Currently I am researching price gaps. So far I must say it is a positive surprise in the flood of patterns that do not hold or are mediocre. What do Specs think about price gaps and what is your preferred game: going against the gap or with the gap?
Larry Williams writes:
In my view, gaps are very helpful in trading as a sign of excessive emotionalism.
Gaps are price zones with highest consensus and lowest struggle for discovery of price. When there are no buyers and only sellers without a contract traded price gaps down and vice versa.
Volume is a measurement of the struggle for discovery of price. Absence of volume then must imply minimalistic struggle for the discovery of price.
Yet, at the gaps, particularly in larger ones, there are debris of bad trades that have become bigger than the loss tolerance of over-intelligent traders. When prices return back to such gaps the "getting even" type traders provide the counter trend support / resistance, perhaps.
This paper by Yi Wen explains China's remarkable growth very well:
By asserting that political institutions and the rule of law are prerequisites for economic development, such theories [i.e. those of Gerschenkron, Acemoglu and Robinson, and others] overlook the endogenous and evolutionary nature of institutions and the frequent disconnections between rhetoric and practice, between the rule of law and its actual enforcement, and between political institutions and economic policies. Thus, these theories end up confusing consequence with cause, correlation with causation, political superstructures with economic foundations, and open access to political power with open access to economic rights. Specifically, universal suffrage was the consequence of the Industrial Revolution instead of its cause, and modern sophisticated Western legal systems and the ability to enforce them were the outcome of centuries of economic development under colonialism, imperialism, mercantilism, the slave trade, and painful primitive accumulations.
Stefan Jovanovich comments:
The Tariff and the Gold Standard - those twin villains of 19th century
American political economy - did for the United States what China has
achieved through the same export-biased mercantilism.
August 10, 2015 | Leave a Comment
St. Louis Fed (@stlouisfed) tweeted at 6:45 PM on Fri, Aug 07, 2015:
"Commercial and industrial loans declined by $10.4 billion in a week to
People have stopped borrowing…what does that mean or lead to?
Sometimes borrowing declines before recession.
Despite stock returns once having been thought to be unforecastable, there is now plenty of optimism that this is not so, as the examples in this paper show: "Forecasting Stock Market Prices: Lessons for Forecasters"
Despite media hoots and jeers
Their accounts are not in arrears
Cassandras get headlines Yet end up in breadlines
The following observations are based on my 2 campaigns for the US Senate, both primary and general election campaigns as well as friendships with more than a few Senators and Congressmen.
To begin, all candidates need $, more now than ever before. In my state, Montana, in 1978 we spent a little less than 1,000,000. Today's races they are >10,000,000. I refused all outside the state PAC money as I thought money "buys" politicians.
I was right…and wrong.
Regardless of your politics if you can't fund a campaign you will not get elected, so you need money. The typical view, as Stef has expressed, is that votes are bought and paid for. Not really.
There are 2 functions a Senator performs:
1. to represent a political view (liberal, conservative, wobbly or a wonker)
2. BUT that is not the main job…the primary job is to help your state and proved great constituent services (this is what gets you re-elected). Thus there are 2 types of money 'political view' and state interests.
Soros or the Koch's don't buy votes…
What happens is they find and support like minded thinkers who generally support their ideas of more/less, etc government. That is all they can 'count on'. They know money talks and contributions will at least get viewpoints listened to. That is not to say a few politicos tumble to the tune of money, but by and large they do not– and contributors well know of Willie Brown's quote when asked how he could take money from a PAC and vote against them replied, "If you can't take money from them one day and vote against them the next, you should never be in politics".
So while 99% of people on this site and in real life think lobbyists buy votes they are right about 2% of the time. The guys they contribute to already agree with their agenda. They are politically congruent, on the same side. Lobbyists can be very helpful in getting data for your staff to look at, and a good staff listens to lobbyists on both sides of the issues.
While we focus on the politics/agenda of candidate, an effective representatives work is representing his states interest and helping citizens there in a myriad of problems and opportunities for him or her. And, that's what gets you re-elected. When Mrs. Jones says you saved here SS check, or a business guys got help you get votes. That's why a liberal state and can have a conservative congressman.
Most folks confuse the job of their reps. They represent them and the state's interests.
I saw Penn and Teller's show with Aubrey. They state there are 7 principles of magic. Palm, ditch, steal, load, simulation, misdirection, switch.
How are these principles of magic carried out in markets. It's a nice classification of deception I think, but I don't know enough about magic to dare to expatiate.
Larry Williams writes:
I would add—big move covers little move and confederate.
Tom Printon writes:
I just finished the book Sleights of Mind by Stephen L. Macknik and Susana Martinez-Conde.
Two neuro scientists get an insiders view of how magicians operate. Many interesting insights on biases and deception. Could help a trader navigate a flexionic world where up is really down and down is really up.
There are some good passages from Teller, and it's worth a read in my opinion.
"Magic tricks work because humans have a hardwired process of attention and awareness that is hackable."
With the opening up of the Saudi Stock Exchange (Tadawul) last month, H+K Financial's Bobby Morse writes in Banker Middle East about the new communication priorities this brings for companies in the Kingdom.
Worth more than all regional Gulf markets combined, Saudi Arabia's Tadawul is arguably the jewel in the GCC's capital markets' crown. It is home to some of the region's most prized investment targets, including blue-chips in key sectors such as petrochemicals and banking.
Up until now these investment opportunities have been largely out of the reach of the vast majority of non-Saudi investors, except through complicated swap arrangements. However, from June 15 this is set to change as the exchange opens to foreign investors.
With the world's most powerful fund managers now eyeing the Kingdom's brand new and extremely attractive opportunities, we can expect to see Saudi Arabia's companies concentrate on their internal structure and external profiling.
It's not really open in the sense that most US equity investors would expect. Foreigners still need to be approved as a Qualified Foreign Investor in order to buy Saudi shares. JP Morgan put out a SA investment primer last month in which they termed the qualification process as "somewhat cumbersome." I got the sense that the Kingdom wants only the most passive of foreign share owners, with significant limits on foreign holdings in each particular company, and there is inability to effect takeovers or present as an activist.
It also isn't clear what the solution is to a structural budget deficit problem might be (other than the possibility of higher energy prices). Their economy seems to be the antithesis of what libertarian minded folks (such as on this site) would want to see in a marketplace. You can get exposure to a somewhat corrupt and deficit-burdened energy sensitive economy by allocating assets to Russian equities, at far lower valuations than are offered in SA.
We have a summer intern with us from a university where he has been taught that prices are random and markets not predictable, EMT, anyone have any data, studies etc I can show this poorly educated fellow to enlighten him?
Rocky Humbert writes:
It sounds like you picked a summer intern from a university that is using obsolete textbooks.
Virtually no academics (including Fama) still believe in the gospel of strong-from EMH. I don't think it's possible to "disprove" semi-strong and weak-form EMH because the theories are constructed in such a way as to leave wiggle room.
If you are suggesting that all forms of EMH are incorrect, then I beg to differ.
Lastly, data mining to find low probability events (as some speclisters have suggested) does not necessarily prove nor disprove a hypothesis anymore than pointing to Winston Churchill as proof that cognac and cigars lead to a long and vigorous life. Most of the time, the market is darn efficient. And that's one reason that markets are the best way to allocate resources.
Russ Sears writes:
Perhaps the best set of data I can think of to disprove ALL forms of the EMH is the interest rates over the last 50-60 years. In the 60's the Phillips curve took over the feds interest rate models since then the bias has been more control of the interest rates is always right. Likewise from 85 to now feds have stopped both inflation and any liquidity crisis (real or imagined). Granted it is a bit of cherry picking to calculate the chance of randomly reaching 85's interest rate levels from 1960 and then multiple that by the chance of coming from 85's levels to 2014/15 levels
I lost a job because in the interview I told the guy in charge of the modeling for a one of the biggest insurance companies that I thought he was wasting the companies money having 2 Phd's calculate the interest rate scenarios using the random walk. The company hadn't even tested any of their correlation of their interest rates competitiveness to their change in lapse rates. But they wanted to have a risk neutral yield curve monthly binary tree model built 30 year out quarterly nodes with several orders of accuracy. If you used such a model for the past 2 X 30 year periods each actual outcome would at best been so remotely possible that only a naive statistician would not see the coin flips were rigged.
I was told that the interviewer thought I was too simply and couldn't handle the sophistication of the math they wanted. Academia seems to thrive on sophistication for job creation sake, not money making sake. Not coming from the Ivies or having a Phd I assume that the only reason I got the interview in the first place was that I had made my past two companies millions betting on long term gamma, for almost nothing. So what do I know.
Even the idea behind the Feds "control" screams non-random walk. If you stifle the short term natural swings it is bound to have long term consequences.
Gordon Haave writes:
"I was told that the interviewer thought I was too simply and couldn't handle the sophistication of the math they wanted. Academia seems to thrive on sophistication for job creation sake, not money making sake."
That very accurately describes all of economics and everything surrounding the Fed, although it is not for job creation sake but rather for obfuscation sake. There is nothing more satisfactory than telling an economist that the fed is printing money only for them to rant and rave that the fed doesn't actually print money, and then saying "I know, but the effect is the same".
Then the response is always "it's more complicated than that". But they will never really tell you why in a meaningful way.
Russ Sears writes:
Perhaps I should read the paper before I comment but my bigger point was to actually be a "science", actuaries and other modelers need to form a hypothesis/model and THEN look at the actual results to at least adjust that model if not scape it altogether. The math is made to predict the data. Not the predictions must be based on the beauty of the math theory Otherwise it is a philosophy not an art.
Academia loves philosophy because it implies the philosopher should be in charge. They dispose science because it implies academia must be humble to the wisdom of the crowd. If you're predicting rate of change long term then it is not enough to validate your models using first order changes such as lapse rates. You must validate second order effects such as shock lapse rates and long term drifts. It shows it gets messy when the philosophers are in charge.
June 20, 2015 | Leave a Comment
As I continue on my arduous journey for selecting and also constantly keeping traders at their A-game, I was wondering if Vic, Brett or others on the list have any experience with how Sports Psychology could be used with Traders.
A competing athlete goes through pretty much the same psychological challenges that a trader goes through…and I was wondering if any research had been done on this subject.
Mental training helps athletes perform more consistently, find the zone more often, keep a winning streak alive, and learn how to think well under pressure. Or, as one sports psychologist put it, mental toughness is "the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances." As psychologists debate the roles of genetics, environment, and learned skills in determining mental toughness, they do agree (along with athletes and coaches) that high levels of mental toughness are associated with athletic prowess and success. In fact, mental toughness (or "grit") may be the defining factor between finishing at the front of the pack and not finishing at all.
Any thoughts from Specs would be welcome.
Victor Niederhoffer writes:
One would turn to Galton as one should on most areas involving human faculty. The key to athletics success is the sports gene. A key to trading success is intelligence. I would also look to the circle of friends, colleagues and influencers that a prospective employee has. Is he benevolent or a hoodoo. Beware of the hoodoo, and stay with the ones that create benefits for those associated with them.
John Netto writes:
Sushant. I would read Market Mind Games by Denise Shull. It's excellent and will be a nice resource on your journey. Good luck.
Ability to learn from and then put losses behind them. The inevitable mistakes being made are then analyzed, learned from, improvement sought, and then move on without negative baggage and lament about what could have happened.
Longevity. Injury, early retirement, or large losses do not afford one the ability to succeed.
Independent thought. A Zen like ability to follow one's own methodology and ideas in a non-conformist fashion, yet to balance with the ability to absorb appropriate outside information
Simple hard work. The will to stay out on the field longer than anybody else. Think Jerry Rice, Marcus O'Sullivan, Patrick Kane, Michael Jordan.
Brett Steenbarger writes:
Frankly I think the best writing on the topic is your account of your racquetball career. I agree that mental toughness is important, but all the toughness and repetition in the world won't be helpful if a person is working on the wrong things. I continue to find that good trading makes for good psychology just as often as the reverse.
Larry Williams writes:
The mark of all greats is the ability to come back from behind.
Hernan Avella writes:
From Handbook of Sport Psychology. Gershon et al.
"Personality traits like dispositional self consciousness, reinvestment and trait anxiety have been associated with predictors of performance failure. Research has also demonstrated that giving athletes practice at dealing with the types of attention demands that performance pressure induces can reduce sill failure when the stakes are high. Also, that preventing athletes from acquiring the type of explicit knowledge that pressure may exploit to begin with may also help to quell the negative effects of stress at high levels of performance."
Paul Marino adds:
I had a long discussion today with my father regarding choosing the humble person over the boisterous kind of person in any of of life's dealings, from the dry cleaner or barber to your doctor or broker. I tend to get less agitated around the humble and have an easier time speaking my mind. If my physician was loud I might not tell him as much about my life and habits as I should. It's what works best for you that counts, like in any system, trading or otherwise. "Know thyself" may be the best known and least used maxim of all time.
About a year ago I clicked on 'Al Jazeera America' with the preconception that I'd be treated a glaring example of biased journalism, but instead found their news coverage was presented from a middle-of-the road perspective and clearly not US centric.
Marion Dreyfus writes:
Al Jazeera acknowledges they no longer hove to the neutrality/journalistic vantage they promised years ago they would. There is a major lawsuit afoot where the failings are bruited–discrimination to non Arabs, women and hirelings, as well as an abdication of following news that is not pro-Arab and involved almost wholly in Arabic and Arabist affairs. It pretends to a journalism it simply does not follow. People of integrity have abandoned them as they noted this falloff.
Stefan Jovanovich writes:
Much of what passes for today's journalism is, depending on the publisher/broadcaster, disturbingly and unapologetically, skewed one way or the other. I find myself visiting Al Jazeera regularly - so, too, with Russia Today, NPR, and HuffPo. None are particularly congenial to my world views but each provides in its own way, the dialectic missing from those with whom I find favor. Once upon a time it was recommended that for a view from the right one had to check out the Chicago Tribune, for a view from the left, the NYT, and for a straight account with little or no clever manipulation of adjectives or adverbs, the Christian Science Monitor.
Most other news sources still provided enough of an editorial mix to escape being pigeon-holed. Perhaps the worst thing to happen to print journalism (and with a knock-on effect to the other branches) was Woodward-Bernstein. Hailed then (and still now) as journalistic heroes, their work brought about substantial changes in "straight" reporting. College J-grads increasingly aimed for opportunities to break the next big expose - straight reporting became a dull backwater.
It didn't take long for TV to pick-up on the trend (a liberal trend) which went largely unremarked if not un-noticed . Then Limbaugh and others created some pushback with "talk radio" - which didn't go unremarked, but received a considerable amount of flack - from print and TV…with which I had no complaint…at least initially.
However, what was once a battle between rich publishers with conflicting world views, moved from the Op-Ed pages into the rest of the publication and, eventually, it became increasingly difficult to find a "news story" that didn't, in one way or another, skew the narrative into one that reflected the views of either the author and/or publisher - whether that manipulation occurred during the writing of the article or during the editing process has remained a matter of contention. That question is no longer germane as media outlets increasingly hire only those whose views conform to readily identifiable "values" (to be fair, it is an unusual applicant who applies for a position at an organization hostile to his views.)
Unfortunately, this absence of dialectic has spread to the one place where it should be most strongly championed: the university. No better example can be found than the recent pronouncements of Bettina Aptheker (now Professor Aptheker), an admitted "red diaper baby" and one of the notable participants in Mario Salvio's noted "free speech" crusade at Berkeley - an event whose 50th anniversary will be "celebrated" later this year. Unfortunately, though not unexpectedly, Aptheker has had an epiphany. I quote:
"Freedom of speech is a constitutional guarantee, but who gets to exercise it without the chilling restraints of censure depends very much on one's location in the political and social cartography…We [Free Speech movement] veterans … were too young and inexperienced in 1964 to know this, but we do now, and we speak with a new awareness, a new consciousness, and a new urgency that the wisdom of a true freedom is inexorably tied to who exercises power and for what ends."
