Jan

14

 Leo Jia's "Thoughts on Investing " for the apocalypse has got me thinking.

This is like tossing out a brick to get a jade gem (拋磚引玉/抛砖引玉, Pāo zhuān yǐn yù)

"Bait someone by making him believe he gains something or just make him react to it ("toss out a brick") and obtain something valuable from him in return ("get a jade gem")."

This proverb is based on a story involving two famous poets of the Tang Dynasty. There was a great poet named Zhao Gu (趙嘏) and another lesser poet by the name of Chang Jian (常建). While Chang Jian was traveling in Suzhou, he heard news that Zhao Gu would be visiting a temple in the area. Chang Jian wished to learn from the master poet, so he devised a plan and went to the temple in advance, then wrote a poem on the temple walls with only two of the four lines completed, hoping Zhao Gu would see it and finish the poem. Zhao Gu acted as Chang Jian foresaw, and from this story came the proverb.

Apologies, I have no precious jade or gem to offer. But note that what you note about how some consumption will see large increases in both price and volume, including entertainment, pleasure, food-drinks, tourism, transportation, luxurism, exoticism, etc, is already happening in quite a few places around the world, especially in some parts of Asia as recipients of 'hot money' inflows or at least, as perceived relative safe havens. And in a perverse sort of way, I actually welcome your expectation of a depressing trend. This should apply to real-estate, arts, antiques, many commodities, and the overall stock markets., especially here in my little city (Spore).

Hopefully, a puncturing of the ballooned-up wealth effect here can rein in the luxury consumption which is currently very blatantly on display here. Too many Porsches, Maseratis and even 'boy-racer' GTRs roaring around the neighbourhood at unearthly hours. Just last night, a long line of candy-coloured Gallardos were blocking the entire front street. I shudder to think if this "consumption will continue to see large increase in volume."

One may interpret the 'recursive' words above as a little tongue-in-cheek illustration of the non-linearity of the utility function in action.

Jan

13

 A young Chinese girl reaps the reward of her hard work to become the new women's world chess champion, putting in the work and eating plenty of 'bitterness' along the way:

China Rises, and Checkmates from the NYT:

Ms. Hou is an astonishing phenomenon: at 16, she is the new women's world chess champion, the youngest person, male or female, ever to win a world championship.
…
Cynics sometimes suggest that China's rise as a world power is largely a matter of government manipulation of currency rates and trade rules, and there's no doubt that there's plenty of rigging or cheating going on in every sphere. But China has also done an extraordinarily good job of investing in its people and in spreading opportunity across the country. Moreover, perhaps as a legacy of Confucianism, its citizens have shown a passion for education and self-improvement — along with remarkable capacity for discipline and hard work, what the Chinese call "chi ku," or "eating bitterness." Ms. Hou dined on plenty of bitterness in working her way up to champion. She grew up in the boondocks, in a county town in Jiangsu Province, and her parents did not play chess. But they lavished attention on her and spoiled her, as parents of only children ("little emperors") routinely do in China.

She won by beating another lady compatriot in the final.

It does seem that Asian women are, relatively speaking, outdoing Asian men in the world of chess: see the article, "At Title Event, Asian Women Pursue World Domination"

(The only excuse East Asian men have here is that they are still pretty much preoccupied with Go/Weiqi; which is seeing quite a revival in interest in the last decade, mainly in the strong challenge faced by the erstwhile dominant Go/Weiqi/Baduk powerhouses Japan and South Korea, from a resurgence in strong young Chinese players.) But the young Ms. Hou's current FIDE ratings,
 does not even get her in the top 100.
 She has some ways to go yet…

Jun

30

 In line with the spirit of counting favored by this site, here is an instance of a quantitative method employed by the Sun Tzu when tabulating the cost of war. For Sun Tzu, "money is truly the sinews of war":

“Raising an army
Of a hundred thousand men
And marching them
One thousand li (~330 miles)
Drains the pockets
Of the common people
And the public treasury
To the daily sum of
A thousand taels of silver.
It causes commotion
At home and abroad
And sets countless men
Tramping the highways
Exhausted.
It keeps seven hundred thousand families
From their work.”

(from chapter 13)

A later commentary on the above lines by another military-statesman genius, the Regent-General Cao Cao, clarifies part of the calculation:

Of old, eight families made up a neighborhood; if one
family sent a man to war, the other seven families had to support them.
So when a hundred thousand troops were mobilized, seven hundred
thousand families were thereby prevented from tending their crops
properly.

Accordingly, the larger the distance from home, the more ruinous the
cost of transport. Plus the presence of an army will drive up prices of
everything. Thus, Sun Tzu considers it most prudent to impose this
burden on the enemy instead.

