Archives of “uncertainty” tag

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“Who will win the election?” is the wrong question

  
Analysis, Politics
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“Will there be a clear, uncontested and accepted winner?” is a better question

"Will there be a clear, uncontested and accepted winner?" is a better question
The betting odds of a Biden Presidency ticked higher after yesterday’s debate. I believe Trump’s constant interrupting was at least partly strategic in the hope of tripping up Biden and making him look more like the bumbling caricature he’s tried to construct. By and large that didn’t work and I doubt Trump won over many undecideds.
Given the polling lead, Biden should be a large favourite but he’s stuck at 60/40 because no one can forget Trump’s upset win over Hillary Clinton, or Brexit.
For markets, I think the outcome itself is less important in the short term than the question of whether or not their will be a clear winner; and whether Trump will ever concede.
BMO’s fixed income team writes today about the tail risk of a contested election but ponders the degree to which the consensus opinion is already fully incorporated into current valuations.
Let’s face it, very few in the market are anticipating a smooth election nor for any potential transition of power to be uneventful. The extent to which November serves to disrupt functioning of the federal government or fuel further civil unrest remains to be seen and, frankly, is the most significant tail risk as we ponder potential outcomes.
I’m open to the ‘sell the rumour, buy the fact trade’ but skeptical that it’s even possible to price in uncertainty in that way. Uncertainty is — by definition — something that persists for an indefinite amount of time. If Trump refuses to concede even on a clear loss, he will still have a strong political base and I expect him to use it to dog Biden for years. It’s a question of how far he’s willing to go and with Trump, the sky is the limit.
The ‘buy the fact’ trade relies on an eventual return to Obama-era levels of civility (which isn’t saying much) but I just don’t think that’s coming.

Lagarde: There is no need to overreact to euro gains

  
  Analysis
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Comments from Lagarde in the ECB opening statement:

Lagarde Sept 10
  • Says ECB will monitor FX rate
  • Strength of recovery remains surrounded by uncertainty
  • Rebound broadly in line with previous expectations
  • Domestic demand recorded significant recovery
  • Uncertainty weighing on consumer spending and business investment
  • Inflation dampened by energy prices
  • Ample monetary stimulus remains necessary
  • Incoming data suggest notable recovery in consumption
  • ECB will carefully assess the euro’s effect on inflation
  • New infections are a headwind to the short term outlook
  • Repeats that an ample degree of easing needed
  • Fiscal measures should be targeted and temporary
The euro jumped to 1.1891 from 1.1850 on the headline from Lagarde.

Do you trade your opinions? Some warning signs

  
Education, Life
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  1. You find it hard to be enthusiastic for something until you know that others oppose it.
  2. You have little interest in getting clear on what exactly is the position being argued.
  3. Realizing that a topic is important and neglected doesn’t make you much interested.
  4. You have little interest in digging to bigger topics behind commonly argued topics.
  5. You are less interested in a topic when you don’t foresee being able to talk about it.
  6. You are uncomfortable taking a position near the middle of the opinion distribution.
  7. You are uncomfortable taking a position of high uncertainty about who is right.
  8. You care far more about current nearby events than similar distant or past/future events.
  9. You find it easy to conclude that those who disagree with you are insincere or stupid.
  10. You are reluctant to change your publicly stated positions in response to new info.
  11. You are reluctant to agree a rival’s claim, even if you had no prior opinion on the topic.
  12. You are reluctant to take a position that raises the status of rivals.
  13. You care more about consistency between your beliefs than about belief accuracy.
  14. You go easy on sloppy arguments by folks on “your side.”
  15. You have little interest in practical concrete implications of commonly argued topics.
  16. Your opinion doesn’t much change after talking with smart folks who know more.
  17. You are especially eager to drop names when explaining positions and arguments.
  18. You find it hard to list weak points and counter-arguments on your positions.
  19. You feel passionately about a topic, but haven’t sought out much evidence.
  20. You are reluctant to not have an opinion on commonly discussed topics.
  21. More?