A growing number of California's public universities have instituted restrictions on free speech. Sic transit gloria mundi.
A final comment. For somewhat different reasons I have a problem with a List issue that came up some time last week. Rocky has regularly challenged the veracity of Zero Hedge's reporting; others throughout the Net have made similar observations. However, as a source regularly referenced by many other commentators/posters, I find it unwise to not keep abreast of their "contributions." However unmeasurable, they do have an impact - one I believe that should be monitored rather than ignored.
Larry Williams writes:
I will be speaking there in a few days so did this forecast of their market. Still looks like more rally to come.
Bud Conrad writes:
I spoke at a huge mining conference last fall and was amazed by China: BIG, teaming, gets things done, has all the latest technology, awful pollution. Despite many warnings from Western economists of Impending real estate implosion, Local government debt, Shadow banking, and Unregulated shark loans; China has kept its momentum. I think optimism on their stocks that may lead to a bubble that exceeds 2008 is likely.
China is positioning themselves to be the world's primary source for commercial nuclear power technologies. They bought their IP from the French and the Americans. They improved on that IP to form their own brand. In the process, they lowered construction costs. Of course, they will attempt to make it on operations and services.
It appears China's biggest competitor is Korea. Their next biggest competitor appears to be Russia.
While painful to acknowledge, American and European technologies are not competitive.
Trend days are the exception rather than the rule. We are looking for are rules, but is it possible to find the exceptions also? Trend days are something to avoid for mean reverters who get caught in a trend day or multiday trends. However, if one stays long all the time, its been found that a large percentage of the overall increase in value comes on a few days. Just playing the long side probably helps the odds in the long run. On the other hand, the big jumps in volatility and big moves on occasion are to the downside. The only thing I can see that sets up a big trend day is when buyers or sellers are totally outnumbered exponentially right from the open. Big up trends days can set up after big declines but its a matter of being positioned and hold long enough to catch the big trend days that can make your year. One must also avoid being caught the wrong way that can end your career. The Learned Professor posits the opposite: that fat tails are the rule and that the exception eventually swallows the rule. Statistically one must hold the defined period at the defined leverage to realize the normal expectation. My common error has been to try to beat the expectation which apparently is not possible over time. In conclusion, it appears that one can only follow the rule, not the exception. The problem however is in reality the actual variance has and will exceed the expected variance.
Larry Williams writes:
There are 2 things that help define trend days.
First, they are hard to know in advance, but trend days (large ranges) almost always close at the high (up trend) or low (down trend) so best working strategy is to hold to the close if it looks like you are in a trend day.
Secondly, trend days are usually proceeded by small ranges and small open to closes.
Stefan Martinek adds:
Once we are in a high range day, usually more is coming in the same direction (vol. clustering with a drift). To overcome the cost of trading, it seems that 3-5 days (bars) holding or some combination is preferred. Regarding the point below "Just playing the long side probably helps the odds in the long run.", it is maybe correct in equities. When we trade on a basket of futures, not just ES, eliminating short trades usually damages risk adjusted returns.
1. One wonders to what extent ind stocks that go up when market is way down are bullish in the next relevant periods. Does something comparable for markets exist.
2. Gold and spu both break through round number on same day. Is it non-random.
3. How low do grains have to go before they turn bullish.
4. One reads The Life of a Leaf by Steven Vogel which shows leaves reacting as much to their environment as our markets do to theirs.
4. The absurd moves up in bonds whenever the economy is weak because of expected liquidity from the fed, and more importantly the absurd moves down in them when the announcements are strong, provides opportunity.
5. I own a reasonable quantity of twitter on the sprained ankle theory . Will it suffer the same fate as the blackberry I rode down from 60 to 10.
6. To what extent now do companies that are hit hard in the stock market by revenue shortfalls provide opportunity.
7. One of Wiswell's favorite proverbs was that "checkers is a game of architecture". I believe the same is true of markets, but I am not a good enough architecht to apply all the proper principles.
8. There are more things in heaven and earth. The great great grand nephew of Robert Boyle comes in and tells me the reason that one can't make money trading in stocks is that all the high frequency people use some sort of lock the price then front run to get ahead of you and not violate the rule that the customer has to get the best price.
Larry Williams writes:
Please tell the great, great, grand nephew there are still people making money buying value/momentum stocks and holding for more than a nano-second.
Whenever I hear people decry the market place as to one person, group, etc running the table so we mere mortals "can't" succeed I think it is just a losers lament.
People, lots of them, still win in this game.
Gary Phillips writes:
Everybody needs a "scapegoat" especially the the disenfranchised traders who thinks the market owes them a living.
It is particularly fruitless on that small time scale because any countermeasure you develop that works will be viewed as a criminal act. You either actively lose or you are found guilty of winning–take your pick. Larry's idea is the sensible one.
Victor Niederhoffer replies:
As the EC says about all their countries, "they're one of us. We'll protect them", the grand nephew is one of mine. He worked for me and did a fine job, and is well aware of the drift. His only weakness is that he knows that the other side is a bunch of highway robbers, and like the man who complained about the Australian moves even though he doesn't change it, he's a real trader and knows you can never get an honest deal from the markets.
Over at Business Insider, they carried this graph. It looks pretty scary. I don't think it's possible to sustain current prices in the face of declining inflows, but maybe I'm misinterpreting it.
Larry Williams writes:
Look at the chart! This has happened many times before where the blue line guys got out and the rodeo went on higher. It's not the first rodeo they missed. Who're you going to believe, the chart or a cub reporter?
Steve Ellison adds:
I don't have the data to test this rigorously, but my hypothesis is that "net inflows to mutual funds" is a contrary indicator if it is an indicator at all.
All the studies such as the ones carried out by DALBAR suggest that returns weighted by investor money flows are always worse than time-weighted returns.
There is a movement of people who think that this "behavior gap" can be closed with education or sound advice for all. I find it more likely that it is a necessary feature of markets for the reasons described by Bacon. Some can do better but nothing can work for everyone at once.
Victor Niederhoffer writes:
One would have thought that this post came from Mr. Conrad rather than you, who has been exposed to the drift.
Bud Conrad responds:
Mr. Niederhoffer mentions my name as suggesting I might be bringing negative opinions about the future for the stock market, but I have been relatively quite on this list in that nature in recent years. My base for stock market valuation comes from the view of comparing the potential return from the stock market earnings to that of long term government bonds. For several years and continuing to today, the returns from stocks as measured by dividing earnings by the price (E/P ratio) have far exceeded the returns from fixed income, so I have been a bull on stocks, despite the many worrisome commentaries about the general economy. The Chair and others will recognize this general approach as sometimes called the "Fed Model" for stocks. My summary comment is that "The stock market is the best game in town", sort of like the comment on the dollar compared to other currencies as "The best horse in the glue factory".
I have been bullish stocks for the first half of 2015, but with caution that there are other forces like the Fed raising rates, a slowing GDP for the general economy, a disastrous collapse in the oil and gas fracking that will cost lenders huge sums, and continuing trade and government deficits that make me be more concerned that the outlook for 2016 is possible for a down turn. I'm interested in extending that watch for a turn in stock market optimism as others find quality analysis.
As to the specifics of the flows in the chart from BofA ML, I notice that the 2013 down turn in flows didn't hurt this bull market, so the indicator may not be capturing some of the drivers, like possibly foreigners that are even less enamored with their domestic prospects, who may be finding dollar denominated assets much safer than say those in the declining Euro. As a related note in my local area: Palo Alto is supposedly 20% owned by foreigners, mostly from China. Real estate prices are booming in Silicon Valley, and there is plenty of inflation in asset prices here.
Anatoly Veltman writes:
This was an interesting point, reminding me of a disaster of a trade I had in 2005. Copper, for the first time in history, eclipsed its decades-long resistance of Fibonacci $1.6180 level at the COMEX. It was clearly driven by developing China demand, and I wouldn't stay in its way. I had good luck picking up Longs at the other Fibonacci end around 61.8 cents just six years prior…
But as the 2005 rally progressed beyond the $1.6180 breakout and all the way to the un-phathomable $2.000/lb round - I could hold myself off no longer. My Shorting reason was that throughout the 2005 rally, COMEX Open Interest figures have declined(!) dramatically. Classical technical analysis states that a commodity's prolonged upside run, when accompanied by progressively declining Open Interest - must be Shorted!! The reasoning is very compelling: in zero-sum game, such event can only mean one thing - that the pricing is extremely over-bought, while progressively more-and-more Shorts have already covered!! Thus, as a new Short, you're getting the greatest downside potential in history, while the risk of potential blow-off to the upside is now severely constrained. Well, I'm still a huge believer in this indicator, except…
…2005 happened to be the first year of an unprecedented GEOGRAPHIC shift in Copper inventory. Away from the COMEX in US, and in favor of the LME in London as well as a brand new physical and derivative market born in China and vicinity. While the COMEX Open Interest was going through temporary decline, the pick-up overseas was enough to feed the demand and put further increasing stress on supply. Thank goodness for my catastrophic COMEX stop-loss above $2.0025 - that trend roared unabated straight to the next Fibonacci extension of $3.62!
Some people are going to believe what they want to believe, hear what they want to hear, and avoid information that contradicts what they already think or believe. These are the people who find comfort with a group-think mentality. On the other hand, there are those who love to fade the market, for the sake of being contrarian. These people cannot resist doing the opposite of popular opinion and possess a mindset toward reactive devaluation. This forum strives to operate on a level where useful information is transferred from one reader to another; often times from the extremely knowledgeable (victor, rocky et al) to the less-so (myself included). We all strive to reach independent conclusions based on a reasoned process. We ignore popular opinion, and do not take anything at face value. We keep open minds, organize and filter our ideas to determine what is relevant, yet allow conflicting ideas to generate new conclusions.
In an effort to promote and perpetuate this practice, I still find myself sanguine about the prospects for the market. Real short-term rates are still negative. The fed maybe tightening, but the yield curve is steepening. GDP has averaged 2.25% per year since 2009, and yes, real GDP growth in q1 was weaker than expected; but that may only serve to be a down-tick and not the beginning of a nascent trend, as as was the case last year. Growth is there, but it has been stultified by the Obama administration's policies. If we were to see tax rates and regulatory burdens rolled back with a new administration, we could see a renewal of corporate investment and risk-taking and an acceleration in productivity and growth, and a much higher market yet.
Jeff Watson writes:
Many are overthinking this stock market and are missing out on the move. Trying to fit events into one's belief system can be very costly in the long run. Sometimes, like in surfing, you just gotta catch the wave because it's a groundswell, and the waves are stacked up like corduroy all the way to the horizon. Plenty of opportunities here.
Wall street leading analyst calls for major crash of 35% decline to start now.
The son of a gun has never been correct.
April 17, 2015 | Leave a Comment
This does seem to correlate with tax levels in each of the states. [Note that California, a warm weather high tax state is losing not gaining].
The reasons trend following doesn't work are myriad including ever changing cycles transactions costs, and bid asked spreads, the opportunity to game the system against them, and the ease of triggering mechanical rules and the fact that markets are homeostatic, and supply curves change as prices move up or down.
Ed Stewart writes:
In my opinion, part of it is that people who mostly trade their own money look at IRR or "cash on cash" returns, and thus see issues of gains and losses more clearly vs. those who only look at marketing documents and time-based returns of recently hot funds.
Larry Williams writes:
Trend following does not work on just one (or 2, 3, or 4) instrument. Trend followers have to have a large basket of 'bets' on the assumption that someplace in the world a market will trend and that one massive trend—think CL this year and last—pays off the other bets.
It's like betting on all the numbers in Roulette one number pays big odds. Trend followers say they cannot predict which number will show or market will trend, but with enough numbers bet, one will win.
Stefan Martinek writes:
Larry, you make a great point. TF is more risk/exposure management on a basket than trading. Argument that benefits of diversification end after ~20 markets is such a nonsense (my teacher said that too together with other corporate finance theories; they probably never tested anything outside of equities).
Diversification across groups, styles, markets, and time frames improves risk adjusted returns in a long run. Of course in a short run concentration is great - let's bet all on Apple. TF has a nice barrier of entry which is good: First, some money is needed; second, most operators cannot run 2 years without rewards if necessary. They quit. Philosophically it is somewhere between "systematic macro" and "private equity". In PE you expect that most bets will be a crap unless you are in LBOs and other later stage deals. You expect that some areas will be in slumps maybe for years. Patience is such a great thing if one can afford it.
Orson Terrill adds:
Well if I hadn't unnecessarily deleted all of my old code I would just spit out some examples… I wrote several functions that tested trend following, and mostly what was observed was that the number of intervals (days, weeks, whatever) in which a trade would be open generally follows an exponential distribution.
For those that do not know what that implies: Lets say trend "A" has been going for 5 days, the probability that the next day will be the end of trend "A" is roughly the same as if trend "A" were 1 day old, or 20 days old. The next day the probability of "A" ending is generally the same, regardless of its age (like a Poisson process for the arrival of the end). The general notion that longer trends are more, or less likely to end, due to their age, is not backed up.
Just because a run is multiple days old/young does not mean it was profitable. In many markets nearly half of the period's range is traded through during the next period, on average (I think this is true on almost all scales in the EUR/USD, but its been a while). This means getting in on momentum greatly increases the likelihood that a trade is entered at such a point where near term downside is slightly more likely than near term upside (assuming its a long equity position).
There were marginal improvements through adding responses to measures of volatility(mostly changes in absolute ranges), rates of change of price medians from multiple length of time intervals, and most significantly in the general case: reversing intra-trend can garner a couple tenths of 1%. Specifically applying those while using several time series which switch regimes in the sharing of strength of running correlations in percentage changes like SPY, TLT, and GLD, might have some interesting results (I eat what I kill, so I had to leave it there).
Here it is; Two old men coming out…now the media will be forever on our side. Vic captured their minds—I’m still here—and they are still talking about him as the legend he is.
My highlight of the baseball game was seeing people eating pizza (and other food) with chopsticks. Lots of traders here and some very successful one; they like to test
Vic Niedehoffer adds:
Larry and I are on the same wavelength. At a great sushi dinner, an attractive tv reporter accompanied us. She mentioned that she had interviewed a certain world traveler that is old hearted about commodities at his home in Asia. Before she finished the sentence Larry and I both spontaneously and independently said " did he hit on you?".
Aside from standing on Larry' s shoulders and seeing the Giants warm up, I visited the Tokyo and Kyoto fish markets, and had the best sushi of my life at Awagi Island rite across from the Pearl bridge, the biggest suspension bridge in the world. The Island is the shell fish capital of the world, and I had 4 sauteed abalones, which I haven't had as good as since 50 years ago at Sams on Bush street. They now cost 50 bucks a 3 inch circular abalone versus a buck or two in my day. The restaurant is a fish market during the day and converts into a sushi restaurant with all the local fish of the day in the evening. I had some Kobe beef hamburger afterwards as a test, but it's so tender that there is not much firmness in it. vic
Gary Rogan complains:
It's interesting to note that you stressed directly the opposite back in 2007. You emphasized both on Dailyspec back then and live at the Junto, that your favorite seafood sit-down's in San Francisco menu merely appreciated not even three-fold over as many as three decades past. Your point was to knock down commodities' long term potential vs stocks. I could never understand why you meant that to immediately be Bullish for stocks vis-a-vis commodities. Did the fact that Stocks were at yet again historic high vis-a-vis commodities that languished for decades was comparatively Bullish for stocks?? I was shellshocked. Now we hear an opposite song: $50 vs $1-2! The deflationary omen?