And on the subject of secret agents, which is of course the main
topic of “Chapter 13– The Use of Spies”. Sun Tzu again counts the
cost, this time of not using spies:

Hostile armies may face each other for years, striving
for the victory which is decided in a single day. This being so, to
remain in ignorance of the enemy’s condition simply because one grudges
the outlay of a hundred ounces of silver in honors and emoluments, is
the height of inhumanity.

One who acts thus is no leader of men, no present help to his sovereign, no master of victory.

Chapter 13 continues on to say that the acquisition of foreknowledge or intelligence:

cannot be elicited from spirits; it cannot be obtained inductively from experience, nor by any deductive calculation.
Knowledge of the enemy’s dispositions can only be obtained from other men.

… before detailing the 5 fascinating classes of spies: Local, Internal, Double, ‘Dead’ or doomed, and Live spies.

Interestingly, in the west, the Prussian monarch and general
Frederick the Great was ostensibly the first to use the double
agent, a captured enemy spy working for both sides and used by his
captors to send false information to his original employers.

And in the
merciless spirit which Frederick was infamous for, instilling fear
in both his enemies as well as his own rank and file, Frederick
considered “the best method of espionage, which always succeeds, was to choose
a peasant, arrest his wife as a hostage, and attach to him a soldier
disguised as a servant before sending him into the enemy’s camp…”

Apr

29

Inigo v. WestleyThe Princess Bride Swordfight Scene shows a gentlemen's prelude, and how concealed ambidexterity can be a secret weapon, but can also backfire.

You will see Inigo Montoya very chivalrously allowing the Dread Pirate Roberts, aka Westley, to catch his breath after scaling a sheer cliff wall before beginning their swordfight.

Then as concealed ambidexterity is applied and revealed by both fencers one after another, the tables turn and turn yet again. But really the chivalrous Spaniard's eventual loss was sealed the moment he allowed Westley to clamber up over the cliff edge.

Chivalry, malevolence or (unjustified) pride in one's abilities?

Chris Tucker adds:

"The Princess Bride" is a movie that Aubrey simply must see. I love this movie; so do my kids. We find ourselves quoting Inigo at work frequently. "I do notta suppose you coulda speed things up?" or "I'm going to do him left-handed" or "You know what a hurry we're in!" or "It's the only way I can be satisfied" or "Inconceivable!" or "You keep on using that word. I do notta think it means what you think it means." Mandy Patinkin is priceless!

Bill Rafter adds:

"Never try to outwit a Sicilian," and "Do I have to get a new giant?"

Russ Sears writes:

My high school aged daughter tells me it is quoted all the time around her clique. Quoting it is the inside joke/ litmus test for those with verbal IQ versus those clueless.

Apr

19

Flame of the WoodsEvery kid must had been told not to taste the plants and flowers growing outside; but how many of us could resist the sweet nectar from a beautiful flower, whose single drop of heaven-sent cordial is as precious and delicate as morning dew and manna.

I remember as a child, adults warning us especially against the supposedly poisonous Flame of the Woods or Ixora plant, with its bunches of wild-fiery small flowers. But we went ahead anyway.

Pluck a single fully-bloomed flower, and from the bottom of the petals, carefully poke through the base of the petals without severing the stem and puncturing the nectary near the base. If carried out properly, the style, a filament-like string should be exposed. Pull on the delicate style very gently, which should pull the attached stigma at the other end along. When the stigma gets caught at the narrow opening at the nectary, it should release the nectar, forming a single drop of sweet nectar flowing down the style. Lick. Enjoy.

Feb

19

 Here is a story from the Chuang Tzu, which speaks of the relationship of the unending chain of predator-prey-predator-prey-…, between Hubris and (mis)Fortune. After all, in the thick of hubris, little does the hunter know that he is the hunted as well:

As Chuang Tzu was rambling in the park of Diao-ling he saw a strange bird which came from the south. Its wings were seven cubits in width, and its eyes were large, an inch in circuit. It touched the forehead of Chuang Tzu as it passed him, and lighted in a grove of chestnut trees. ‘What bird is this?’ said he, ‘with such great wings not to go on! and with such large eyes not to see me!’ He lifted up his robe, and hurried with his slingshot, waiting for (an opportunity to shoot) it. (Meanwhile) he saw a cicada, which had just alighted in a beautiful shady spot, and forgot its (care for its) body. (Just then), a preying mantis raised its feelers, and pounced on the cicada, in its eagerness for its prey, (also) forgetting (its care for) its body; while the strange bird took advantage of its opportunity to secure them both, in view of that gain forgetting its true (instinct of preservation). Chuang Tzu with an upsurge of emotion, said, ‘Ah! so it is that things bring evil on one another, each of these creatures invited its own calamity.’ (With this) he put away his slingshot, and was hurrying away back, when the forest ranger (who had, unbeknownst to Chuang Tzu, been following him) pursued him with terms of reproach.