If u have any……..send me at [email protected]

You Don’t Need to be Right to Make Money

  
  Education
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You have to do the mental work to let go of the need to know what is going to happen next or the need to be right on each trade. In fact the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. Mark Douglas The most successful traders have found a way to inoculate themselves from the stress of trading, and from the outcome of their most recent trades. Here’s how they do it: They have an unshakable belief in the fact that 1) While the outcome of any given trade is uncertain they believe in their edge over a series of trades. In other words they know the expectancy of their method and have confidence that over a series of random outcomes, the odds are in their favor. 2) Anything can happen! In other words they have learned to think of every trade like tossing a coin – they don’t need to know what will happen. They don’t expect to either win or lose. This firm belief in the uncertainty of any given trade, while knowing that over a series of trades you will be profitable, is very liberating. When you learn the mental discipline of letting go of the result of any individual trade you keep your mind in a state where it can easily perceive the opportunities that the market is offering. It is not distracted by focusing on your expectations of what you think should happen – it can perceive what is most likely to happen. The Body/Mind Connection

Learn To Love Uncertainty

  
  Education
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It is often said that markets hate uncertainty and it is true. We do live and trade in uncertain times. But, as traders and investors, we must all learn to love and appreciate uncertainty. With uncertainty, also brings opportunity. Understanding this concept is so very important and learning how to profit from uncertainty consistently is going to make a critical difference between your success and failure.

Traders learn through experience the importance of examining and evaluating the markets through placing percentages on various future market scenarios. For example, at the hedge fund I worked at last week, every morning traders assemble for a 30 minute premarket meeting where everyone at the firm works closely together to outline the various potential scenarios for the market that day and then place specific odds on what they think is most likely to occur and why. One trader every day is in charge of diagramming out the different market scenarios on a whiteboard which resembles a flow chart so that the firm has a structured and easy to follow game plan. That game plan is also copied and stored so that the firm can later review it to learn and prepare in future days. In fact, at the end of every trading day they have another meeting to review the game plan and what went right and wrong and why.

By having the plan in place with various market scenarios outlined and positions to profit from those scenarios, uncertainty is no longer a factor. In fact, traders learn to love uncertainty because uncertain market conditions tend to favor those who are the most prepared to handle anything and everything Mr. Market could throw their way.

When the market does something outside of that original plan (it doesn’t happen as often as you might think), there is always a Plan B, Plan C, and so on with a number of preconfigured trading ideas to profit if the market moved in a specific manner different than the most likely scenario. By having this planned structure in place, everyone can then focus on price action and trading setups as they occur instead of flying by the seat of their pants or, even worse, finding themselves held hostage or paralyzed by the ticker.

I had the distinct privilege of looking through the archive of firm’s game plans for the past year and was amazed by how well the firm positioned itself according to the plan AND more importantly how it handled itself when the market did something unusual. In fact, just reviewing past game plans would be incredibly useful as a teaching mechanism for new traders who have little understanding of how the pros plan their work and work their plan. If you’re like me, you’ll begin to respect the other side of the trade much more than you probably do already.

As you might imagine, the process of formulating a game plan based on setting percentage odds for various scenarios was very interesting and useful for me to watch and participate in. It also stressed how important it is to have a plan, but at the same time be flexible enough to adjust as market conditions change. I usually spend at least an hour of prep time before every trading day, but after last week’s experience I will be doing more prep than before. That’s how important I think this kind of exercise can be!

So, the question becomes, are you adequately prepared every trading day? In working with many traders over the years, most are not as prepared as I saw with my very own eyes last week. In fact, given the firm’s results compared with other traders I know, I have good reason to think that kind of high-level preparation frequently can separate the winners from the losers.

Yes, it is true that we call can get lucky (every trade in theory has a 50% chance of working out, correct?), but over time the market will remove that luck factor and your success will be determined primarily on consistency and how you plan and deal with uncertainty in the markets. If you spend time every morning engaged in developing your own plan, I think you’re bound to see steady and significant improvement. As Sun Tzu once said, “every battle is won before it is ever fought” and that’s true for those who engage in doing battle with the market in such uncertain times.