Gary Rogan comments:
Abalone doesn't seem like a good predictor of anything general, especially their prices in San Francisco. All commercial fishing of them is banned. As for comparing their prices in Japan today vs. California 3 decades ago and deciding what it means for commodity prices, this has got to be a job for the famous trader who is based in Asia who is the only person smart enough to accomplish this feat.
At dinner here in Tokyo with Vic a young 'cub reporter' seems to have fallen for the notion in America that inequality is rampant; wealth is in the hands for the few. Vic demolishes the notion. To take it a step beyond I looked at some charts ..a 43% increase in millionaires since 2008, more wealthy people than any other country. America is still the land of opportunity and allows for upward mobility.
S. Martinek says:
The reporter's complaints remind me of this famous reply by Margaret Thatcher: "On Socialism" [You Tube, 2:34].
Vic Niederhoffer adds:
I would add however that the cub was no cub but the main producer and a very competent one of a major program on Nippon Tv about the future. She is planning an interview with Pikety, and Larry and I gave her a little food for thought. More important she accompanied Larry and me to a Tokyo Giants game, and we saw a 75 year old coach lead the team in 10 minutes of calisthenics 10 minutes before the game, berating all the laggards all the while. I commented that if a coach did that in the States he would doubtless be strangled. But the lesson of group harmony and orderliness before a performance should not be lost on all trading rooms.
Any reader who has not looked at a price chart in the past 90 days please stand up and identify yourself. For that person and that person alone can cast a stone (at technical analysis).
Gary Phillips writes:
I look at charts all the time, but that's really not the point. For someone who is as truly blessed with the ability to determine causality as yourself, you must realize that charts are not predictive in of themselves.
Larry Williams writes:
Parts of charts are most definitely predictive. Patterns repeat. And I agree that so much of TA is misleading and based on whims and fancy yet there are parts that really do work.
Ah, the chart debate has returned.
While surely an example of survivor bias, I have witnessed industry greats use charts and technical analysis as part of their speculative arsenal. Of more interest is that these people used their own personally derived versions of these methods and not the versions available at no cost to everyone. I dare say that the creators of well known indicators have ways of using them that they would never reveal (rightly so!).
A few points about charts:
1. At the higher frequency end, in the OTC macro markets, ALL of the chart services are wrong and ALL of the chart services are correct. Each has its own price, so there is no 'right'. This probably doesn't matter to most and doesn't fatally damage the pro chart school.
2. Some market extremes are written out of history for various reasons (regulatory, legal, error, political correctness and vested interest). The move toward full electronic trading might alleviate some of these in future.
3. Commodity prices on charts…. Should we adjust them by inflation? What are we actually looking at? What are we comparing.
4. Equally spaced data? What to do with price action measured in equal intervals (say, for example, 5 minute charts) when the price doesn't change during the period but the recording software has to put a number in there so it averages, uses the last price, the first price of the next period etc…
5. There is a reason why the big quant firms have interesting individuals whose life's passion is ensuring data is clean/ accurate.
6. It is probably a fair point to state that the recording of price information has improved since, say, the 1970's. The tricks now are more to do with latency of its delivery and the subtle recursive methods some providers appear to use to set their lows and highs. As an example, watch EURUSD spot today if you have something approaching Direct Markey Access and if you watch closely enough you may note that the high as printed on your screen (for eg.) sometimes moves higher a few seconds after the price has actually moved lower. A less charitable person than I would suggest it was to ensure all the stops on the banks' electronic platforms could be said to have been done within 'the range' ( whatever that is ). I guess it might just be an optical illusion generated by my mind's inability to accept being stopped at the high. Ha!
SideBar on this last thing– one great method market makers employ to get stops done is to drastically widen their spreads when near stops. ( Much small print allows stops to be done if inside the spread for ' risk management' purposes ). This may go some way to explaining the mystery of the changing highs/lows after the fact….
John Bollinger writes in:
I don't understand. If charts aren't predictive why in the hell do you all waste your time looking at them? Do you have so much time on your hands that you can engage in frivolous pursuits at work? If you gonna talk the talk, walk the walk. If you think charts aren't helpful, STOP LOOKING AT THEM.
Rocky Humbert writes:
While I am in agreement with the inestimable Mr. Bollinger that looking at charts has utility, I would be cautious about the term "predictive."
When I go to the doctor's office, her nurse always takes my temperature. My temperature is not so much "predictive," but rather it is informational. In numerous ways, looking at charts are like taking a patient's temperature.
I wish I could claim credit for this insight, but I can't. It's from Bruce Kovner (who I still consider the best trader/investor from a risk-adjusted return perspective of the past 30+ years.)
Ed Stewart writes:
It seems to me that body temperature is predictive of future temperature change do to homeostasis. The breakout from the range where homeostasis functions is going to be predictive of body temp = ambient temp if there is not a reversal or intervention.
Rocky Humbert replies:
Fair point. But you don't need to take a patient's temperature to know that EVENTUALLY body temperature = ambient temperature.
Keynes figured that out when he wrote that "in the long term, we're all dead." (See: JM Keynes "Tract on Monetary Reform, (1923) Chapter 3)
Kovner's actual quote was in reference to so-called fundamentalists who scoff at charts. He said, "Would you go to a doctor who didn't take a patient's temperature."
Gary Rogan writes:
You don't need to take the patient's temperature nor to study medicine to know that eventually the body will assume ambient temperature, but there are clearly situations when the current temperature is highly predictive of the timing, barring an intervention. As such, this whole analogy and the corresponding point just don't work.
A more expanded quote by Keynes reads as follows: The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again. He was in fact arguing for short-term action based on predictions even though in the long run the economy will recover. So it a way it's almost the opposite point to what Rockstergeist indicated he was making.
Craig Mee writes:
No doubt with the right risk management you can make money trading in many ways, but surely the best outcome is to not leave plenty on the table and have a lot of what ifs in the outcome, together with an ordinary win loss ratio while still banking a healthy return. In the pursuit of excellence, it doesn't seem winning and the above go hand in hand. Though possibly for others this isn't an issue, and probably quite rightly it's all about the bottom line. Hence the saying, "trade the way that you're comfortable with".
Gary Phillips writes:
Considering the maelstrom of controversy and unchecked emotion the subject elicits, perhaps TA should join sex, politics, and religion on the list of banned subjects for this site.
John Bollinger replies:
Careful, the site will become very quiet as the best part of what is discussed here is technical analysis in one way or another as a survey of the literature will confirm.
1. The January barometer has become a Judas goat for the weak to be slaughtered having failed big when down the last 3 times, in 2009, 2010, and 2014 with average subsequent rises in double digits each time (after holding in 2008) but failing in 2005 and 2003.
2. The stock markets swoon in last few hours on Friday, Jan 30 was 10th worst in last 15 years.
3. Some constructal numbers of the week: gold below 1300, SPU below 2000, and wheat below 5.00, and vix above 20.
4. The best book on science I have read is Michael Munowitz Principles of Chemistry. Some other great books I am reading is Paco Underhill Why We Buy (does for buying what we should do for the market in terms of scientific analysis), Russ Roberts How Adam Smith Can Change Your Life (applies the theory of moral sentiments to how to live happily in current days), Paul Moskowitz and Jon Wertheim Scorecasting (applies sabermetrics and counting to our favorite sports shibboleths), Michael Begon, Townsend, and Harper Ecology 4th edition (the best selling standard ecology book these days) and William Esterly The Tyranny of Experts (how planning leads to poverty compared to the invisible hand), Chris Lewit The Secrets of Spanish Tennis (gives some great footwork drills the Spanish use to rise to top), Lamar Underhood The Duck Hunter's Book (the most beautiful writing about fauna I have ever read and reread that makes you long for the beauty and poetry of bygone pastimes) Uri Gneezy and John List The Why Axis (uses pseudo experiments in real life and contrived anthropogical settings to attempt to prove liberal shibboleths like why genetics and incentives don't matter), David Hand The Improbability Principle (why miracles are likely by chance). That's enough.
5. The service rate paid by the world's most sanctimonious billionaire has risen from 2.5% to 9.5% on quarterly ebit this last reported quarter.
6. The ratio of stocks to bonds is at a 1 year low.
7. Gold is playing footsie with 1300 and SPU with 2000
8. Crude broke a string of 15 consecutive weekly declines with a 7.5% rise this week finally showing that futures moves to telescope reductions in supply the way Heyne elegantly shows they do.
9. The pythagorean theory of baseball runs scored for and against is a statistical due to random numbers, completely consistent with chance and has nothing to do with any recurring tendencies or baseball tendencies.
10. When my kids and relations start calling me worrying about how far the stock market is likely to fall, it's bullish. Conversely when they all start apps, it's time to wonder whether that goose has been plucked.
As to point 1.
I posit that all 'indicators', techniques and strategies in the public domain are worse than useless as presented. Within this I include everything preprogrammed into trading software like Bloomberg or Tradestation, the 'January effect', every indicator written about in Futures magazine etc… There are a few public strategies that some firms have made money from but the volatility is enormous and no note is made of survivor bias of others who used the strategy. There are then the preprogrammed techniques available that can be very useful but only as part of a bigger trading process. These last are probably less pernicious than claptrap like the RSI.
It belittles us all to discuss these things.
Consider it this way– everything that makes its way into a magazine or gets programmed into trading software is detritus from the core of truly predictive strategies.
If there is anything to be gained from this it is that you have to do your own homework.
Larry Williams writes:
With all due respect you are way off base on this issue; you mean to say OBV is useless, that seasonals have no value that volatility breakouts are worthless, that Bollinger bands are junk and select price patterns have no value? COT is just a joke, that watching spreads and premiums is the same as an Ouija board? Delivery intentions tell us nothing and advancing stocks, volume and Open Interest reflect nothing?
There are lots of great tools in public domain, just as there are good saws and hammers but it takes a good carpenter to make them work.
Anatoly Veltman writes:
Paragraph 1 falls apart on many levels: so what that "it" failed in 2009 and 2010 at price levels triple and double the 2015 level? So what that "it" failed in 2014 - then via principle of alternating years, "it" better work in 2015! But most of all: in day and age of still ZIRP manipulation, what historical market stats? The 2009-2010 were onset of QE, and 2015 is sunset!
Ed Stewart writes:
Taking into account changing cycles, I tend to disagree. I think there is quite a bit of stuff in the public domain that is very worthwhile.
For starters, a careful reading of Victor's book revealed many more specific ideas than it seemed on a casual reading, which I'm sure many/most here know. I have actually made more than decent money with a few ideas (gasp!) I found in the first market wizards book. Larry's book is a bit of a brain dump (which I always like, no offense there), but once again I found some good ideas in it.
I made (for me, not relative to a big fund manager) very significant profits in 2012-2013 using concepts that I first learned about (If I recall) on Falkenstien's blog, and for a time I tried to get a fund started to trade that market. My thought is that sometimes the market is rich for a particular approach do to a counterparty paying a massive premium, consequently sometimes these things go on even when everyone doubts them (which is why they might keep working).
I think the key to public domain stuff is that if one gets the concept behind a good rule-set there might be 1000 other rules related, waiting to be discovered that might be more attuned to the current cycle of market behavior.
Another is in combining ideas. For example in my way of seeing things there are environments were "naive" strategies are very effective - it is a matter of if u can catagolize that environment and then if there is some persistence to it in the next period (My finding is that there often is), though never perfect.
One last thing I learned is (perhaps contradicting the above) Don't ever write anything and assume that no one will reverse engineer and map out every qualitative thing you write. I had a trading blog that admittedly was mostly goofy stuff i wrote to draw free traffic from google, but also some pretty good core ideas I have made good hay with. Then one week I got emails from two different guys (one a big algo firm, the other an execution algo guy at MS) basically saying, "hey, I mapped out these ideas ideas, they really work - thanks!". The next week I took the blog down. So my conclusion is while some good stuff is in the public domain, don't put anything of value in the public domain yourself, even in vague terms not intended to attract a sophisticated audience.
Stefan Martinek writes:
From whatever I tested, +90% does not hold or does not improve the base case. Few areas are fine despite being in public domain. They can be further developed. It also helps to start PC at least 250-350 times per year, and make tests before forming opinions. There are so many people with beliefs but when you ask them "show me the codes", there is nothing to show. Sometimes an argument goes that you can take anything and make it working, making the dog fly; I agree but I do not think it is a good use of time.
I have been in Chile and Argentina the last month learning about markets from pursuing large brown trout.
Here's a great lesson. Other fishermen were fishing in the deep pools where one would think fish hide. I found my 11 lb Brown about 12" from the shore. He gladly took my fly and what a time we had untill I released him back to the waters. I hade numerous encounters with these lunkers, lurking where bugs fall into the water right next to the shore. No one else fished there.
Casting away in shallow waters.
Happy trails to all
January 22, 2015 | 3 Comments
The RSP (equal-weighted) S&P index ETF is well-known. Less known is the RYE (equal-weighted energy sector ETF). It has only existed since about 2006.
Equal-weighted ETF's give a larger weighting to smaller-capitalization stocks and, to the extent that individual stocks approach zero, they engage in the Rocky pastime of "scaling down to oblivion". That is, If cap weighted indices "ride the trend," equal-weighted indices sell the winners and add to the losers on each rebalancing.
Might anyone have some insights about whether such a practice is inherently superior or inferior over time? And especially for a (distressed) sector index?
Kora Reddy writes:
But the academic literature suggest otherwise: "equal-weighting is a contrarian strategy that exploits the "reversal" in stock prices" (see this pic).
Except in Australia, equi-weighted outperformed the cap-weighted in major countries.
Gordon Haave writes:
I wrote about this 6-7 years ago when the first Wisdom Tree stuff came out and they were talking about how equal weighted was superior to cap weighted and showed the back-tested numbers. All they were really saying is that "over time small caps beat large caps" which isn't exactly news.
To call a equal weighted index and "index" is itself misleading. A cap weighted index is "the market" or some approximation thereof. Theoretically every single market player could go passive and be in it. You can't do that with an equal weighted index (or at least not without distorting prices).
As to your idea of how they have to double down on the loses that is somewhat limited by the fact that once the name falls out of the index it is dropped.
Larry Williams comments:
Along that line Our work shows it is better to invest equal dollar amounts vs equal share amounts
Gibbons Burke adds:
I know a fund which used to invest 90% of client stake in SPX via SPY. A couple of years ago they switched to 10% equal dollar investment in each of the nine sector select spdr ETFs, with the intent of rebalancing to equal dollar allocation annually. They found, in testing, the strategy provided an average of 200 bps of boost each year over the cap-weighted all-SPY investment.
Regarding a depressed sector, is there any truth to the adage: "Buy the stock that has gone down the least, and also the one that has gone down the most". The strong stock will come back smartly and the oversold weak stock will come up from being smashed on a higher percentage then the middle of the pack.
So if this is true you could design your own basket of strong stock leaders in the depressed sector mixed with oversold beaten down stocks that pass a screening survival test.
Erich Eppelbaum adds:
Theoretically speaking, re-balancing a portfolio by using the winnings to buy more of the losers is at the heart of the only portfolio selection methodology that I know of that mathematically guarantees to asymptotically outperform the best stock included in the portfolio (See Thomas Cover's Universal Portfolio seminal 1991 paper): pdf link.
I don't know if in real life the portfolios resulting from this methodology are inferior or superior over time to those created by rebalancing based on allocating more to the winners (such as a market cap weighted portfolio); I would assume that any result would depend heavily on the rebalancing costs and slippage (the liquidity of big vs small stocks matter, especially when trying to push size), and I would assume that the slippage incurred in a market cap weighted portfolio would be less than that incurred in a equal weight portfolio (less small company shares to buy/sell).