–Chuang Tzu, Outer Chapters

Feb

3

Percival and the Holy GrailTo know whether the market is currently trending, you have to accumulate a database of intraday progression over at least 30 trading days; then continue to add to your database and trade concurrently. Let's first discuss "intraday progression".

For each stock, currency or futures contract, you need to define the day's "opening range". For a typical stock or commodity: it may be daytime opening 15min "hi/lo box". For internationally-flavored futures contract, the day may well be starting overnight. For FX currency-pairs: I recommend first 30-60min range of domestic time-zone (e.g. Far East open for AUD and JPY crosses, but N. Am. open for $/CAD). Exercise discretion and make provisions for markets that would commonly tread water in advance of crucial regularly-scheduled news releases, and then significantly gap. Award a score to each day, ranging between -4 and +4, grading intraday price progression out of optimized (consistent) "opening box". A day (will occur less than once a week) that never significantly traded out of the opening-range all the way through the close will get zero. -4, -3, -2 and -1 are bearish mirror progressions of intraday events described below as bullish +1, +2, +3, +4.

The most typical day (about twice a week) will be a 2-pointer, where market will break its opening box to the upside and end anywhere up there. +1 is awarded to a day (about once a week) that didn't close that high; but it did manage to overcome an earlier short-lived break-down and ended back within the box. +3 is given following same weak start but stronger close well above the box (about once a week). +4 is the case of prolonged trading well below the box, surprisingly reversed by a blistering second-half rally ending well above the box (less than once a week). An extremely rare (once-twice monthly) case would be very late failure of +4 attempt rolling-back into the box and thus getting a zero. You must be very cognizant of the fact that automatic grading of each instrument under the sun, each day, has shown to be somewhat deficient (understandably, those funds who have succeeded and coded at that level of proficiency will never disclose their secrets). Thus, it remains partly discretionary domain (albeit using consistent set of rules and optimized boxes) to assign those -4 through +4 daily grades to each instrument on the trading board of hundreds! Yes, it requires a lot of market-savvy manual labor.

For each instrument, a black box then accumulates running totals as summation of the latest 30 trading days. Although theoretical maximum reading would be 120 either way, we hardly ever see liquid widely-traded markets conquer the seemingly magic 30 level. The key discovery is that a market that just advanced from lower-sum area to over 10 area (positive or negative) is a market beginning to reliably trend! Once beyond 23, such a run will be getting frothy, and we would commence faze out of profitable position. Having rolled back 10 points off the high (say back to 17 from 27) would cause us to abandon trend bias altogether. It should be understood, however, that a new, down-trending bias would only be assumed way later, once the 30-day summation crosses below -10! So it is obvious, that our summation trend-indicator is a laggard. Well, trend-following is a lagging trading concept!

In my over 20 year real-time market experience, I've observed traders disciplined enough to put on biggest exposure exclusively at points of acceleration from 11 to 23 end up as undisputed winners! With decades of steady gains, they would handily outperform a value-investor or a contrarian. These trading programs were hugely favored by macro hedge fund managers and their clients, as lowest drawdown systems and quarterly results that maximized popular yardstick ratios. I will note that large futures positions taken promptly in accordance with above-described signals were roughly corresponding to riding the right side of wave three of three in a typical Elliott Wave impulse, and thus were yielding upwards to 100% return on margin deposit in just one day of trading! That was because commodity exchange margin requirements under SPAN would still be relatively low at that point, as a newly-recognized gapping trend would suddenly begin accelerating.

A necessary postscript is that only a part of the total program was described above, and quite briefly at that. At its best implementation, the program is multi-dimensional and will not (and arguably should not) be fully described in open forum.

Misan Thrope objects:

Holy Grails are mythical. It is philosophically impossible to determine whether tomorrow you will be trending or range-bound.

Rocky Humbert replies:

On your first sentence, arguing that The Holy Grail is mythical is a religious argument – I'll leave it to greater minds.

On your second sentence, if one uses certain physical and/or information models as a guide to financial market behavior, one can reach different conclusions. I respect many people who both agree and disagree with this view. For some, this is a religious debate too!

Lastly, while the Holy Grail may be a myth, the Hole-ly Grail is not. I keep one on my desk. My secretary filled it with coffee once and it made a terrible mess.

Rocky Humbert, quantitative analyst, speculator and master chef, blogs as OneHonestMan.

Don Chu writes:

A very sensible 'hand-count'. Very much like Mark Fisher's work — his opening range AC/BD classifications and rolling multiple day pivot count, a la his The Logical Trader.

Anatoly Veltman replies:

Correct, Don! Mark practiced (and taught) this methodology for decades. I was at first a sceptical participant in his late 80s after-hour weekly group; but listening to the finer points over the next few years (and markets were always discussed in real-time), I ended up incorporating dozens of his ideas into an overall approach. He deserves tremendous credit!

