventually stop” famously said Herbert Stein. Situations in which mean reversion does not happen are rare enough as to make a mean reversion assumption a consistent friend to the investor.

3.  “We don’t know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates. Thus, the investor’s time is better spent trying to gain a knowledge advantage regarding ‘the knowable’: industries, companies and securities. The more micro your focus, the great the likelihood you can learn things others don’t.”  Focusing on the simplest possible system (an individual company) is the greatest opportunity for an investor since a company is understandable in a way which may reveal a mispriced bet. Howard Marks puts it simply:  “We don’t make macro bets.”

4.  “We can make excellent investment decisions on the basis of present observations, with no need to make guesses about the future.”  This video has excellent material from Marks on why trying to make macroeconomic predictions is bound to fail:   https://www.youtube.com/watch?v=2It1fzcBoJU  If great investors like Marks, Buffett, Munger, Lynch etc. can’t make macro forecasts, do you think economists can? If you do believe they can, “Where are the economists’ yachts?”  Howard Marks notes that anyone can be right “once in a row” especially when the range of possible outcomes is small.

5.  “There are two essential ingredients for profit in a declining market: you have to have a view on intrinsic value, and you have to hold that view strongly enough to be able to hang in and buy even as price declines suggest that you’re wrong. Oh yes, there’s a third; you have to be right.”  Being a contrarian for its own sake is suicidal. Not being a contrarian at all means by definition you can’t outperform the market. Being genuinely contrarian means you are going to be uncomfortable sometimes. Howard Marks adds:  “To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.” (more…)

Observation

  
  Education
#  #  #  #  #  #  #  #

observation2

  • -If you find yourself holding a winning position, adding up your profits, and confidently projecting larger gains on the horizon, you are probably better off exiting the trade. The odds are that the trade has run its course.
  • -When entering a trade with a market order and your fill is clearly better than expected, odds are it will end up being a losing trade. Good fill, bad trade. Get out!
  • -If all your ‘trading buddies’ agree with your expectations regarding the next big move, it probably will not work out. If everyone’s conviction level is as strong as the consensus, do the opposite.
Go to top