In reference to a previous post, another thing to consider is that perhaps there are many effects at play other than the small-cap "more-risk-more-reward" effect. For example, a sell-the-winners-buy-the-losers methodology could be profiting partly by say the volatility harvesting effect described by Claude Shannon.
This brings up another question: The volatility harvesting effect becomes greater as the volatility of the portfolio's underlying stocks increases. In the stock market, volatility usually increases when the market falls. Could this mean that an equal weighted/rebalanced portfolio would outperform a market cap weighted portfolio during bad times? and would the opposite be true during good times? Would be interesting to test…
Here is some intriguing research from a book my psychiatrist son is working on:
"They found asymmetry between buy and sell order placement. Sellers consistently place their sell orders "further from the market" (i.e. further from the best quote) than buyers do with their bid orders. On average, that is, buy orders are "closer to the market" than sell order. Asks were placed, on average, 23.4% further away from the market than bids were."
Perhaps this has to do with endowment effect? The fact that people often demand much more to give up an object than they would be willing to pay to acquire it.
This paper examines the predictive power of money supply growth for stock returns. An understanding of any such predictability would be useful for market practitioners and policy makers given the monetary expansion of recent years. Furthermore, knowledge of this relationship can aid our understanding of the causes of stock price movement. Using monthly data over the time period 1959:1-2012:12, we illustrate that money supply growth has negative predictive power for stock returns over and above the predictability contained in more standard predictive variables, including the dividend yield, interest rates and output measures. Of particular note, the predictive power is strongest for future returns measured over a one- to ten-year horizon and suggests increasing money supply is associated with lower risk. Additionally using both a dividend growth predictive equation and a VAR we report results suggesting that predictability also occurs through the cash flow channel. Finally, by using rolling window forecasts we can determine that money supply growth contains incremental information over standard forecast variables and that the result is robust across the sample.
Big move covers small move is the "secret" to most magic effects. As a small move that covers a large one would have a very small ability to "predict" stocks.
A disturbing chart: "This is Probably the Second Worst Time in History to Own Stocks"
Bill Rafter writes:
The trouble with the chart is that the regression fit was done cumulatively, resulting in older data being subject to look-ahead bias. Thus only the current values are useful, and one wonders exactly how useful. As Steve has commented, the way to foil that is to use a moving regression fit in which the values are static over time, always taking the last point in the fit. Thus all data, past and current are relevant and can then be used in statistical studies.
The question that then comes up is which lookback period do you use. Wherever possible all lookback periods should be adaptive, the question then being to what input. In shorter term price data the market will tell you the relevant lookback period. I have never tried determining lookbacks for longer term data because (a) I don't expect to live long enough to take advantage of it, and (b) too many things can happen in the short run to screw up a good plan. Most people don't marry someone in their 20s based on the supposition that (s)he will look good in their 70s.
I also question the use of any equity or debt data prior to 1972. If you don't know why, ask Stefan. **That's one of the great things about the list; there are sources for just about everything.
Several moving functions you should consider:
Moving linear (i.e., regression) fits and their slopes.
Moving parabolic fits and their slopes. Since most economic and price data are parabolic, this is the better of the two. There is also something to be gained in the difference between a parabolic fit and a linear fit. Fitting parabolas is quite tricky, and it took us a while to code it. If you try to do so and want a check on your efforts, try fitting a parabola to a straight line. If the result is ludicrous, try a different method.
Moving correlations are particularly interesting between markets that might be alternatives to one another. Moving correlations between stocks and bonds (levels to levels) are something we have used for years and continue to do so. I thank Gibbons for his comment that Colby & Myers recommended them, as I had not been aware of that. (I'm not a fan of C&M.)
Gyve Bones responds:
Colby and Myers didn't recommend the linear regression study per se… the empirical analysis simply showed that study to perform best with a fixed loopback parameter over NYSE index returns data over a long period of time compared to other trend following signal generators. This book was an early attempt to quantify different approaches to see how they performed trying as best as can be done to compare apples to apples. In the mid-to-late 80s, it was the best thing that had been done like that since Dunn & Hargitt's study using punch card futures data in the late 1960s (which found that the Donchian Four Week system was best, the system which launched a thousand CTA, including the Dennis Turtles and their spawn.) Another similar study was done in the 90s by Jack Schwager and another fellow whose name escapes me at the moment which was well done.
Larry Williams adds:
A question: when was the regression line fit? Today? 20 years ago? 50 years ago? The slope will change based on your starting and end points. How overbought or sold is a function of this. A more careful analysis would either apply this same "method" every year with a set of rules (i.e sell above x% overbought) or would do the same thing on a rolling window basis. It's an interesting chart nonetheless and gives one pause, but I would suggest it lacks a certain amount of rigor.
Gibbons Burke writes:
It seems to me that this is a flawed chart to look at historically to make rules from because the trend line drawn into the past contains information about the future. The line is drawn using the linear regression of the entire data set so, for example, the line segment covering 1998-1999 "knows" about what happened in 2014. Very deceptive and misleading to make a rule based on the relationship of the data to the trend line.
Victor Niederhoffer comments:
The disturbing chart is a case study of why charting is so misleading because of the regression bias and also at the variance of a sum is the sum of the variances.
Steve Ellison says:
Here is the way to solve the problem of the regression line incorporating future data. Attached is a graph of a "moving regression", as Dr. Rafter calls it. For each date, the red point is the last point of a 30-year regression of the S&P 500 as of that date (the graph is from 2010).
Whatever became of Martin Armstrong? Now a movie! Egads!
X= "I touched the stove"
Y= "I got third degree burns"
then I would NOT disregard the data set as "too small to be indicative".
Larry Williams writes:
Yes, yes…one sample size is adequate–there seems to be a connection readily seen.
Leo Jia replies:
My issue is when X is not exclusive to Y, I have not much clue on how X happens and whether Y has a rational reason to be linked with X. This can be possibly because if it is too clear it might very well be different later.
It is quite like a situation where I am a monkey in the zoo. Most of the time I am kept very hungry. The zoologists play a lot of games with me, delivering food here and there at times. During the last five years, I discovered this thing (which I have no idea what is but you humans call it "stove") 10 times in my play field. The 9 times I touched it, it was warm but not harmful and dispensed quite a lot of food, although one time it had no food and was hot so I got burnt then. I am not sure if this is part of the game, but I am clever enough to remember this.
I keep in mind that the stove was not the only thing I encountered that dispensed food. There have been a lot of other situations, one of which is that, quite frequently, you human spectators throw in bananas andvcandies though also often times with garbage which causes some real pain.
So in this case, how do I take into account the stove case?
This is the first hard core data I have seen that supports what only seem natural:
Long-term use of both mobile and cordless phones is associated with an increased risk for glioma, the most common type of brain tumor, the latest research on the subject concludes. The new study shows that the risk for glioma was tripled among those using a wireless phone for more than 25 years and that the risk was also greater for those who had started using mobile or cordless phones before age 20 years. "Doctors should be very concerned by this and discuss precautions with their patients," study author Lennart Hardell, MD, PhD, professor, Department of Oncology, University Hospital, Örebro, Sweden, told Medscape Medical News. Such precautions, he said, include using hands-free phones with the "loud speaker" feature and text messaging instead of phoning.
It's the optimism of the electorate that causes the rally right around election time, not the actual election.
This goes with the chair's admonishment to never play poker with someone named doc. Never play poker with a magician either, you will always lose.
Larry Williams writes:
There is this trick I've seen which is perhaps the all time best card trick. I call you on the phone
a million miles away, you cut a deck and choose a card. I tell you what the card is.
Seems impossible, until you know how it's done and that's a lot like trading.
Jeff Watson writes:
Larry, bravo, but do you think
you should let the masses in on this trick? That trick is the bomb and a
variation of that is my current bet of the moment at the 13th hole of
my club. I try to be hush-hush about profit centers like these nice
little bar wagers, and any other prop bet, including wheat, which seems
to be at the center of the board on the craps table lately. The wheat
market's been asking how may ways does it take for the pass to be made 4
times in row with the dice?(I know the answer, just trying to provoke
some good insight from the readers).
I have a signal for when you should short companies. It was a fascinating insight from my female friend.
Do it the minute they choose a woman as CEO. This isn't because the woman won't be competent. It will be because the boards don't think the company can be saved.
They shove a woman out in front so she will take the fall!
This is after decades of inbred cultures of irresponsibility, denial, arrogance, lack of innovation, and crappy service have brought a once good company to its knees.
I have spent a great deal of time of the last 50 some years looking at volume and found nothing of great value. That may reveal my intellectual weakness or is volume the Emperor's New Clothes kind of story?
My fading memory of the opening breakout is that it was created by Jake Bernstein and the break out was of the first 15 minutes and required a close > or < than the 15 minute zone; that too I am certain on balance would not be very profitable it still needs discretion or another tool to make it valuable.
I'm reading one of the best training books I've ever read for training for endurance sports, which they define as almost any sport lasting more than two minutes. Training for the New Alpinism: A Manual for the Climber as Athlete House, Steve, Johnston, Scott. They draw on many studies from high level Olympic athletic training and physiology.
Technical physiological detail supports their theory. In a nutshell to train for endurance sport, duration as opposed to intensity is key. Building up an aerobic base where you can exert yourself without hard breathing is key to to building mitochondrial mass, capillaries and appropriate ST muscle fiber which builds endurance. High intensity is not a short cut, and can lead to a decrease in endurance and performance. Cross fit is an example of high intensity.
There is no shortcut. It takes long hours building a base for endurance. The effect builds over years.
Larry Williams writes:
I would add to this discussion that endurance does not win races. The winners are the fastest runners, skater's bikers, etc.
When the marathon running aspect of my life began I was doing 100 miles a week, ran 50 milers and all that but could never qualify for The Great Marathon; Boston, as I had to post a 3:25 at a sanctioned race to qualify. I was then running 4 hour marathons, and while I could run all day that was not enough.
Once we began doing speed work on the advice of a Kenyan runner who, while running with I asked, "What do I have to do", was given the simple answer, "run faster".
So off to the track we went for speed work and that on— top of endurance— got us to 4 Bostons, one with Ralph V.
There is a difference between completing a race, triathalon, etc and wining. Winners are fasters and work very hard to gain speed.
Seems like this applies to the markets in some fashion but I'm too slow to put that all together.
Anatoly Veltman writes:
We're always taught that staying in the game is the key, because that's your prerequisite to catch the once-in-a-lifetime move. But then again, ascribed to palindrome: it's not whether you're right or wrong; it's how much you have on when you're really right!
Larry Williams adds:
It's that delicate balance between spend and endurance– above average performance and staying in the game— in our game it seems. At times I have had speed in trading, competition, and like all in this list we have endured, but getting both at the same time still eludes me.
Buffet only has endurance.
Anatoly Veltman writes:
I don't think Buffet only has endurance. He'd been given valuable chunks on silver platter.
Gary Rogan writes:
It seems like being given valuable chunks came after 1990, when he was already a billionaire. He made his first million in 1962, and a million was worth a little more back then. Perhaps someone has the goods, but it doesn't seem like he built up his fortune early on on anything but taking advantage of available opportunities. Early on the opportunities were not flexionic, but later on they got to be that way more and more. He will do or say anything to make a buck, but was he given or did he take what he saw?
As for only having endurance, it would appear based on his objective net worth that in acquiring wealth endurance matters more than speed, unlike marathons.
Rocky Humbert comments:
Mr. Rogan makes a key point which should be underscored. The tortoise beats the hare in investing because of the law of compounding.
In a marathon, the objective incremental value of the runner's speed at mile #2 is the same as at mile #22. That is, the marathon result is a simple sum of the time used for each mile.
In a lifetime of investing, the incremental value is different at year #2 versus year #22 … because net worth is a geometric series due to compounding.
There are many subtle aspects to this — the effects of volatility on the compounding, and the effect of a bankruptcy in year #1 versus year #22, etc.
Lastly, to the extent that one believes that there is a random/luck/chance is a factor, the turtoise will do even better than the hare.
Ralph Vince writes:
Good points Rocky (ever-prescient, except in matters matrimonial and matriarchal, in my humble opinion). In reading what you wrote though, the following question comes to mind (and I am unable to answer it, perhaps you or someone with a more sports-physiology knowledge can — my interest here in in the mathematical function pertaining to…).
There is not difference in benefit accruing to the marathoner by a given speed at mile 2 versus mile 22. However, is there a tradeoff a cost, involved between running wither of these faster that would indicate a particular strategy as being more preferable than another? I know individual marathoners may have a different take on this, I'm more concerned with the actual physiological function however.
Overall fitness requires strength, speed/agility, and flexibility. The mental component is extremely important as it is the brain that gives the signals to the muscles to act. If there is no deep reserve, or lack of strength, the brain senses this and pulls back autonomic functions. Motivation however allows the brain to tap the reserves of strength and endurance in times of need.
Each individual has different training requirements. Many a sport trainer or coach has found this out the hard way. Each individual reacts to training in different ways at different times in the training regime.
Training actual changes the body and brain functions. Mitochondrial cellular mass actually increases, as does enzyme production and along with muscle mass and function.
Recently I started logging my training efforts in a quantitative manner. Very helpful.
Overtraining is a common problem. A typical cure is to increase training, but it is counterproductive. When you feel tired, cut back, or rest. Your body is telling you something.
There is another aspect of winning races beyond speed and endurance.
I saw that today in our Memorial Day 2 Mile race. Teddy Seymour, a 71 year old trader and the first black man to circumnavigate the world by himself, knocked 2 minutes off last years time. For non runners that's huge.
I asked Teddy, "What have you been doing in training that was an amazing performance today?"
His reply was, "I'm resting more now, I run 5 days and take off 2, what I've found is that rest helps me get faster. All my life (he's a former marine) I have pushed it, it's taken a long time to learn stop, to rest."
Happy Memorial Day Trails to all.
Scott Brooks writes:
Larry makes an excellent point. Rest is vitally important.
I was taught how to lift weights by Clif Koons. We used to work together at Executive Fitness in St. Louis (which went of business over 20 years ago).
One of the things Clif emphasized was rest.
We used to have guys coming into our gym that would work out long and hard……and do it 7 days a week. Those guys would hit plateaus that would last seemingly forever. Yet, other guys would work out just as hard, but take several days per week off to let their bodies rest and recuperate. They got better results than those that would work out everyday.
I think trading can be the same way. Yes, we need to immerse ourselves in the business and become students of trading, but at the same time, we need time off from trading to let our minds recuperate. Sitting around, doing nothing, hiking, spending time with the family playing games the kids enjoy (I HATE Mexican Train……but my kids love it…..so I play it……their laughter makes it all worthwhile, though).
Although Clif and haven't worked together in 30 years, we have run into each other around town a few times and have kept in contact via Facebook. However, all that aside, if anyone would ever be interested in working with a true master of his craft, CLIF IS THE MAN to contact. He is a truly skilled student of his business, and he's a gentleman. I highly recommend Clif
For those that may be interested, here is Clif's website.
(Even if you're not interested check it out. Clif is one in-shape dude…..and he's in his mid-50s.)
April 24, 2014 | Leave a Comment
Just 52 cards (weeks) with 4 suits (seasons) with 13 cards (weeks) in each season can be shuffled into 400000000000000000000000000000000000000000000000000000000000000000000 combinations. That's 4 and 69 0's.
The Pips (spots on a card) = the number of days in the year for trivia buffs (jacks count 11, Queens 12 and Kings 13).
Oh and here is a mind-fuddling bit of math that I perform with all the time and I'm still shocked that it always works: The Gilbreath Shuffle.