Nov

20

Pawnshops, from Don Chu

November 20, 2009 | 1 Comment

 Both Mr Millhone’s and Mr Sears’ remarks about pawnshops are revealing:

“Am sure these people could care less about the DOW today. Likely would sell their gold if they had any.”

“Others like me got some below melt value deals on silver and gold in jewelery and coins. ”

The secondary/buy-back market in gold, silver and jewelry had long been the domain of the neighborhood jeweler and standalone pawnshop. But in the past year, some larger establishments have been muscling into the local scene:

"The number of pawnshops here has grown 20 per cent since 2005 and in June numbered 122 stores, according to the Pawnbrokers’ Association. Some outlets compete for business in the same area — when Moneymax’s Toa Payoh store opens later this year, it will compete with both Maxi-Cash and SingPost in the neighborhood. Both Soo Kee Group and Aspial pointed out that their jewelery and pawnbroking businesses are operated independently, and customers should not fear that pawned items might be ‘recycled’ through their retail jewelery stores.”

Someone at the jewelers has apparently been keeping an eye on the diverging trends of the rising precious metal prices and dwindling cash assets of the working classes. This is one small business that seems mighty attractive right now: for want of a better term, socioeconomic arbitrage.

Oct

12

Some high quality youtube of Fabrice Santoro vs Julien Benneteau. Benneteau won the match, but he had to win each point three or four times before Santoro would let go.

Santoro might like the new two-handled NaturalTennis racquet promoted by a pro doubles team, the Battistone brothers, who bought the patent for it.

Victor Niederhoffer remarks:

That tennis is among the most beautiful match of racket sports I've ever seen. Reminds me a bit of a fantasy match between Evonne Goolagong and Althea Gibson. Or Vic Herskowitz playing Martie Decatur in handball or Jeff Hunt in squash versus Sharif Khan. amazing that Santoro can hit so well considering he can't move well. And neither has much of a serve or overhead which must have been their undoing.

Murali Mys agrees:

Santoro is a magician. He wields the racquet like a wand. He will be missed — 2009 will be his last year on the ATP tour.

Matt Johnson adds:

Santoro… Amazing touch and feel, plus, he loves the sport. I dig watching him. Actually, a rerun of a 2005 Masters Doubles Championship was just on Tennis Channel. Great tennis; four guys at the net, ping, ping, ping, lob volley, wind sprint, lob, overhead smash for the point. Santoro was a gift to tennis, I hope he comes back in a year or two, heck he's only, what, 36?

Don Chu extends:

Another Magician of the Court was the Moroccan, Hicham Arazi. With his dexterity, body coordination and rubber wrists, his touch and feel has to be amongst the best of any era. He could do so many amazing things with that racquet, admittably some of which had little to do with the game of tennis. Alas, his lack of a robust mental game, temperament and a complete game, was too much to overcome even for a wizard with his kind of body-alchemy; many times the Magician was reduced to Court Jester.

Jul

14

OedipusI am ignorant of whether the young mother’s oracular pronouncements truly moved the thundering herds to ride roughshod over the bears, or mayhap it had just been time for some bear-ish self-flagellation (it was already the eighth day of the recent downtrend).

But the post above does bring together in the mind several images: of august — but usually doomed for an early death — kingly father figures, universal all-powerful and eternally youthful mothers, and the painful castigation of an assortment of beatific animals.

Athanasius Kircher, in his Oedipus Aegyptiacus, sees himself as the enlightened Oedipus who fends off the man-eating sphinx-creature and sends it on a death fall over a cliff. Central to Kircher’s herculean efforts to translate the Egyptian hieroglyphs was the Bembine Tablet; in the centre of which sits the Universal Mother, Isis — regarded as “she is both wise, and a lover of wisdom […] knowing and knowledge belong to her.”

Unfortunately, far from being the Rosetta Stone of its time, the Bembine Tablet and its glyphs turned out to be more a roman “neo-Egypt” tribute; thus rendering Kircher’s translations spurious. Kircher’s all-knowing goddess/mother Isis, rather than bestowing enlightenment, led him to a tragic mistake.

I wonder if the young mother from yesterday’s news, may likewise be leading eager bulls (or bears), to a headlong dash to the edge.

Apr

29

 Perspective is a fascinating thing. And the different ways in which we may grind our lenses of perspective (Spinoza may agree) can produce hints of subtle shifts in views, or reveal startling insights of vastly different panorama.