Managing Risk

  
  Education
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Over the years I’ve been fortunate enough to get to know thousands of market participants. Some are long-term investors others are scalping pennies per trade on thousands of shares while others manage millions of other people’s money. The interesting theme I picked up on with nearly every one of them is that they each experienced panic and uncertainty at certain times in the market. Oftentimes, this panic stems from the inability to make sense of the market, to gain control of market participation. Thoughts such as whether or not too much capital is at work or perhaps not enough or even whether or not to be in the market at all seemed to consume them.

This ambivalence can consume and debilitate even the best market participants. The uncertainty or self-doubt about market participation is common yet finding a solution is not. The greater the level of uncertainty felt the higher the odds are that risk is being misperceived. Here are some questions that I’ve asked to assess whether risk was real or perceived:

  • What are your reactions, both physical and emotional, to a losing trade? A winning trade?
  • Have you rationalized recent losses?
  • Has your out-of-market homework/research fallen behind?
  • Do you monitor your positions by dollars or percentages?
  • Have you ever not taken a trade that made sense simply because you were burned before?
  • Has the number of indicators you use to enter/manage/exit a position increased/decreased lately?
  • Do you know the Beta of your portfolio?
  • What would others say about you when asked about your risk management?

In a sense, managing risk involves managing the emotional side of trading so that the focus can be on the cognitive side of trading. As an example, if I’m concerned with the direction of the market because my traditional analysis methods are giving unclear signals then it probably doesn’t make much sense for me to participate. My biases will impact the data, whether it’s of a technical or fundamental nature, and lead to poor decisions. If I’m unable to clearly define what sectors are leading and which are lagging and, more importantly, why they are moving in the direction they are, then my risk is skewed. It’s times like these that large losses can accrue as objectivity is clouded by subjectivity.

I’ve always used sleep as a gauge to help me know if I’m in-line with real risk. If I’m able to sleep at night and wake up excited to participate in the market then I know that the odds are good I’m managing my risk. If I’m unable to get a good night’s sleep and lay awake wondering about positions I have on the odds are good that my risk management is off. Yea, I’m pretty simple.

Is the China bubble about to burst?

  
Analysis, Economy, Education
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China bubbleAn aggressive and arrogant China is entering 2010 with a bit of uncertainty. Although there was no let-up in its exports in 2009, its internal financial position looks uncertain. China watchers are expecting a bubble that will eventually burst.

In 2009 banks in China lent internally about US$1.4 trillion to businesses, including the real estate industry, with dubious performance records. James Chanos, a successful U.S. stock market dealer, has predicted that China’s financial collapse could be far worse than Dubai’s.

China soothsayers wish to prove Chanos wrong – and they may be right. With US$2.2 trillion in foreign reserves, it would seem China could weather any storm. But the problem is that its cash reserves are uncashable. The United States and Europe are not just waiting to repatriate the money to China. So China could be left to its own devices if it faces a financial storm where markets tumble and poor people with money tied to investments see their savings vanish.

Easy credit, too much money in the economy, excessive foreign direct investment, a completely undervalued currency and rising real estate prices have definitely created a bubble. This bubble could burst with any minor international event. That is the price China would have to pay for designing policies that serve Western consumer markets. (more…)

21 Ways Rich People Think Differently

  
Education, Life
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1. Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil.

2. Average people think selfishness is a vice. Rich people think selfishness is a virtue.

3. Average people have a lottery mentality. Rich people have an action mentality.

4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge.

5. Average people long for the good old days. Rich people dream of the future.

6. Average people see money through the eyes of emotion. Rich people think about money logically.

7. Average people earn money doing things they don’t love. Rich people follow their passion. (more…)

19 Quotes from the Book “Hedge Fund Market Wizards”

  
  Education
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1. As long as no one cares about it, there is no trend. Would you be short Nasdaq in 1999? You can’t be short just because you think fundamentally something is overpriced.

2. All markets look liquid during the bubble (massive uptrend), but it’s the liquidity after the bubble ends that matters.

3. Markets tend to overdiscount the uncertainty related to identified risks. Conversely, markets tend to underdiscount risks that have not yet been expressly identified. Whenever the market is pointing at something and saying this is a risk to be concerned about, in my experience, most of the time, the risk ends up being not as bad as the market anticipated.