Easan Katir writes:
Years ago one learned from professional card men how to shuffle overhand, riffle, even spread cards on a table and mess them up — and end up with every card in the exact place as before. Market application? There are those who know how to shuffle the news, analysts' ratings, technical patterns, so their capital increases — while the audience of investors looks on, amazed.
I often look at the amount of past price action used to attempt to predict future price action.
Some things that are useful to ponder, in my opinion, are:
1. Is more past data really going to help to make the future prediction more accurate?
2. Should there be a balance between look-back period and forecast horizon?
3. How important is data accuracy (tick level to daily range)?
4. Should reference points & times be changed every second, minute and hour of a day?
5. Should the definition of 'big move' and 'small move' be a fixed thing or relative to the market's current level?
For me, it's NO, NO, VERY, YES & RELATIVE.
Leo Jia writes:
In Schwager's book "Hedge Fund Market Wizards", Jaffray Woodriff addressed this in the following way. Any comments? It does have to do with what one is trying to get, doesn't it?
"Do you give the same weight to data from the 1980s as data from the 2000s?
Sometimes we give a little more weight to more recent data, but it is amazing how valuable older data still is. The stationarity of the patterns we have uncovered is amazing to me, as I would have expected predictive patterns in markets to change more over the longer term."
Larry Williams writes:
As I see it we certainly cannot compare data from the old pit sessions to today's electronic markets.
And how do we handle Saturday trading in the real old days or that markets were close on election day…or in 1967 the markets were close on Wednesday… or there used to be a massively important bond report the goosed bonds on Thursday??
We need to understand what the data represents.
March 28, 2014 | Leave a Comment
Here is some Friday fun. Stimulated by the S-Man's comments about electrical utilities combined with the government report on corporate profit margins being near/at record highs while company hiring is sluggish….
Hypothesis: The S-Man has hypothesized that companies with fewer employees make better investments. This is consistent with the view that capital is cheaper than labor. And that government regulations have made hiring more expensive. Rocky accepts that companies with only one employee have no sex discrimination lawsuits. And companies with less than 50 employees have no ObamaCare issues. But do companies that produce more revenues per employee perform better per se (as measured by the stock price)? Rocky did a 5 minute back-of-the-envelope study on the 150 largest (by market cap) US companies.
He asked: what is the correlation between the 5 year total return of the stock price and the revenues/employee?
The answer: -.21 . That is, ceteris paribus, higher 5 year total returns are INVERSELY CORRELATED with higher revenues/employee. Or put another way, lower revenues/employee are correlated with better 5 year stock performance.
And it is suggestive that MORE employees producing FEWER revenues produce BETTER stock prices. Very counterintuitive.
This is a very sloppy analysis. But it's food for thought. Now it's pizza time. And that's even better food for thought.
(Rocky is sure that others have done this analysis in a more sophisticated way and he welcomes critical comments.)
Larry Williams writes:
I tested revenue per employee a few years back so this is reaching into old rusty memory banks but the recollection is it was just "ok" as a value measure and did not fit all companies. Service industries have to have employees, some high tech and mortgage companies can get by with less.
Memory is clear that this was not anything special to use to find value in stocks.
The market today is like a pretty girl. It is very attractive from the long side in many markets, but it gives you no opportunities to buy on the cheap. Where is Anatoly with his bargains outside of Hawaii and Disney today?
Larry Williams writes:
One of our members has not had a losing trade in many years now; not a one in, I'm not sure, maybe 10 years. Ironically one of his clients, a large bank, closed out a few years back thinking something was wrong because of the excellent performance. Such is the life of a trader.
Alston Mabry writes:
You could argue that you don't need a transaction tax when it has already been levied by HFT firms.
Ed Stewart writes:
Virtu's dividend paying history seems very aggressive to me relative to what looks like its operating earnings and net assets. Last year $250m of the $430m dividend payment was financed. $250 being very close to the firms book value equity while earnings were 180m.
2011 and 2012 had earnings near 90M and dividend payments of 120M and 130M. Around 1.5B total paid since 2006.
Is this the magic of steady returns + finance + limited liability?
One of my favorite short term patterns here today; outside day in up close in tight trend markets are bullish and daily a/d line at new high…
Gary Phillips writes:
Beans in the teens already, but seasonally ripe for a rally…also my only worry is post-taper/risk-on has seen a stronger dollar, although it did decouple today after the european close…
You young'uns might not know who Tim McCoy was. He was one of the first cowboy stars in movies.
I have been lapping up every page of his book, "Tim McCoy Remembers The West". It is a dandy, because he was no drug store/dandy cowboy, he was a real deal cowboy (and Arapaho) who just so happened to turn up in Hollywood, which is just a little part of his larger-than-life life.
It has lots of wonderful history (insights to Custer's Battle I had never read before), movie making, living in Wyoming in the 1880s…and on and on.
Western, Hollywood (you will learn why Hollywood was the start of it all), and history buffs will find this a gem.
There are several reasons the Oregon Ducks have become a powerhouse in football. I listen intently for life and trading lessons from this team.
Here are a few pointers:
Was it about what Kelly expected, based on the practice week Oregon had?
"We don't put a point total on it or think about it that way," he said. "But it's almost like, you studied really hard for the exam, and you can't wait for the professor to put it on your desk."
"Obviously it's not the same as a game-time situation, but throughout my career we've gone through practice scenarios, what we need to do if we are down six or down four, three," he said. "We try to make us feel uncomfortable. Whatever situation we end up being in, I think the team is prepared and is confident in our ability to be successful in those situations."
Coach Mark Helfrich echoed Mariota's sentiments, with his own catchphrase being making sure his players were "comfortable being uncomfortable."
There are lots of treasures to be found in My Lunches With Orson conversations over lunch with Orson Welles by Peter Biskind. It's a very good book.
Aversion to losses or aversion to risk? Which of the two is addressed by willingness and ability to close out losing trades?
Well, without invoking mathematics where it is not necessary, it is common and logical to place on the table that when a losing trade is closed one has the willingness and aversion to the risk of the persistence of loss becoming into a bigger one and one does not have aversion to the present level of loss in being accepted.
Now on the other hand, unwillingness to stop out a losing trade is indeed loss aversion.
The computations that show that having utilized some sort of mechanical rules for stopping out adverse incursions actually increased the probability of meeting with adverse incursions is totally flawed abuse of statistics.
1) Historical data analysis does not undertake the "uncertainty at a given moment to decide upon" into account and is definitely incorporating hindsight 20:20 vision mind-set.
2) Any measurements of uncertainty and thus risk are never definite, since measurement of uncertainty too will be having an uncertainty of its own. So a trader in the middle of a losing trade has to decide that the level of uncertainty in his method, mind or cognition regarding the calculation of the "value of uncertainty" in his trade has become too high for him to handle. That's where humility, the currency that prevents others from profiting more from your mistake, can come into play and allow the willingness to hit the stop.
3) However, when either with or without the illusions of statistical computations of stop losses increasing the probability of meeting with more losing trades, one fails to control the human weakness of loss aversion, to somehow and anyhow turn that loss into a profit, one is becoming totally risk-insensitive. From skill, the turf changes to the power of prayer. The game begins to change from action to hope. Inconsistency of thoughts thus turns one into a trader who is continuing to hold on to risk without a mental apparatus to assess it or react to it. As the loss continues to grow not only the lack of willingness to take it hurts, the ability to accept the increasingly bigger loss also dwindles rapidly.
I am ready to be thrown before any firing squads of mathematical minds and ideas on this list if they can with or without numbers help me learn how come this list celebrates and cherishes a human value of humility and yet indulges in an idea that staying on in a trade that has incurred a level of loss greater than anticipated when the trade was opened are mutually consistent.
I would close my submission for now with one thought:
When loss aversion creeps in it makes a decision system (mind) risk-insensitive and with no respect for risk, returns are impossible. Yet, if a mind continues to be risk-averse it does not have loss-insensitivity and in humility such a mind closes out risk that has turned out to be less than comprehensible.
Phil McDonnell responds:
Since I am the well known culprit I shall give Mr. Kedia a reply. If the probability of a decline art the end of a period of time equal to your stop is p then the probability of losing the stop amount with a stop loss strategy is 2 * p. It is simply a derived relationship. It is what it is.
It is not a misuse of statistics but rather a description of how a stop loss exit strategy will change the distribution of returns. Larry Connors studied over 200,000 trades from a winning system and compared the results with and without stops. He found the use of stops increased the probability of loss and reduced the expected gain.
In my opinion the best way to trade is to reduce position size so that no one loss hurts your account too badly. That means many small positions to me.
Larry Williams adds:
Ahhh here I go off on a rant; please excuse a tired old mans bitterness at system vendors who claim stops hurt performance.
Yes, they are correct in that the statistics of your system will look better if one) you don't use a stop and two) your use a market with a perpetual upward bias like the stock indexes have been, usually.
They are absolutely totally incorrect in terms of living the life of a trader. So what if I am long in a position that eventually shows a profit but because I did not have a stop loss that one trade moved against be 20,000 or $30,000 and it took a year or so to get out of? Yeah, the numbers look good (high accuracy) with no stops but it's one hell of a lifestyle.
High accuracy is a false God.
Consistency and never being in a place where you can get killed is more critical. Perhaps Mr. Connors has never sat through the reality of a large loss, especially in a large position. I have; I would rather battle the devil at midnight on a new moon with both hands tied behind my back.
It's one thing to have a system with "good numbers" it is quite another thing to be a trader and have to deal with reality.
It only takes one bullet in the chamber to kill you when playing Russian roulette. As near as I can tell trading without any stops, in any way whatsoever, is just the American version of this form of spinning the wheel.
Play the game as you wish but please heed the warnings of an old man.
Leo Jia adds:
I have been studying the use of stops. Due to loss aversion I guess, I would like to use narrow stops. But among the various strategies I have yet found one working well with narrow stops. Good stops have to be relatively wide in my cases, but having no stops or stops that are too wide clearly hurts results (my trades are time limited). So a good choice for me is to size the position according to the stop size.
Sushil Kedia writes:
If you reduce position size can it be argued that a position of Size N reduces to N-n implies that you took a stop loss on n lots out of N you held. Then too, it validates the fact that you do take stops.
Anatoly Veltman writes:
Larry covered main bases (different markets, different position sizes, different lifestyles) pretty well. I just want to be sure that reader doesn't end up with wrong impression. I think the best conclusion is "it depends".
And because my act follows Larry's (who is certainly biased in favor of stops), let me try this. If you enter based on value (which is certainly against trend), then there is no justification available for a stop. Unless you argue that this stop proves you were an idiot on the entry. But if you are an idiot on value entries, then why play value…
Anton Johnson writes:
The problem with using Conners' simulation as evidence that placing a trade stop-loss reduces returns is that he tested a winning system that likely had never experienced any 5-sigma negative excursions prior to the test date. And of course there are no guarantees that his strategy, or any unbounded trading strategy, will perpetually avoid massive drawdowns.
When implementing a strategic trade, a good compromise between profit maximization and loss mitigation can be achieved by balancing trade size along with a stop-loss, which when placed at a level that only an extreme event will trigger, will likely contain losses to a predetermined range, and also prevent getting stopped-out of a potential winner. If one is disciplined, maintaining a mental stop-loss level is preferable to an order pre-placed in the book, and available for all the bots to scan.
Larry Williams adds:
But speaking of stops, I go back to my litany, my preaching the essential reason for never putting stops on an exchange server, or even your brokers server. Putting stops on servers means that your stop becomes part of the market. And not in a positive sort of way either. Pick a price, hit the button, and take the hit. Discipline is key here.
Ed Stewart writes:
A trader needs a decision process for managing the expectation or expected value of the trade as well as the equity position. The problems occur when these two things are in conflict.
The thing with stops is that at times it makes no sense to get out of a trade when the expected value is still good. What is the difference between exiting at a small stop-loss point 4X in a row vs. one loss of that same size? Well, if at each "stop out" point the expected value was favorable, it makes no sense, one is just locking in losses. At times the best "next trade" is simply staying in the current trade.
However, I see Larry's point and it is a good one. Yet, the example of letting a loss get huge or holding an underwater position for a year is to me something of a false alternative. No exit strategy but hoping for a profit at some point is not a reasonable alternative.
What maters, I think, is the expected value of the trade at each moment, and balancing that against equity and a margin or error to ensure, "staying in the game".
Given this I always trade with mental stops, if not on individual positions, on total account equity. Having that "self-preservation" discipline is useful.
Jeff Watson writes:
I learned very early on in the pit on how to go for the stops, and that weaned me off of stops completely (except in my head).
May 14, 2013 | Leave a Comment
I first saw the 'dead eyes' look of a poker player/loser when I was 13 or so. Still gives me restless nights and I know I cannot become that way.
My dad took me into the "stockman's bar" in Billings, Montana to impress upon me what degenerate, greedy people turn into.
Probably another sleepless tonight tormented by that devil.
Gary Rogan asks:
What is the real difference between gambling and speculation (if you take drinking out of the equation)? Is it having a theory about the odds being better than even and avoiding ruin along the way?
Tim Melvin writes:
I will leave the math side of that answer to those better qualified than I, but one real variable is the lifestyle and people with whom one associates. A speculator can choose his associates. If you have ever been a guest of the Chair you know he surrounds himself with intelligent cultured people from whom he can learn and whom he can teach. There is good music, old books, chess and fresh fruit. The same holds true for many specs I have been fortunate to know.
Contrast that to the casinos and racetracks where your companions out of necessity are drunks, desperates, pimps, thieves, shylocks, charlatans and tourists from the suburbs. Even if you found a way to beat the big, the world of a professional gambler just is not a pleasant place.
Gibbons Burke writes:
Here is something I posted here before on this distinction…
Being called a gambler shouldn't bother a speculator one iota. He is not a gambler; being so called merely establishes the ignorance of the caller. A gambler is one who willingly places his capital at risk in a game where the odds are ineluctably, mathematically or mechanically, set against the player by his counter-party, known as the 'house'. The house sets the odds to its own advantage, and, if, by some wrinkle of skill or fate the gambler wins consistently, the house will summarily eject him from the game as a cheat.
The payoff for gamblers is not necessarily the win, because they inevitably lose, but the play - the rush of the occasional win, the diversion, the community of like minded others. For some, it is a desire to dispose of money in a socially acceptable way without incurring the obligations and responsibilities incurred by giving the money away to others. For some, having some "skin in the game" increases their enjoyment of the event. Sadly, for many, the variable reward on a variable schedule is a form of operant conditioning which reinforces a compulsive addiction to the game.
That said, there are many 'gamblers' who are really speculators, because they participate in games where they develop real edges based on skill, or inside knowledge, and they are not booted for winning. I would include in this number blackjack counters who get away with it, or poker games, where the pot is returned to the players in full, minus a fee to the house for its hospitality*.
Speculators risk their capital in bets with other speculators in a marketplace. The odds are not foreordained by formula or design—for the most part the speculator is in full control of his own destiny, and takes full responsibility for the inevitable losses and misfortunes which he may incur. Speculators pay a 'vig' to the market; real work always involves friction. Someone must pay the light bill. However the market, unlike the casino, does not, often, kick him out of the game for winning, though others may attempt to adapt to or adopt his winning strategies, and the game may change over time requiring the speculator to suss out new rules and regimes.
That said, there are many who are engaged in the pursuit of speculative profits who, by their own lack of skill are really gambling; they are knowingly trading without an identifiable edge. Like gamblers, their utility function is not necessarily to based on growth of their capital. They willingly lose their capital for many reasons, among them: they enjoy the diversion of trading, or the society of other traders, or perhaps they have a psychological need to get rid of lucre obtained by disreputable means.