Time (or at least one of its facsimiles, that is, the numbered sequencing of events), is one element which can alter or color our lenses while looking at the same object. I read J. M. Coetzee’s Waiting for the Barbarians before Buzzati’s The Tartar Steppe; and thus may never be able to see from the eyes of a young Drogo (with his conflicting hopes and fears of anticipating yet dreading the barbarian hordes just beyond the steppe), without the spectre of Coetzee’s jaded and weary old Magistrate hanging heavily, and with the latter’s resigned knowledge that the darkest enemy lies not yonder, but within.

[Coetzee’s Waiting for the Barbarians, in a way picks up where The Tartar Steppe ends; with the old Magistrate more or less having come to terms with his own existence (with hints of a younger Drogo-past), after spending his entire career guarding his frontier town against the ‘unimaginable’ barbarians. The enemy finally arrives, but from within (the empire), forcing an excursion from the mundane but familiar routine into the dreaded frontier-lands.

The battle with the barbarians may finally be joined, but is it in the way as had always been imagined — dignified imperialists defending their rightful lands from the menacing barbarian horde? Or as self-righteous barbarians once again disappropriating the lands of a diminishing indigenous people, to feed the appetite of an always-expanding empire…]

As a trader, my first objective is profit and success and indeed, am perhaps no different from earlier profit-seekers adventuring across oceans and continents in the name of “God, gold and glory”. But there may be cause for some self-examination, and a tempering of appetites will not hurt.

Apr

25

 "Il deserto dei Tartari" is a novel from the Italian writer Dino Buzzati. The whole life of Giovanni Drogo is described, since as a 21 year old newly appointed lieutenant he arrives at the Fortress, full of ambitions and with a whole life in front of him. The Fortress dominates the desert from where the Tartars are supposed to arrive, as they did many many years before. But it's a long time they do not show up anymore and the Fortress has now lost all its strategic importance. They are lost and forgotten by the rest of the world. Nevertheless soldiers assigned to the Fortress eagerly wait for the enemy to come, to do their duty as soldiers, to defend the reign and to become heroes. So they train everyday over and over, strictly following procedures and orders. Hoping for the enemies to arrive and defeat them is the only thing they live for. They have dedicated their whole life to this and to defeat the enemy is the only payback. Giovanni Drogo as well is deceived by the Fortress and by the hope of the glory to come, and he will spend there the best years of his youth and then his whole life. Most important, there is the awareness of not being able to come back to his old world, as he no more belongs to it. Waiting for the enemy, months and years pass by, until the final hoax. In the end the enemy arrives but Giovanni Drogo is now too old and sick to fight and he is sent back home and he will die on the way back, realizing that his mission was to confront death with dignity.

There are traders who train themselves and then go and fight where the real war is, continuously training on the field. They do not wait for the enemy (the good trades), they confront him every day. Someone wins and someone loses, as in every war. Others are living in the Fortress. They wait, full of hopes, for the enemy and then the glory (the money) to come. Duly training and verifying that they are prepared for that moment. But the time goes by inexorably. And every time the enemy arrives, they are not in the condition to fight it, deceived by the Fortress.

 Don Chu comments:

 Perspective is a fascinating thing. And the different ways in which we may grind our lenses of perspective (Spinoza may agree) can produce hints of subtle shifts in views, or reveal startling insights of vastly different panorama.

Time (or at least one of its facsimiles, that is, the numbered sequencing of events), is one element which can alter or colour our lenses while looking at the same object. I read J. M. Coetzee’s “Waiting for the Barbarians” before Buzzati’s “The Tartar Steppe”; and thus may never be able to see from the eyes of a young Drogo (with his conflicting hopes and fears of anticipating yet dreading the barbarian hordes just beyond the steppe), without the spectre of Coetzee’s jaded and weary old Magistrate hanging heavily, and with the latter’s resigned knowledge that the darkest enemy lies not yonder, but within.

[Coetzee’s “Waiting for the Barbarians”, in a way picks up where “The Tartar Steppe” ends; with the old Magistrate more or less having come to terms with his own existence (with hints of a younger Drogo-past), after spending his entire career guarding his frontier town against the ‘unimaginable’ barbarians. The enemy finally arrives, but from within (the empire), forcing an excursion from the mundane but familiar routine into the dreaded frontier-lands.

The battle with the barbarians may finally be joined, but is it in the way as had always been imagined — dignified imperialists defending their rightful lands from the menacing barbarian horde? Or as self-righteous barbarians once again disappropriating the lands of a diminishing indigenous people, to feed the appetite of an always-expanding empire…]

As a trader, my first objective is profit and success and indeed, am perhaps no different from earlier profit-seekers adventuring across oceans and continents in the name of “God, gold and glory”. But there may be cause for some self-examination, and a tempering of appetites will not hurt.

