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Trading with the Tao

“The Tao” means different things to different people. It’s generally thought to have been introduced to the world sometime around 500 B.C. in China.  Since then, millions of interpretations have been contemplated. In modern times, everyone from the Dali Lama to Willie Nelson has offered their take on it.

What exactly is “The Tao?”

It’s usually translated directly as “the way” or “the path.”  But most who have studied it agree that it also refers to “the Source” behind everything.  The unseen force in the universe that essentially makes things happen.

A Christian theologian would probably see similarities between the Tao and the “Holy Spirit.”  Physicists likely see it represented as “energy.”  Self-help gurus often compare the Tao to “consciousness.”  Luke Skywalker called it “the Force.”  Had Michael Jordan delved into the world of metaphysics, he probably would have referred to the Tao as “the zone.”

The overriding message of the Tao is that you’re either flowing with it or against it.  You’re either in the zone or out of the zone, using the Force or blocking the Force. However you want to describe it, the point is that you feel good and peaceful when you’re flowing with the Tao and you feel bad and fearful when you’re trying to fight against it. (more…)

Donchian: Forbes Circa 1982

An excerpt from Forbes circa 1982:

The fundamentalists — a decided majority among successful investors — look on chartism somewhat the way physicists look on parapsychology. They are probably correct to regard them so, but there is no rule that does not have an exception. Dick Donchian seems to be that exception. Donchian differs from many a chart watcher: He doesn’t predict price movements, he just follows them. His explanation for his success is simple and as old as the Dow Theory itself: “Trends persist.” He will buy a hog or Treasury bond future after an upswing is under way, and sell it only after the price has begun to tumble. He misses some of the profit, but that’s part of the discipline of his style of investing. “A lot of people say things like: ‘Gold has got to come down. It went up too fast.’ That’s why 85% of commodities investors lose money,” he says. Donchian gained that wisdom the hard way. His Futures Inc., the first publicly offered commodities fund, came out in 1948 at $10 a share. It was before its time — or Donchian’s. “When I started trading I was bearish,” he recalls. “Cocoa seemed too high. So we took a short position at 30 cents, and it went down to 19. We made a lot of money at first; that was the worst thing that could happen. I looked around for another commodity that was overvalued. Coffee was making a new high of 20 cents, so we took a short position, and it went up to $1. I made a rule never to be a price trader. There’s no such thing as too high a price or too low a price.” Futures Inc. went as low as 4 cents a share before finally being dissolved…The essence of trend-following, however, is always this: Buy on a rising price and sell on a falling price. That sounds like buying dear and selling cheap, but it works, if prices move not in random walks but in long strides.

Becoming a Mature Trader

Growing up (which takes a lifetime) is like finding out what kind of canoe you’re in – and learning how to row it safely and effectively – and learning to accept yours is not the best in the race.

The genetic factor in IQ is well established, which doesn’t (and shouldn’t) stop anyone from attempting to improve their knowledge and skill at reasoning. That said, people with no facility at math shouldn’t aspire to be physicists, and good-looking, loquacious, charming people shouldn’t sit all day behind a computer.

There is evidence that this analysis pertains to optimism/pessimism. Some investors may find they do very well in exuberant bull markets but crash when things go bad; others miss out on “irrational” bull runs, but cautiously avoid crashes. How would society look if everyone had the same rosy disposition, and philosophy that everything bad is temporary and will ultimately and triumphantly reverse by dint of inherent human goodness, the American way, and our G-dly chosen-ness amongst a universe of 10^100^100 habitable planets?

Pessimism (skepticism, risk-aversion, worry, etc) has its place. Some fraction of Jews living in pre-Nazi Europe fled at a time when others deemed flight too fearful and overwrought, with well known results. The survival/perpetuation of fear and pessimism in the population is evidence that it has value. And the difficulty buying when the world is on fire, and holding when money is free illustrates why the rich are in the minority, most heroes are dead, and Gini ratios naturally go up until acted on by the hands of governments or G-ds.