Reduced to the bare elements: Gamblers are willing losers who occasionally win; speculators are willing winners who occasionally lose.
There is no shame in being called a gambler, either, unless one has succumbed to the play as a compulsion which becomes a destructive vice. Gambling serves a worthwhile function in society: it provides an efficient means to separate valuable capital from those who have no desire to steward it into the hands of those who do, and it often provides the player excellent entertainment and fun in exchange. It's a fair and voluntary trade.
Kim Zussman writes:
One gambles that Ralph and/or Rocky will comment.
Leo Jia adds:
From the perspective of entering trades, I wonder if one should think in this way:
speculators are willing losers who often win; gamblers are willing winners who often lose.
David Hillman adds:
It is rare to find a successful drug lord who is also a junkie.
Craig Mee writes:
One possible definition might be "a gambler chases fast fixed returns based on luck, while a speculator has time on his side to let the market decide how much his edge is worth."
Bill Rafter comments:
Perhaps the true Speculator — one who is on the front lines day after day — knows that to win big for his backers, he HAS to gamble. His only advantage is that he can choose when to play.
Anton Johnson writes:
A speculator strives to be professional, honorable, intellectual, serious, analytical, calm, selective and focused.
Whereas the gambler is corrupt, distracted, moody, impulsive, excitable, desperate and superstitious.
Jeff Watson writes:
I know quite a few gamblers who took their losses like men, gambled in a controlled (but net losing manner), paid their gambling debts before anything else, were first rate sports, family guys, and all around good characters. They just had a monkey on their back. One cannot paint with a broad brush because I have run into some sleazy speculators who make the degenerates that frequent the Jai-Alai Frontons, Dog Tracks, OTB's, etc look like choir boys.
Guys — this is serious, not platitudinous, and I can say it from having suffered the tragic outcomes of compulsive gambling of another — the difference between gambling and speculating is not the game, the company kept, the location, the desperation or the amounts. The only difference is that a gambler, when asked of his criterion, when asked why he is doing this, will respond with "To make money."
That's how a compulsive gambler responds.
Proper money management, at its foundation, requires the question of criteria be answered appropriately, and in doing so, a plan, a road map to achieving that criteria can be approached.
Anton Johnson writes:
It's not the market that defines whether a participant is a Gambler or a Speculator, it's his behavior.
Gibbons Burke writes:
That's the essence of my distinction:
"gamblers are willing losers who occasionally win"
That is, gamblers risk their capital on propositions where the odds are either:
- unknown to them
- cannot be known
- which actual experience has shown to have negative expectation
- or which they know with mathematical precision to be negative
They are rewarded for doing so on a random schedule and a random reward size, which is a pattern of stimulus-response which behavioral scientists have established as one which induces the subject to engage in the behavior the longest without a reward, and creates superstitious as well as compulsive behavior patterns. Because they have traded reason for emotion, they tend not to follow reasonable and disciplined approach to sizing their bets, and often over bet, leading to ruin.
"speculators are willing winners who occasionally lose." That is, speculators risk their capital on propositions where the odds are:
- known to have positive expectation, from (in increasing order of significance) theory, empirical testing, or actual trading experience
They occasionally get unlucky, and have losing streaks, but these players incorporate that risk into the determination of the expectation. Because their approach is reason-based rather than driven by emotion, they usually have disciplined programs for sizing their bets to get the maximum geometric growth of their capital given the characteristics of the return stream, their tolerance for drawdown.
If a player has positive expected value on a bet, then it is not a gamble at all. The house does not gamble. It builds positive expectation into its games. It is a willing winner, although it occasionally loses.
There are positive aspects of gambling, which I have pointed out earlier in the thread and won't belabor. To say that "all gambling is bad" is to take the narrowest view. Gamblers who are willing losers (by my definition all are) provide the opportunities for willing winners (i.e., speculators) to relieve gamblers of the burden of capital they clearly have no desire to hold onto, or are willing to trade in a fair exchange for the excitement of the play, to enable their alcoholic habit, to pass the time, to relieve their boredom, to indulge delusions of grandeur at the hoped-for big win, after which they will quit playing, or combinations of all of the above.
Duncan Coker writes:
I found Trading & Exchanges by Larry Harris a good book on this topic and he defines all the participants in the exchanges and both gambler and speculators have a role to play. Here is something taken from page 6 that make sense to me: "Gamblers trade to entertain". Speculators to "trade to profit from information they have about future prices."
He divides speculators into those that are well informed versus those that are not. One profits at the expense of the other. Investors "use the markets to move money from the present into the future". Borrowers do the opposite.
April 12, 2013 | 3 Comments
I have always followed the Baltimore Orioles because in high school I caught for Dave McNally one of their star pictures.
But this story is not about Dave. It is about Cal Ripken, the guy who always played and set the record for the most consecutive games. There probably should be an asterisk in the record book from a story I was told here by a former well-connected resident of Baltimore.
It seems Cal came home to find that his wife and the gardener, or tennis player, I forget which, were having an affair. He beat one or both of them up, got arrested and was tossed in jail overnight. Which meant he couldn't show up in time for a game.
So what happened? He was loved so much by the local people, as being really one of them, one of the working class, that the electricians went to bat for him.
At game time there were problems with the lighting, they flickered on and off. I actually remember seeing this because of following Dave Nalley's Orioles. So that part of the story I know it's true. My friend here said once the electricians heard that Cal had some problems getting to the game they began to see what they could do. There was a rumor he had been released and was on his way to the stadium so the lights came back on. Then they found out he had not been released. So the lights flickered a little bit more, then turned off with the electricians saying there was a major electrical outage problem and they would not be able to get the lights back on for that game.
Cal was released the following morning and able to play the next day's game, keeping his streak intact. That ladies and gentlemen of the dailyspec, and Orioles fans, is the story of "The night the lights went out in Baltimore.
We have had numerous discussions on this venue regarding stop losses. Part of the surprise from those discussions is that using a stop loss will double your odds of having a loss in the amount of the stop loss.
However the same is true for a profit target. Using a profit target will double your probability of having a gain equal to the target gain. The reason for both phenomena is that in a random walk half of all such trades will get reversed after hitting the target or the stop. The fancy name for this is the Reflection Principle.
Larry Williams writes:
In a random walk, half of all stops/targets get hit, so if that is not true in several trading systems, does it suggest the market is not random?
Anatoly Veltman writes:
Electronic markets are far from random. Your broker's HFT frontruns your orders, and non-broker largest HFTs parallel run your orders. Thus your limit (profit-taking?) order is played against by unabling, and your stop-loss order is played against by triggering. Random? Not to your account.
Ralph Vince asks:
But can non-random ticks, sampled on a bigger time frame, degenerate into randomness?
Anatoly Veltman replies:
In the sense that all those orders, magnified by HFT mechanism, will carry markets somewhere - sure. The other question is: OK, so 70% of executed trades resulted in robbing the outsider spec - but the HFTs and the brokers have not fully benefited by your loss, because of their high overhead (the arms race, et al). So ok, the wall street salaries, the IT salaries get financed out of your pocket. Then the only way to keep you in the game is to inflate your remaining funds…So the mechanism will continue on…but to what end, if the economy is not picking up? So the result may well be non-random: all prices will go up.
Gary Rogan writes:
Clearly the natural drift and/or inflation-driven accelerated drift will result in an upward bias that will make a random walk impossible. In addition, if there is an HFT-induced tendency to hit stops and not hit limit orders (by the way are there any objective statistics that prove that?) the question becomes: would an independent observer looking at the data tick by tick, but who is not himself placing limit/stop orders be able to tell that the statistical nature of the tick distribution has changed?
Jeff Rollert says:
No, HFT is attacking your behavioral biases. Not the academic ones ones. Your bids show your hands.
These are modeled after high yield bond trading patterns.
How would you trade if the book was open and public? That is the point. Trading systems are rational, and your systems are easy prey…seriously, inject the random. To borrow a sports analogy, you can't bore a machine into an error.
When gold was money, its price was measured not in currency but in what it could buy. From the adoption of the Constitution to WWI, except during the Civil War and Reconstruction, the price of gold as currency remained the same — 1 ounce was $20; measured by what it could buy during crashes and depressions, gold's "price" went up. That was equally true during the periods when the dollar was not redeemable in gold at the Constitutional standard — 1873, after 1932; in all these panics what gold could buy in the world's markets has increased. That is to be expected; it is a tautology that, during panics, the prices of things other than money go down and the price of money goes up, and gold has been the world near-money even when it has not been legal tender in the U.S.
George Parkanyi writes:
I think that gold is difficult to read. It's not a slam-dunk by any stretch. In a rapid deflationary scenario where credit markets seize up and no-one trusts counterparties it could get hammered with everything else - people having to liquidate to cover margin calls, just needing cash to meet other obligations and so-on. Also you wouldn't be able to finance it. There would be a complex interplay between flight to "quality" and scrambling to raise cash. And inflation seems to be mixed bag; specific pockets of it - there seems to be plenty in food and energy, but little wage inflation in a globalized economy with a lot of cheap labour still around. Consumer electronics still seem to be trending down.
On the other hand you do have seemingly unstoppable currency debasement underway (the main gold bug meme), and interest rates practically at zero. And bank runs could be good for gold since the issue will be about parking cash somewhere other than in a bank - gold would sop up some of that. Equities at the moment I believe are benefiting from a shift in the perception away from the "safety" of fixed income. Sovereign debt everywhere really does look like crap because of the unsustainable amount of it - why would you tie up your wealth in it? You see it with companies starting and/or increasing dividends because of investor demand for income they're not getting from debt. Debt markets dwarf equity markets, so if this is a real trend, equities, and commodities in the mix somewhere, could go a lot higher. But at some point all this selling of debt will increase interest rates, which will then work against the economy, equities, and commodities - including gold.
Then there are other dynamics. They say central banks are buying gold right now. Bullish or bearish? That's taking production off the market (bullish), but then they have all that more to turn around and dump on the market if the agenda changes again (bearish).
Gold itself hasn't been hit that hard recently - 16 or 17% perhaps from its high - but the miners have been massively hammered, mainly - and I find this ironic - because of high operating cost inflation. I'm thinking its overdone and a fairly old story, setting the stage for at least a bear market rally (the rationale for my current trade), but the market's not agreeing with me so far.
Larry Williams writes:
You make some nice points. I see a strong 4 year cycle operating in gold that called the top real well 2 years ago and suggests a low yet to come.
February 6, 2013 | 2 Comments
Have any of you been to Argentina lately. What is the situation on the street. I am thinking of going there on the way to Antarctica later this year. Is it safe?
Vince Fulco writes:
One thing to seriously consider even though it sounds like you are going thru mostly modern areas, Amex has an extremely affordable medical expense insurance while traveling. For a few hundred bucks, as I recall < $250 for my wife and I when we traveled to South Africa, they'll airlift you out of spots and take care of many extraordinary medical expenses. Considering you'll probably never use it but if you do, fees can run tens of thousands of $ depending on what your normal health insurance covers, brought us piece of mind. Everything can be done online.
Larry Williams writes:
Careful on med-evac policies
I just lost my best buddy here; heart issues. We tried med-evac but the reality is 1) you need a local doctor to agree to release, which they will not do unless stable and 2) before the plane/jet wheels up they must have admitting dr and hospital at the other end.
That takes a long time to arrange
Best is to charter. Don't tell anyone of medical issues-get aboard and then go to closest emergency room to airport.
Carder Dimitroff writes:
I'm sorry for your loss.
I would like to add to your thoughts. Once in the air and within US control, request the pilot use the LIFEGUARD call sign. This will notify the FAA to give the plane priority handling, direct routing and airport priority.
In addition, here may be a helpful link.
A commenter adds:
First: LIFEGUARD has recently been changed to MEDEVAC to conform with ICAO international standards.
Second, and most important: If you are in ANY WAY fearful that your medical situation may be life threatening, communicate this CLEARLY to the crew and they will declare an EMERGENCY.
MEDEVAC flights get priority handling when they request it. But EMERGENCIES — well, let's just say that controllers will move heaven and earth and every airplane in the way to get that aircraft on the ground at the airport of the pilots choosing.
Most domestic airlines subcontract to a company that has professional medical staff on call 24/7 that assists them in determining the best course of action for the patient. They will get a doctor on the radio directly with the flight crew to assess each situation.
Not all right wing radicals are forecasting inflation. Many of us are of the other side of that coin. The conservatives are back to the old argument that money supply creates inflation.that argument was destroyed since the Big O took office. M1,2,3,4 increases did not produce inflation. Gee whillikers, what does that mean?
They should go back to the drawing boards, but instead beat the same old drums, preach the same old mantras.
Alston Mabry writes:
In the present regime, the Fed is increasing the money supply only by the amount of interest they are paying the banks to park at the Fed the very money the Fed shovels at them.
Mr. Allen writes:
The mistake is to think the inflation must show up in rates like in the 1970s. in the 1940s, the last time we had a significantly managed economy rates averaged 2.5% but inflation average 5.5% for the decade. That can occur when there is anchoring or when people think the inflation is transitory in nature. Under a gold standard, which is what inflation targeting is - short rates were volatile but long rates flat as a board because there was no systemmic inflation. Also, you can get stagflation which are higher prices and lower output which is more of what we have experienced as taxes, insurance costs, etc. are up but unit output for many industries flat. Also, do not fail to realize how empty the bucket was in 2008 v. now, Continentals did not immediately loose their value but there were $350 mil of those which in today's dollars is $3.5 trillion, so the Fed may in fact just now be crosses the Rubicon.
A commenter writes:
And 30-100% increases y-o-y in health insurance premiums for independent contractors and other small biz types. why? because they can under the guise of obamacare. really putting the squeeze on some average joes I know.
I think the VIX is greatly over-rated. Here is my synthetic vix (7page PDF ). It follows the actual vix closely and the actual vix is just the market upside down.
A short squeeze is really more of a commodity market function and serves a valid economic purpose.
I really like Atul Gawande's writing and ideas. Failure is an interesting subject that's not looked at enough. The success stories always get the spotlight, the books, the movies, but part of it is just survivorship and luck. Tragic failure comes from making a whole series of mistakes in a row, and making a minor problem in to a major one. Your judgment is not as good under pressure and mistakes lead to others. Sometime multiple small mistakes lead to death as we saw in our previous discussions on the book Deep Survival.
Older people are cautious because they have failed. Many young people have not experienced failure, partly from being protected, partly just less exposure to random bad luck. It's as good as most major ideas, accomplishments are done by the brave, often young people willing to take the risk.
George Coyle comments:
I'm reading a book called Great Failures of the Extremely Successful by Steve Young. It goes through perhaps 100 or more stories (a few pages each) about failure and how it helped various people from different walks of life. Some are great, others not so great, but the book is littered with facts (I am skeptical about some but regardless) about people who overcame failure and adversity. Whenever you have a bad day look up Abe Lincoln's road to the white house.
Larry Williams writes:
Charlie Sheen is my new hero this guy bounces back from disasters better than anyone I have ever seen how can he go through that much humiliation and still go on stage…pretty amazing or great drugs… one or the other I suppose
Dailyspecs who like a good Indiana Jones adventure might want to check out the book The Mountain of Moses: The Discovery of Mount Sinai.
The book is a true story expedition to find the Mountain of Moses in the Arabian peninsula not Sinai.
It does not star Harrison Ford but rather features the site's own Larry Williams.
It is a great read.
Anyone who has dined in Singapore's fabulous cheap eateries may be interested in these numbers.