Mar

11

 Here is a little something I wrote regarding air traffic control and trading some time back. This was made in the larger context of Dr. Steenbarger’s study on Implicit Learning as applied to trading performance; the meeting point being a purposed ‘change in tempo’ (ie. an intended screen blank-out of air control elements), leading to a ‘mini-crisis’ demanding an immediate resolution from the air traffic controller. [Dr. Steenbarger’s study and references may be relevant to your thoughts above]

I have no special insight into being an ATC, and look forward to hearing the experience of others with practical knowledge in the field.

“Don said…

The moving dots test sounds a lot like part of the multi-layered testing and interview process used in air-traffic-controller recruitment: watching dots move across the screen, a sudden blank-out, then tasked to place the current dot position after an unexpected time interval; given a set of rules (eg. aircraft velocity, wind speed, altitude, angle of approach etc), to sort different scenarios and to sequence aircraft landing accurately; and others.

I learned later that ATC testing were carried out to measure important skills like time pressure reactions, attention diversion, time monitoring & estimation, pattern recognition, coordination/prioritization abilities.

While I eventually did not take up the ATC job (confession: I applied in a lark, having always been intrigued after watching the amazing Billy Bob and John Cusack in Pushing Tin), it was a revelation in a later interview for a trading position. The similarities in the skill- and mind-sets required as an ATC or as a trader was personally insightful.

While I may have missed out on pushing tons of tin across the skies as an air-traffic jockey, I’m still watching colorful blips and lines on multiple screens. And the biggest upside is that the worst that can happen is I lose money for my firm and/or for myself. Almost no lives are on the line when I do make trading mistakes.

And well, the money is better.” 

I have always been fascinated by this subject, having spent many enjoyable days and nights (even now as an adult) watching and mapping the landing/takeoff corridors used by the local airport; as well as timing and counting the interval cadence of the successive planes.

On some busy nights, you can see the rush of approaching planes from various directions: from the western hemisphere, east from across the Pacific, north from Asia, from Down Under – all gracefully playing under the baton of the ATC and eventually melding from their diverse orthogonal vectors of directions, velocities, altitudes into a beautiful straight downward line approaching the airport (sometimes stretching as many as five planes into the horizon).

It is a delight to watch such technical artistry at work, painted against the ever-changing canvas of the skies and a privilege to be able to get into the head of the ATC-artist, if only for a moment.

Jan

21

 Beyond the natural reading of the final-stressed-syllable rhyme, there is a wider range of rhyme types which, together with rhythm and meter, offers interesting prospects for reading market insights. Internal rhyme, where rhyme occurs within a single line or even as multiple rhyming patterns within and across lines and stanzas, seems to mirror the dynamic market state rather well. And one linguistic device which encapsulates internal rhythm and rhyme is the palindrome, especially the multiple-order palindromes of non-alphabet languages (one such palindrome, with 841 characters arranged in a 29 by 29 square, apparently contains 7958 poems – staggered/inversed/folded/turning/diagonal/etc.).

In the context of the markets, the simpler linear palindrome may offer a reductionist analogy to a common market structure like the range. Looking at the DAX H9 futures for the preceding three days (1/15, 1/16, 1/19), one sees an almost perfect harmonic waveform with regular amplitudes and periods – prices moving coherently in a range, much like a palindromic function. Of course, prices lost their palindromic stationarity today, breaking down through the range boundary in a loud tattarrattat-a.

One distinction that rhythm and rhyme confers upon poetic verse is a mnemonic-like structure which acts as a memory aid and allows for easier recall. And as commented, good assimilation and anticipation of recurring patterns, whether they occur in poetry, markets or video games, allows one that crucial edge necessary for success. Of course, some market days feel a lot more like Finnegans Wake or "Jabberwocky" than Mother Goose.

Jan

12

 Grandmaster Davies raises a good point in his post "The secret of the hand count."  Indeed, much of the major eastern consciousness lies towards cultivating such a state; but he may be surprised at quite a few western sources which may parallel. In the spirit of the theme raised, rather than superfluous explication, a more cogent understanding may be reached by placing hand over mouth and to just point and let ancient words speak for themselves.

“The pivot of Tao passes through the center where all affirmations and denials converge. He who grasps the pivot is at the stillpoint from which all movements and oppositions can be seen in their right relationship… Abandoning all thought of imposing a limit or taking sides, he rests in direct intuition.” [Chuang Tzu on wu-wei/non-being]

“Prince Wen Hui’s cook was cutting up an ox. . . . The ox fell apart with a whisper. The bright cleaver murmured like a gentle wind. Rhythm! Timing! Like a sacred dance. . . . Prince Wen Hui: Good work! Your method is faultless! The cook: Method? What I follow is Tao beyond all methods! When I first began to cut up oxen I would see before me the whole ox all in one mass. After three years I no longer saw this mass. I saw the distinctions. But now I see nothing with the eye. My whole being apprehends. My senses are idle. The spirit free to work without plan follows its own instinct guided by natural line, by the secret opening, the hidden space, my cleaver finds its own way… Then I withdraw the blade, I stand still and let the joy of the work sink in. I clean the blade and put it away. Prince Wen Hui: This is it! My cook has shown me how I ought to live my own life!” [to apprehend with your whole being - this version is Thomas Merton’s paraphrase]

“The purpose of fish traps is to catch fish. When the fish are caught, the traps are forgotten. The purpose of rabbit snares is to catch rabbits. When the rabbits are caught, the snares are forgotten. The purpose of words is to convey ideas. When the ideas are grasped, the words are forgotten.

