Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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2/23/2005
You Can't Navigate the Market Ocean If You Can't Recognize the Chop of Her Seas, by James Sogi

After watching the ocean for 35 years and intraday market data for half a decade, there is chop everyday, uneven short period surface conditions, different than the long ocean swells or rogue waves we've discussed before. There are many names for the ocean conditions, many types, many causes for the chop: Beaufort Force 1-10, describing calm blue seas to violent hurricanes; Cat paws, small ripples caused by puffs or gusts of wind showing as a black shadow across the surface of the ocean; Squall lines caused by a thunderhead and front coming through strong enough to knock a boat down; Whitecaps, small white spray as the tops of the wave briefly feather in the wind; Ocean breakers, blue water breaking waves in the open sea enough to fill and sink a small vessel; Wind chop, small choppy 2-3 foot waves that splash, Storm seas with 15-30 foot confused breakers in many directions, with breakers; Whirlpools, swirling eddies that can swallow canoes in the Northwest passages near Juneau; Glassy, calm conditions when the blue skin of the sea sparkles like diamonds. These phenomena are caused by wind, currents, undersea formations, continental and island land formations, sun spots, the rotation of the earth, tides, the moon, and environmental effects.

The intra day markets have moods like the ocean, and everyday there is the constant chop. Some days are quiet with slow movement, other days with huge breathtaking drops, or powerful up surges, sometimes lurching up and down, some days flat with violent breaks with the entire days move in half an hour. Many make money working the chop, the constant up down motion of the bars. Some consider the daily up and down mere chop in the weekly and quarterly moves. Eskimos have over 27 names for snow. The Hawaiians, who live and die by the wind, have hundreds of names for different winds as they pass over the water: makani 'olu'olu, the fair wind; Moa'a, the trade wind; makani palua, the daily diurnal wind; hau'oki, the icy wind; Ulu, the rising wind; Ehukai, sea spray, all responsible for ocean effects. Speculators need better names for different market conditions. /George has names for his bond work such as "classic firming" , "forward trajectory assessments", "rate back-up out the curve", "convexity". This might lead to better quantification and better profits or different systems. Newton had to invent the names for mass, velocity and inertia to formulate the laws of physics and quantify them. Accurately naming market conditions and what is generically referred to as 'chop' might help speculators frame their hypotheses better.