How much is a recipe worth? About $1.8 million, according to the owner of Kay Lee Roast Meat Joint , who boosted the sale price of her Singapore eatery by that amount when she put it on the market this year.Betty Kong and her husband want S$3.5 million ($2.8 million) for their 60-plastic-stool establishment, a premium over the S$1.25 million assessed value of the site. The price includes the property, their recipe for roasting duck, pork ribs and crispy pig skin as well as other Cantonese-style classics, plus three months of cooking lessons
The Roast Meat Joint generates sales of around S$2,000 a day, she said, or S$620,000 annually, assuming it’s shut one day a week and three days for Lunar New Year holidays. Profit margin is 60 percent, according to her broker Raymond Lo at Knight Frank LLP. The asking price is 5.6 times annual sales, compared with the 1.1 multiple for the Singapore benchmark
Straits Times Index. (FSSTI) It would take six years to recoup the recipe premium.
Larry Williams responds:
Food costs are 20% in the best run restaurants so the 60% profit cannot include labor, overhead etc. No way
Black pepper crab in Singapore is one of the worlds greatest dishes.
The other day I heard somebody say:
"Assuming the future behaves the same as the past, I reason that this way makes my funds efficiently used".
I wanted to say, my experience is that the past is never like the future so we waste valuable time and skills on a false postulate.
As I see it, it is better to have a core strategy to deal with equity drawdowns, etc –based on logic–as opposed to a strategy based on the past real results or back tested as that is for the most part a make believe world since it never happens quite that way again.
Gary Rogan writes:
Larry's statement seems to be exceptionally profound in what it's saying and in the unambiguous nature of what it's saying. Speculation seems to be about predicting the future. Is there anything but the past, in some sense, that can guide us towards correctly predicting the future? If so, and if it's not similarity, what is it about the past that can help predict the future?
John Netto comments:
There are ample proverbs espousing the merits of both deriving information on events which have taken place before us, as well as the the complexities in attempting to accurately predict the future due to the inherent uniqueness of the time we are living. As a speculator in the financial markets, sports arena, and poker, it's my experience the answer lies somewhere in between. For me, the ability to extract alpha is how well I can ascertain what qualitative aspects are unique and execute a strategy from there.
Two sayings which are both contradictory and complimentary:
"Past is not prologue" "Those who do not learn from history are doomed to repeat it"
Gary Rogan writes:
There are many ways to use the past, such as:
1. Under similar circumstances, Security A behaved a certain way during a statistically significant percentage of the time. I will therefore bet that Security A will do it again under similar circumstances.
2. In the past, a certain class of securities had a certain trajectory under similar circumstances. I will therefore bet that this new Security B, which seems fit to be a member of this class, is statistically likely to follow this trajectory close enough to bet on.
3. In the past, when people were this excited/depressed/confused you could bet with them/against them and make money. Let's do it again.
4. The past rarely repeats under these circumstances. Let's bet against the past.
I'm sure there is an infinite variety of similar observations. Yet in every case the past was used SOMEHOW. There is nothing but the past as the basis for human knowledge, and that's why I was so fascinated by Larry's statement, especially because he is a master of his game.
Craig Mee writes:
Running a stop with any position, regardless of the backtest, is both logical and prudent.
Stefan Jovanovich adds:
When the British and French were forced to give up their remaining military strength in the Arabian Peninsula and the eastern Mediterranean - abandoning the base in Aden, being forced to withdraw from their assault on the Suez Canal, the U.S. did not replace them on the ground. The great fear was that "the loss of the Canal" would result in "the oil weapon" being used against "the West". The actual result was the development of supertankers that by-passed the Canal entirely and increased by an order of magnitude the ability of the oil exporters to ship their crude to Europe and Asia. At the height of the Suez crisis the inflation-adjusted price of crude (using the 1947 nominal price of $15 as the baseline) rose to $18 a barrel - higher than it had been during the Korean War. A decade and a half later - even as U.S. supplies went from 40% of world production to 10% - the inflation-adjusted price fell by nearly a third, hitting a low of $13 in 1972 after production began flowing from the North Sea discoveries.
I find myself wondering if the U.S. eventual withdrawal from Afghanistan and the withdrawal from Iraq already largely completed will not have the same paradoxical effects as the Anglo-French withdrawals did. I realize that this question is completely irrelevant to the questions that anyone trading in commodities has to answer; but those of us in the bleachers are interested in what the professionals on the field think will be the effects of the closing of America's 25-year military misadventures in Southwest Asia.
Larry's maxim: "it never happens quite that way again" - certainly applies to political history. This is the second time in my lifetime that the American public has lost its belief in the virtue of our allies. Last time they were wrong; this time they are right.
Best book of the year was "Myth of the Robber Barrons", second best one, about finished, is "Destiny of the Republic" its about much more than crazy Charley Guiteau…a historical thriller; learned a great deal.
The men's marathon record was broken this week end at the Berlin Marathon, pending ratification, by Patrick Makau with time of 2:03:38. Beating the old record Sept. 2008 record by Haile Gebrselassie by 21 seconds. The record has been broken with some regularity since the mid 1930s when the depression caused men to look for any way to make a living or bolster their reputation to get and keep a job.
It has occurred to me that the record tends to be broken when the economy is in long term trouble and when the young are having hard time finding opportunity elsewhere. The record broken by decade is as follows: 1930, 3; 1940, 1; 1950 6; 1960 9;1970 3; 1980, 5; 1990 2, 2000 4, 2010 1st last weekend. Marathoning is a tough way to make a living and the competition, at least in my time, has appeared to get stronger as the stock market tanks and gets weaker as it is about to take off. I missed my opportunity by not taking up serious marathoning in 1992 but waiting till 1996, 1992 was when I was at my peak and the competition was weakest.
Below is a comma delineated file with the month the record was broken, the % change in the Dow Index 12 months prior (counting month record broke), and the 12 month after % change in Dow index.
Here are some key statistics:
12 month prior avg. 3.22% stdev 13.64% count 34 negative count 15
12 month after avg 13.59% stdev 21.06% count 33 negative count 7
Student T test 2 different stdev one tail, 1.14%
It would appear that the marathon tends to be broke at the turning points in the Dow, however with a wider deviation than prior and the last 2 times this did not work. A similar result occur taking out all but the first occurrence when the record is broke within 12 months of the last time, except the student T test is higher due to fewer occurrences.
Month Record Broke,Prior 12 month % change in Dow,Next 12 month % change in Dow, New Record
9/1/2011 -0.15%, ?, 2:03:38
Kim Zussman queries:
Russ, in your opinion, will the 2 hour mark be broken in our lifetime (you and I are about the same age)?
The 12 records since 1980 have dropped in a roughly linear fashion, which if continued extrapolates to about 2035
Russ Sears replies:
If you would have asked me in the 90s about this, I would have said no way, they are beginning to form an asymptote. However, I believe sport science has made considerable progress in 2 areas critical to lowering this record below 2 hours.
1. There is a much better understanding of the altitude effect has in endurance training and how to maximize this effect.
2. There are now much more creative ways to exercise more with less detrimental stress but maintaining the positive stress and exercise specifics. See zero gravity treadmills and water running treadmills for example.
And perhaps it simply is competition creates its own opportunity and it is clear to me we are in a new competitive era for distance running.
Hopefully it will continue for the rest of our lives. But not because the economy will continue to flounder. Especially for the young, ambitious and talented.
Larry Williams comments:
The math is all a runner has to do is knock 8 seconds a mile of his/her pace. Much easier said than done, but it's a goal within reach. 2:00:00 will be broken in next 10 years is my forecast. Mostly because of what Russ said–better training habits and knowledge. With science, a runner with lots of personal angst will break through. Must have personal angst (see current frank shorter article in Runners World) to get through the pain.
I just finished The Mighty Atom. It was a delightful read as well as educational on several levels.
Chris Tucker adds:
This reminds me of a passage in The Psychology of Risk: Mastering Market Uncertainty, by Ari Kiev, M.D., (John Wiley & Sons, 2002) pp. 39, 40:
Commitment is an example of what Joe Greenstein, a circus strongman in the early years of the twentieth century, believed was necessary to overcome what he called "impossibility thinking." He believed in a Life Force that we all have but fail to activate because we are constantly thinking, "I can't do that. I'll hurt myself."
According to Greenstein, the little voice in you - that instinct for preservation - does not give us an accurate picture of our capabilities. We all have mental and physical abilities beyond our own estimation, but to realize them the mind must be deconditioned from impossibility thinking. Only after this deconditioning does it become possible to do what you will.Greenstein believed you could do almost anything if you applied your mind and body to the task with enough diligence. The critical step to take is to overcome the instinct for self-preservation, which inhibits action. To do this, he believed, it is only necessary to become totally focused on the event at hand, with no reservations and fears of anything untoward happening. In traders, this instinct shows up in the form of such things as mental accounting and loss aversion.
Nothing could more vividly illustrate the importance of belief in a favorable outcome without reservations or fear than the large number of people who were able to run sub-four-minute miles *after *Roger Bannister broke the magic four-minute mile barrier on May 6, 1954. Until that time, the four-minute mile was no longer a vain, exaggerated dream but an attainable goal that could be reached by any runner who was capable of overcoming the pain, adversity, and anxiety involved in reaching it. Once the barrier had been broken by Bannister, the event itself suddenly became relatively easy. By the end of 1978, as many as 274 runners had broken through the "magic, impenetrable barrier."
Kiev then progresses into an interesting discussion about the nature of commitment. Highly recommended book along with his Trading to Win: The Psychology of Mastering the Markets, John Wiley & Sons, 1998
A rather shocking study which shows that investors in mutual funds receive a much worse return than the actual return shown by the mutual fund through putting most of their investment in before the mutual fund goes down and least of their investments when mutual funds before the mutual fund goes up. The actual underperformance seems to be of the order of 3 percentage points of return a year, i.e, 6% versus 9%, with sector funds and specialty funds and growth funds showing much greater underperfomance. This must be a pretty good indicator of when to go against a particular sector.
Steve Ellison writes:
I read Mr. Swedroe's book Rational Investing in Irrational Times. This is very interesting data, but it undermines his main message, that the market is efficient and even professional managers can't beat it, so you should diversify and keep costs low by buying index funds. If mutual funds favored by the public underperform by a wide margin, something else must be overperforming. One might be able to beat the market by simply avoiding the hot funds and their favored stocks, like Bacon's technique of betting on all the other horses besides the overpriced favorite.
Mick St. Amour writes:
A great contrarian indicator. The retail investor is often guilty of chasing returns and as you can see this is a performance killer.
Larry Williams writes:
Aha, mutual funds are for the masses, while the elite managers of money: Cohen, PTJ, Dalio– are the winners for their clients.
But hold on a moment here. Lots of professional managers have beat the market for many, many years. It can be done, and it is being done. But not all can do it. Just like not all teams will be in the final four, and while luck is part of the game, in the end skill carries the day.
Copper finally succumbed last night, and whether it leads the equity market, or equities lead it, they tend to mimic each other pretty well over the March/April reversal period for the next several months. If they hold this relationship, copper will now have a bit to make up to give this duo strength.
Anatoly Veltman writes:
1. it happened quite abruptly in North American session.
2. mass media explanation: potential premium fuel costs dim prospects for industrial demand.
3. over the years, I've often seen other metals follow next day - although there is no fundamental link. It always was: like players were too busy knocking one market down today; and they switch to the next market next day. Which will be interesting to note tomorrow, as one important nouveau element (cross-market algorithms) should have kicked in already today (?).
Larry Williams adds:
Dominoes is the next game?
The Ditch Digger's Daughter is the best book I have read in many, many years. I swelled up, reading it, choked up and cried.
London & Hong Kong Traders:
Open interest has fallen almost 30%, but gold has only dropped 6%. Normally if you are a short in a market and you start to have an asset correct because of significant liquidation, you will see a precipitous drop in price. Given the sheer volume of contracts that has been liquidated, we should have seen a massive correction in gold. Instead it has stayed incredibly strong.
Larry Williams writes:
Open interest rallies or declines must be put into perspective of who is causing the OI move, which group of traders…to just mention OI w.out background is not a full meal.
Rocky Humbert writes:
I would add the following to Larry's comment — which is something that makes today's markets quite different from decades past — and which changes the character of OI and CFTC commitment of traders data.
In a futures market, the long positions must EQUAL the short positions. Hence it's a zero sum game. This is not true in the physical gold ETF!!!
For example, when a long liquidates his gold futures, the short is also liquidating his short position. And the open interest declines. Larry and Anatoly believe that there is predictive information in this.
However, in the gold etf, there is no genuine reduction in open interest. Instead, when an ETF long sells his gold ETF position, the gold leaves the ETF system — and the physical gold finds its way to another holder outside of the ETF system. Because gold is (mostly) not consumed by commercial end users, the gold remains in existence in perpetuity. In theory, in a futures market, if the open interest is zero (and remains at zero), the price of a commodity will not change. The price will just sit there. However, in the case of physical gold, the open interest can never be zero — since the physical bullion will continue to exist (whether inside or outside of the ETF system.) This means that gold (whether entering or leaving the ETF system) has a quasi-permanent open interest.
None of this is necessarily predictive of the gold price– however, it's important to understand that the CFTC data on gold futures open interest misses this nuance.
Great points, thanks for making them.
Who are the players in the ETFs? Relatively small specs, I assume.
And on gold consumption it is consumed, not like wheat, but the physical inventory is turned into rings and things so the inventory needs to be replaced my commercial users. Commercials do take delivery.
Trading is hard with small kids around. I remember when I was trading copper. I'm long, and my actress daughter gets a bloody nose (of course she dramatizes it, she's a born actress). I forget the trade in copper, stop the bleeding….and….go back to see a 45,000 loss in copper. It would have been cheaper to med-evac her to the hospital.
Victor Niederhoffer reminisces:
Twenty five years ago I lost half my wealth between the first and second games of a racquetball game with Reuben Gonzales.
Craig Mee writes:
Shocking…It reminds me of a local interest rate trader, heavily
short, who went for a "quick" haircut, next door to the exchange in
Sydney…. BOOM. Reserve bank unexpected rate move …house wiped out.
An anonymous contributor writes:
They [ed.: i.e. the French] had then learned how easy it is to issue it; how
difficult it is to check its over issue; how seductively it leads to the
absorption of the means of the workingmen and men of small fortunes;
how heavily it falls on all those living on fixed incomes, salaries or
wages; how securely it creates on the ruins of the prosperity of all men
of meager means a class of debauched speculators, the most injurious
class that a nation can harbor,—more injurious, indeed, than
professional criminals whom the law recognizes and can throttle; how it
stimulates overproduction at first and leaves every industry flaccid
afterward; how it breaks down thrift and develops political and social
immorality. All this France had been thoroughly taught by experience.
Everything was enormously inflated in price except the wages of labor.
As manufacturers had closed, wages had fallen, until all that kept them
up seemed to be the fact that so many laborers were drafted off into the
army. From this state of things came grievous wrong and gross fraud.
*- Andrew Dickson White, “Fiat Money Inflation in France”, How it Came, What it Brought and How it Ended*
Stopped off to see a buddy in a large trading room here…apparently no one can speak above a whisper. It seems a strange way of doing any trading…it is imperative that one learns to curse at himself (often and with gusto) to do well in this business.
Mr. Krisrock writes:
They use buttons…one beep ok, two beeps get the fades out of my way, three beeps with one following get me a single coffee, two beats two coffees…
Jeff Watson writes:
Interesting about the character of many trading rooms. While they might play music as background, the players are generally as quiet as church mice, concentrating very hard. On the other hand, at my tiny room, because of my floor based background, anything goes. Rabelaisian jokes, potty humor, pranks, lots of noise, telephone calls, nothing bothers me and I encourage discussion, stories, jokes, etc. I guess it all depends on how one was brought up. Floor guys are just different, much more animated and aren't as cerebral as screen guys. Just because there is a lot of money involved doesn't mean that one can't have a sense of humor, or gallows humor;Plus, it might be better if one can trade with distraction, much like floor traders had to deal with,, but this should be tested.