Where is the man who has forgotten all words? He is the one I would like to speak with.” [on letting go of technique/words/language]

“A good traveler has no fixed plans and is not intent upon arriving. A good artist lets his intuition lead him wherever it wants. A wise man has freed himself of concepts and keeps his mind open to what is.” [Lao Tzu]

“The body is a Bodhi tree, the mind a standing mirror bright. At all times polish it diligently, and let no dust alight.” [Shen Hsiu - Head disciple of the 5th Patriarch of Chán Buddhism]

“Bodhi is no tree, nor the mind a standing mirror bright. Since all is originally empty, where does the dust alight?” [Hui Neng - temple laborer and later 6th Patriarch of Chán Buddhism, in reply to Shen Hsiu’s stanza above]

Cultivating samadhi (non dualistic discernment) towards allowing prajna (wisdom) to surface; to penetrate the veil of maya (illusion), achieve moksa (liberation) and reach atman (true self) - as in the Indian Vedanta.

Grandmaster Davies rightly speaks of the difficulty in finding Western sources which describes the same, but there have been western thought which shows some faint parallels, and which may be useful for further examination:

-Kant’s theory of imagination through which objective experience and subjective interpretation interacts dynamically in a limit process to arrive at perception.
-Schopenhauer’s sufficient reason.
-William James’s mysticism.
-Husserl performing phenomenological reduction in order to apprehend pure cognition.
-Heidegger’s existential Dasein - “being-in-the-world”.
-Jungian archetypes and potential actualizations.
-Emerson’s and Thoreau’s transcendentalism.
-Thomas Merton’s interior contemplation.

And perhaps, more recently and surprisingly applicable to varied fields, including trading –Timothy Gallwey’s Self 1 and Self 2 in his cult classic, The Inner Game of Tennis.

Dec

31

 The idea of triangular congruency possessing basic reductionist strength is apparent in nature, social interaction and by extension, market behaviour and transactions.

One market relationship which exhibits this property is the classic triangular currency arbitrage, which allows for the determination of the equilibrium cross-rates of three currencies. This necessarily invokes that most central tenet in arbitrage theories, the Law of One Price. And interestingly, some definitions have the Law of One Price as: "the resting place for an asset's price and arbitrage is the action that draws prices to that spot. The absence of arbitrage opportunities is consistent with equilibrium prices, wherein supply and demand is equal". Again this invariably leads back to the idea of a triangulated relationship between the two sides of demand and supply engaging to arbitrage/converge a plumb-line to the base of the equilibrium state/price.

The essential question in the financial markets of course, is in determining just how individual agents/traders’ market views (normally differing on many levels) transform or align into a herding market sentiment. Some interesting studies have used the percolation model (from the physical sciences) in accounting for how market views spread through a financial network topology; the crux lying in how network feedback builds and eventually escalates past the percolation threshold i.e. reaches criticality. A simple treatment utilizes a two-dimensional lattice of individual agent/trader interacting and inter-influencing neighbouring sites - reducing it to a pure geometrical percolation problem. And here the common triangular lattice is used as the basic building block for the network topology.

Dec

30

 It's my contention that except for the move from 9/19 or 9/26 to 10/10 when the S&P moved down from 1248 to 1216 to 890 (with 843 low that day — thanks for the macadamia nuts that day to my friend who visited), it was a normal year with everything behaving in a very orderly fashion. Nothing regular happened those two weeks and no one who follow the ecological nature of multiple time series fomented around here could have predicted this. Yet, according to some, they got it (especially for their own account but not their big public funds). What models from other fields, what insights might they have to offer? There is one field I'm thinking of particularly that I don't like to mention as it's like religion, and not fit for discussion until you die from it.

Victor Niederhoffer adds:

I believe that chronic inflammation is a major cause of reduced longevity. Such inflammations occur in markets, and produce responses that can lead to the replication of the wound in a market and spreading by the blood and lymph systems to other markets. When the inflammation is not cured quickly, and the natural defenses against it don't work, a situation such as the 25% decline in 2 weeks in early October can occur. Quantification of the inflammation process can lead to a longer life on this earth and the markets.