4. The low-quality names tend to outperform early in the cycle, and the high-quality names tend to outperform toward the end of the cycle.

5. Traders focus almost entirely on where to enter a trade. In reality, the entry size is often more important than the entry price because if the size is too large, a trader will be more likely to exit a good trade on a meaningless adverse price move. The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.

6. Virtually all traders experience periods when they are out of sync with the markets. When you are in a losing streak, you can’t turn the situation around by trying harder. When trading is going badly, Clark’s advice is to get out of everything and take a holiday. Liquidating positions will allow you to regain objectivity.

7. Staring at the screen all day is counterproductive. He believes that watching every tick will lead to both selling good positions prematurely and overtrading. He advises traders to find something else (preferably productive) to occupy part of their time to avoid the pitfalls of watching the market too closely.

8. When markets are trending up strongly, and there is bad news, the bad news counts for nothing. But if there is a break that reminds people what it is like to lose money in equities, then suddenly the buying is not mindless anymore. People start looking at the fundamentals, and in this case I knew the fundamentals were very ugly indeed.

9. Buying low-beta stocks is a common mistake investors make. Why would you ever want to own boring stocks? If the market goes down 40 percent for macro reasons, they’ll go down 20 percent. Wouldn’t you just rather own cash? And if the market goes up 50 percent, the boring stocks will go up only 10 percent. You have negatively asymmetric returns.

10. If a stock is extremely oversold—say, the RSI is at a three-year low—it will get me to take a closer look at it.8 Normally, if a stock is that brutalized, it means that whatever is killing it is probably already in the price. RSI doesn’t work as an overbought indicator because stocks can remain overbought for a very long time. But a stock being extremely oversold is usually an acute phenomenon that lasts for only a few weeks. (more…)

Courage and Trading

  
  Education
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According to Plutarch, “Courage stands halfway between cowardice and rashness…” Clearly, we don’t want to be reckless; and clearly, we don’t want to be hesitant and timid. What we need is a balance. As we go about our trading moderating our greed and our fear to a combination of healthy desire and clear minded caution, we use courage to go forward.

Courage doesn’t mean closing your eyes, holding your nose, and jumping into the deep end. It does mean moving forward with clean and clear perception as well as steadfastness of purpose.

You don’t need courage if you’re totally confident and unafraid. Courage, according to John Wayne, is being scared to death and saddling up anyway. Because people tend to fear the unknown, and the unknown is all that is certain about any given trade, we need to employ courage. Since trading is always new, since anything can happen and it often does, since the wildness lies in wait, we need to overcome uncertainty and fear so that we can appropriately enter, exit, and remain in trades.

When asked what he meant by “guts”, Ernest Hemingway told Dorothy Parker in an interview “grace under pressure”. Trading is all about grace and gracefulness under pressure.

The good news is that courage is like any muscle. It grows and becomes stronger the more you use it. Often as I trade I’m unaware of utilizing courage. I know I’m extremely alert. I may even be excited. I’m not aware of any fear until something starts to go wrong. However, that alertness and excitement is a product of adrenalin running. Excitement or fear comes from the interpretation you give to the adrenalin high. The more you act as if you’re unafraid, the less afraid you become. It all gets easier. Act the part and become the part. Make it your goal to trade with increasing grace under pressure.

The difference between excitement and fear depends of what you are imagining.

Are you imagining loss or are you imagining profit? Of course, you always have to keep the alternative in mind as trading is all about balancing the alternatives, profit with loss. But you don’t have to put loss into the foreground of your mind, because you never would put on a trade unless profit was the probable outcome. Direct your imagination towards profit, and suspend all thoughts of loss–once you’ve put your stops in.

“Don’t cry before you’re hurt.” says a proverb. I would add, don’t mourn a loss before you experience it. Don’t even mourn it after you take it, get on with the next trade, and the next, and the next. Anticipate profit. That’s what you’re there to experience. Ah yes, and as another proverb states: “Fortune favors the brave.”

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