I don't think one becomes good at trading until we have been beaten so much that we no longer fear the beast…once you learn how to take any shot the market give you, success comes so much easier.
Jay Pasch replies:
There is wisdom in this post; it also emphasizes the importance of having enough skin in the game to experience its sensitivities especially when it comes to turning points– turning points start to hurt, they frustrate you, they wear you down, they rub you raw to a point where you think you can't take it anymore, to a point where you question your methods, why you trade for a living, to a point of throwing in the towel– it is then that the trader needs his perseverance the most and to stay awake.
Victor Niederhoffer asks:
What are the turning points and how can they be predicted? That's a good way of
trading I think. A turning point and run are pretty much the same with
proper definitions as a start.
Jim Sogi writes:
There are enough niches and styles in markets that a person can find one in which his own weaknesses create the least problems.
Rocky Humbert writes:
Craig wrote about Cyclone Yasi a few days ago. This is a monster storm, and may hit Queensland sugar (and other ag) production. It will be a couple of days before the markets "digest" the results.
Spot sugar is already in tight supply. If the Queensland crop is damaged, it could push up out-month sugar prices, and this might even feed into higher corn prices (i.e. corn syrup). Conversely, the ag markets are already extremely "hot," and we've not seen a bearish headline for ages.
Earlier this morning, the chair asked a most relevant question: "what are turning points and how can they be predicted?" The chair has also previously written that "reversals are more lucrative than trends." Over the past 12 months, sugar is up 65%, coffee is up 76%, cotton is up 125%. If reversals are indeed more lucrative than trends, I'd love to figure out when I should reverse these positions, since I keep wasting money on my hedges. Sadly, the only turning points that I ever see are with 20:20 hindsight.
Vince Fulco writes:
There seems to be a prevailing reasoning in the trading world that "reversals" or "turning points" are something which must be predicted– while trading "trends" is something which is not predicted, but merely, reacted to. The latter, not requiring "prediction."
I think that prevailing reasoning is false. Being a trend follower still requires one to predict in the sense that he is predicting the trend will continue. Both approaches require prediction. (Similarly, a non-directional approach, a market-neutral approach, say, writing butterflies, is, by the same reasoning, requiring prediction in that one is predicting the market will stay sideways, or at least not go into a protracted trend).
So my question to the site is this: Is it possible therefore to trade and not predict?
Gibbons Burke comments:
Method one: Book your profits in your mind, don't treat it as "house money" and decide right now, for each market, how much of your money you are willing to give back to the markets. Draw your line in the sand and let the market take you out at that point. If it takes you out and then goes back to make new highs, consider maybe getting back in.
Method two, which I prefer: take half of your positions off the table, cash in the chips and reward your self for being right. Let the rest ride with a stop set at the point determined by method one. If you keep being right, and start feeling like you want to reward yourself for being right again, take half off again. Keep raising your stop on the remaining positions to lock in your profits, and let the market take you out when it feels like doing so. And given the magnitude of the trends, the likelihood is that when it decides to take you out, it will keep going in lobogola fashion.
I've had this very argument with a well known trend follower/leader on his Facebook page a couple of times. He keeps insisting that trend followers are superior to the other species of traders because they don't make predictions. But my contention is that trend followers are simply deluding themselves if they think they aren't making predictions.
They are predicting that when they get a trend following signal that the market will continue in their direction by a magnitude that is more than twice the size of the risk they are taking on. They predict that this will happen maybe 20% of the time, and that when they catch those big moves they will make up for all the psyche-destroying losses of which they predict their method will keep small.
It is a different sort of prediction, but it is nonetheless a prediction.
Farm Journal had a good article on the tightening wheat supplies.
Their contention that milling quality wheat is getting scarce (but not to 2007 levels) and the market reflects this, resulting by the ever expanding Chicago/Mgex wheat spread. The resulting scarcity of high protein milling wheat has caused all contracts of Minneapolis Wheat to trade at a premium to Chicago. A few months ago, Chicago Dec 2011 was trading at a 5 cent premium to Minneapolis, which was an anomaly as every other contract of Minneapolis wheat was at a premium, except Dec 2011. As Minneapolis wheat normally trades at a premium to Chicago (Quality trumps everything and transport and storage are basically a wash), Chicago trading at a premium to MGEX can mean a good trading opportunity, but one must be very careful. It can also mean ruin if the mistress of the market continues her irrational behavior as evidenced by the Dec 2007 debacle that bankrupted many traders caught on the wrong side. Right now, in the wheat market, the seven wild cards are the next crop (there is a wheat crop harvested somewhere on the planet every 3 months), China's demands, our other exports, what Russia will do, the dollar's value, and acreage yields, and numbers of acres planted.
(As a side note, the government's directives might result in a reduction of wheat acreage like 2007 in order to plant more corn for ethanol, but this is speculation and not fact as of yet) However, supplies of Chicago's lower protein wheat are not very tight as evidenced by the front month, March, trading at a 30 cent discount to May. If there was a tight supply, the front month would trade at a much higher price, possibly even a premium, to shake some wheat out of storage to accommodate immediate needs.
The milling wheat on the other hand is only trading at a 6 cent discount in the front month suggesting much tighter supplies. From a practical standpoint, I am noticing a substantial increase in the price of pasta at the grocery store, and fewer markdowns on a retail level.My milling contacts also are mentioning substantial price increases in the near future. Still, this upward drift of the entire wheat market is rather confusing as the fundamentals somewhat support the rise, but there's something else going on beyond the mere fundamentals. I'll leave it up to others above my pay grade to ascertain and explain the intricacies of the market.
Meanwhile, I will try to make it safely to port without any damage. My mea culpa here is that 8 months ago I was of the opinion that while there might be a slight upward drift in the wheat market, it would be orderly and negligable and I saw no real rally unlike other sagacious members of the list. I even reported this on Daily Speculations, on Jan 26th. Larry Williams was the hero of the day when he said, "Wheat is set up to rally." Kudos to Larry, and a hairshirt for me…. I was so wrong, but still providence was with me when I decided to not try to buck the ever rising market and keep my longs.. Thinking of all the times I have been completely wrong, (and I keep very exacting records) it's amazing that I have managed to stay afloat and am not working the overnight shift at the 7/11.
Larry Williams writes:
I hate to disagree with a trade journal, but my stuff is bearish on wheat at this time.
There has been a noticeable drop in Gold open interest. Since open interest is definitely declining, look at the players. Who is doing the buying here? The Commercials. Small Specs and Large Specs have been liquidating.
You can get as-reported earnings for the S&P 500 from 1988 on at Standard & Poor's website.
Using 12-month trailing earnings for each year's September quarter (the last that would be known by Dec. 31) to calculate an E/P ratio for the S&P 500 as of Dec. 31, I get a somewhat positive correlation of trailing E/P to year-ahead returns with t=1.10, R sq=0.057, p=0.29, and N=22.
Larry Williams writes:
My model for the DOW suggests a 12.25% growth for the year, slightly above the long term average growth.
For the S&P, I get 10.6 % barely above the long term average.
Bruno Ombreux writes:
There are two things I don't like in P/E or E/P studies.
1) Your regression is in the form:
-1 + P(t)/P(t-1) = f[P(t-n)/E(t-n)] + e we have the same variable on both sides, and even if it is lagged I am not sure standard regression is OK to handle this type of formula. Just to give you an idea, multiplying both sides by P(t-1), it is actually P(t) = P(t-1) + P(t-1)* f[P(t-n)/E(t-n)] + P(t-1)*e
This is certainly amenable to study, but not with the standard regression toolbox.
2) Price is more volatile than earnings. There is a subtle bias introduced by the fact that over the estimation sample, high P/E will be naturally followed by lower P/E, and vice-versa. This is a bit like regression to the mean but more subtle. This can lead to spurious mean-reversion.
Phil McDonnell adds:
The issue is not really the dependent variable. It is using the Shiller variable with its serial correlation. One way to use the Shiller variable would be to take every tenth month. That might work but you would have one tenth the data. You still might have the Holbrook Working flaw because of the averaging. The averaging also leads to the Slutsky-Yule effect which creates spurious sinusoidal artifacts in the adjusted variable when no such sinusoidal effect is actually present in the original data..
One notes that:
1. NY Commuter rail fares will increase by more than 11.1% on December 30th (for the Harlem and New Haven lines.)
2. NY Commuter rail fares will increase by more than 14.3% on December 30th (for the Hudson line).
Assuming a brisk walking pace, a Westchester County resident can make this round trip trek in about 12 hours. In contrast, a round-trip peak ticket costs $28.50 and train-station parking costs $6.50. Hence, a day-trip into Manhattan costs $35.00 per person. Assuming a 40% marginal tax rate (State & Federal Income Tax), the pre-tax cost becomes $58.33. This is about $4.86/hour.
It's therefore a relief to know that the New York State Minimum Wage is now $7.25/hour. So it still pays to work.
Victor Niederhoffer writes:
One would have to adjust Mr. Humbert's calculations based on the age distribution of the population. "One senior ticket and one child," Aubrey always says when the conductor comes. That's Keely's 7 bucks for me, but my walking pace has slowed, (as witness my failure to pass the California test for the DUI). Say I am at 3 miles and hour. It would take me 17 hours to get to Manhattan for my 50 miles. (I believe Elonra Sears, the lady squash champ, would do it in 16). If my time is worth more than 50 cents an hour or so, it pays to take the train, assuming I would not make losing trades. (In the past, when asked to do chores, I could always tell Susan, that the chore cost me 1000 or 5000 an hour when I could make money with impunity, but now that doesn't work and Susan often says that I'd save money by washing the dishes or changing the light bulb, or shoveling the snow.)
Russ Sears writes:
A couple guys come to mind when you talk of going 50 miles a day to work.
Legend has it that Bill Rodgers headed for nowhere, working in a morgue delivering bodies, when his motorcycle was stolen. He started to run everywhere. This helped him to start running again after stopping after college track. He also was smoking before this. And he is the only guy I have heard of that doing more than 150 miles per week actually strengthen him. He topped out at 200 miles per week 16 in the morning 13 in the evening.
The other guy is Dr. Horton, who was a Phys Ed Professor at Liberty. He set the record for running the Appalachian Trail. He averaged I believe, near 50 miles per day. He had line up Churches to help him throughout the course. He would meet them at points most nights, so he could eat hardy and sleep and then next morning drop him off at the same point. It was getting to the meeting points that added to the distance to the 2,200 mile course. (now I hear 2 other guys have broken his record of 52 days) This was very tough on him and I heard from my CC coach that it took him over 2 years to shake the mental depression such distances placed on his mind and body.
At 50 miles: plans would have to be made to have plenty of liquids along the way some light food. then latter eat and eat hardy and well. A mile burns roughly 100 calories, for average weight guy. Plus the normal 2000 calories, would require about 7000 calories a day. Phelps is said to eat 12,000 calories a day.
One summer in college, I lived on a nickel to save for the next years tuition and road a bike near 30miles a day for a couple months to work. 100 mile days are normal for serious bicyclist.
Henry Gifford writes:
I used to compete in and win, 24 hour bicycle races– ride as much as you like, rest as much as you like. Some wimps even took naps.
At the level we were at, consuming enough food was a deciding factor during a race, and buying it was a major expense, for a race and at all other times. One year someone handed me up candied pineapple, which I had never eaten. I barfed, but still rode as hard as I could, but I was like the car in the Indy 500 with the torn gasoline fill pipe from a sloppy pit stop exit. I was able to keep up, but couldn't refuel, surely coudn't have finished or won.
Someone helping run the team knew to feed me boiled potatoes, after which I was good to go. I ate everything on the next lap around.
Larry Williams wrote:
I also found boiled potatoes to be the key, with salt, to correct food for ultra marathons.
Keynes was interested in markets, and did pretty well. What about Hayek?:
"Keynes was another Kelly-type bettor. His record running Kings College Cambridges Chest Fund is shown in Figure 2 versus the British market index for 1927 to 1945, data from Chua and Woodward (1983). Notice how much Keynes lost the first few years; obviously his academic brilliance and the recognition that he was facing a rather tough market kept him in this job. In total his geometric mean return beat the index by 10.01 per cent. Keynes was an aggressive investor with a beta of 1.78 versus the bench- mark United Kingdom market return, a Sharpe ratio of 0.385, geometric mean returns of 9.12 per cent per year versus Ð0.89 per cent for the benchmark. Keynes had a yearly standard deviation of 29.28 per cent versus 12.55 per cent for the benchmark. These returns do not include Keynes (or the benchmarks) dividends and interest, which he used to pay the college expenses. These were 3 per cent per year. Kelly cowboys have their great returns and losses and embarrassments. Not covering a grain contract in time led to Keynes taking delivery and filling up the famous chapel. Fortunately it was big enough to fit in the grain and store it safely until it could be sold. Keynes emphasized three principles of successful investments in his 1933 report:
1. A careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time; 2. A steadfast holding of these in fairly large units through thick and thin, perhaps for several years until either they have fulfilled their promise or it is evident that they were purchased on a mistake; and 3. A balanced investment position, i.e., a variety of risks in spite of individual holdings being large, and if possible, opposed risks.
Jeff Watson writes:
I could not find much about Hayek's investment performance and speculate that his work in getting a Nobel Prize and publishing seminal works probably attenuated any desire to actively play in the market. Granted, Keynes was a genius……completely wrong about everything, but a genius nonetheless. I notice no comment from his fans on the left about his legendary Anti-semitism, his frequent use of the N-word when describing American Blacks, and his dismissive attitude towards Russians, and other Eastern Europeans who he thought to be the unwashed masses and very ignorant. Still, in his complete wrongness, he provided a very bright beacon for those of us who wish to pursue the correct course. Keynes is our own perfect fade factor, a Douglas "Wrong Way" Corrigan of economics.
Larry Williams writes:
What an article on this that does not mention Ralph Vince. Oh, I get it…much of his comments are lifted from Ralph, so why let people know he exists? Trade kelly and you are doomed to die.
Ralph Vince responds:
Thank YOU Larry. A couple of things on this.
1. Whenever people start talking "half Kelly," or other ad-hoc locations on a dynamic curve (with respect to the number of plays) I realize they don;t know what they are talking about. It doesn't mean they aren't good mathematicians, they just don;t understand their material well enough. Ziemba has been doing that for years.
How can a man look at the curve and not begin to discern the nature of it beyond that???
2. The "Kelly" Criterion answer is NOT what any of these guys thought it was. It is NOT the optimal fraction to invest. It is a leverage factor — a number not bound between 0 and 1 but 0 and + infinity. Thus, if you treat it as a fraction, you will inadvertently be using a fraction that is way beyond optimal in trading.
3. Once you discern what the real optimal fraction is to invest (and you won't get there with the Kelly Criterion) then you can make intelligent decisions on what value to use as a prediction of where the optimal fraction will be in the forthcoming periods.
All of that if you want to be growth optimal. Go ahead, have at it slugger. The REAL benefit to understanding the nature of the curve of the optimal fraction (not to be confused with Kelly's misguided criterion) is that you can use it to satisfy OTHER objectives aside from the incredibly aggressive growth optimal one.
I don't claim to be the mathematician any of these guys are. But I know I understand this material better than all of them combined.
And I have the real-time track record to prove it.
December 20, 2010 | Leave a Comment
The mind set of a fighter is not much different than that of a trader. A great read: The Fighters Mind: Inside the Mental Game by Sam Sheridan.— keep looking »
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