James Lackey writes in:

J ChambersWhat did we miss this year? We ignored the internal combustion engine or rotating assembly of the Bond markets. It was easy with your experience in buyouts to see Chambers's paying a million per engineer on buyouts as silly. It was a good investigation of yours that showed how the secret silo society always managed to beat by a penny on earnings to unleash their insider sell or buybacks to cover the non expense option incentive expenses.

But what happened in debt land… frankly I had no clue. Some of the tactics used in Structured Finance were no better, but over all worse than giant size penny stock scams. It was a simple pump and dump debt scheme that became a huge meme supported by Washington on Wall Street, so large that even the originators were caught with inventory… It was so bad that even the day trader's tipoff "Goldman was a seller!" was taken down in the vortex.

Seemingly no one believed the mark to market rule for all would ever become the law of the land and stand. After all, the bankers knew that if everything had to be marked the entire system was insolvent. Texas hold em meets the NY and DC rule makers. It was a good bluff, but they went bust. So they get new backers and are right back at the tables. The tournaments are simply moved to new casinos.

Don Chu observes:

“If a man should happen to reach perfection in this world, he would have to die immediately to enjoy himself.”

-Josh Billings

Dec

1

 Back when I was a freshman in college, I had to take a course in University Physics. I found the course to be most practical, and helpful in the development of my thinking. One phenomenon that we studied in that class was the concept of Parallax. A quick Wiki definition of parallax is:

"Parallax is an apparent displacement or difference of orientation of an object viewed along two different lines of sight, and is measured by the angle or semi-angle of inclination between those two lines. The term is derived from the Greek parallaxis, meaning 'alteration.'"

A person can observe in real life the effect of the parallax by measuring something, using a ruler and not looking directly over the scale. By looking at an angle other than directly over the scale will cause a measurement error due to the parallax. That error can be measured and corrected by knowing the distance from the object and the angle. One's measure of the market might be affected by an internal, mental parallax. This parallax might be a function of the time frame, or might be something else… what else I don't know. It would be interesting to see if anyone has studied or quantified this concept as related to markets.

George Zachar adds:

 Greybeard camera buffs have studied this, using twin-lens reflex (TLR) cameras. One of my prize possessions is the Voigtlander TLR my dad took with him, fleeing Europe in 1949.

Lots of info on this phenomenon in photographyland.

Don Chu writes:

 “The stars are the apexes of what wonderful triangles! What distant and different beings in the various mansions of the universe are contemplating the same one at the same moment!” (H.D. Thoureau)

Thoreau probably did not have in mind stellar parallax in relation towards distance computation, and his imagined use of triangulation is more a heartfelt outreach to find resonance with another, be it of this world or otherwise. Still, there may be something in Thoreau’s words that transcends their initial appearance and speaks more directly to Mr Watson’s musings.

Thoreau continues from the above: “Nature and human life are as various as our several constitutions. Who shall say what prospect life offers to another? Could a greater miracle take place than for us to look through each other’s eyes for an instant? We should live in all the ages of the world in an hour; ay, in all the worlds of the ages. History, Poetry, Mythology! — I know of no reading of another’s experience so startling and informing as this would be.”

Paraphrasing and taking enormous license with the inimitable Thoreau and one contemporary other, perhaps the inspiring lines above may be reduced to the more familiar and definitely modern - “a latticework of mental models.”

Mr Watson rightly postulated “internal, mental” parallaxes predicated upon by any number of possible variables. But one fears that trying to elucidate error terms in any single mental construct may necessitate recourse to never-ending phenomenological reduction and render any resulting “cognition” and perceived derivative error to be indeed, in doubt.

The unkindest and yet most impersonal a priori parallax may come from the observer himself, delivered through the remorselessly agnostic Observer Effect. In the context of the markets, presupposing that the state of a market system exists independently of its observer/participant will surely be unwise and inevitably, loss-making.

But here is a naive yet hopeful thought — perhaps singular errors from any one mental construct matters less from the perspective of the whole. If every man holds in his mind (and inherently all men do, to a greater or lesser degree), a “latticework of mental models”, then in a mind where the structural tensions and forces remain basically stable, it follows that individual mental disjoints/errors have mitigated and largely damped themselves out.

Perhaps a healthy dose of History, Poetry, Mythology! shall prove to be rather profitable…

Henry Gifford comments:

Older meters of the type used to measure electronic circuits have a speedometer type needle that moves across a numerical scale. To eliminate parallax there was a mirror mounted just above or below the numbers scale, which allowed a user who was not viewing the instrument from directly ahead to look at both the needle and its reflection, and use the reading that appeared midway between the two.

It reminds me of looking at currency values relative to other things instead of just each other.

Perhaps some prices of seemingly unrelated markets which have predictive value that could be used to trade in one or both of the seemingly unrelated markets.

Archives

Resources & Links

Search