Mar

22

Is there a form for the typical market? Does it have a shape, a proper way of conducting itself? Is the form for a week regular enough to defy randomness or better yet to be predictive in any way? Is there a form corresponding to the a b a form of music in markets? How does rhythm and volume of sound enter into the picture? Those are the questions I'm pondering this after reading a great book on the walking bass by Jon Burr.

Thomas Miller writes:

I have always believed the markets are similar to musical pieces. A rhythmic sideways market lulls many into relaxed state only to burst higher or lower in mighty sudden crescendos, and a rallying or declining market moves in musical waves with mini crescendos noting momentary tops or bottoms. I wonder how many successful traders have musical backgrounds? Music and mathematics are universal languages and convey the messages of markets. I regret not having more formal training in either.

Newton Linchen replies:

I always thought "Metamorphosis IV" by Philip Glass to be the perfect "market music", not only by its crescendos and decrescendos, but by its impression of regularity (Philip Glass is known as the father of "repetitive music"). Nevertheless, its changes in tempo and volume (strength) gives a rhythm almost fluid. And there's a part of "explosion" (volatility) where the fast-pace is in order — without loss in harmony or structure. I always thought of moments of "trading range" of market going aimlessly followed by a explosion in price upwards or downwards. And it's kind of sad melody remembers us of the majority who only find losses in the markets.

James Lackey comments:

Yeah it's been brutal awful market music. Reminds me of all the VIP mumbo parades, changes of command formations, and dress blue parties I was forced to attend in the Army.

0300 with the Dax open its reveille. Then we all form up into one huge cluster in the parade grounds stand for an hour then "the stars and stripes forever" plays with a government official on the mic saying how far we have come our history and how they are committed to Change "us" with too many last hour's "retreat."

Then with so many brutal last hours "to the colors" reminds me of Flag detail after the close then the discussions with old Colonels passed over, that didn't want to go home to family asking "the kids" new soldiers over a 5pm coffee what we wanted to do with our lives "when I was your age and if I could do it all over" then every few nights after Chow we get "Washington post march" the tune used most in movies to sound off patriotism and how if we all work together, after the next bailout everything will be back to the normal American way… Then back at 7pm "Auld Lang song" to the Nikkei open.

I have noticed over the years my music tastes intra day trading go with the market flows, Baroque, Jazz, Fusion, and when the market is rockin', new alternative rock.

I am in a bad way when all music sounds awful, like Army band music. I would rather listen to the hum of the ceiling fan and as of late the birds singing to the open windows..and to my surprise, spring has sprung and a lawnmower engine sounds more inviting than the music of the markets. ha.

The U.S. Army Band Ceremonial Music Guide

Legacy Daily responds:

When the Soviet Union collapsed, I witnessed the creation of foreign exchange markets and also of stock and other types of markets in Armenia. These images are very vivid in my mind. When I read about people trading on Wall Street (I mean before the exchange building was even a consideration), I can see how that trade took place, because I participated in similar trades in a few of the streets of Yerevan (different places of gathering for different markets). That experience always overrules the charts, the derived statistics, the counts, and all the jargon that I hear daily.

Does the market have a form, a proper way of conducting itself? This question brings up the picture of the crowd dealing in foreign exchange (with the usual guys leaning against their usual trees) against the typical crowd dealing in real estate or stocks or stamps or coins. Of course each market has its form, its unique characteristics, its shape, its place, its rules. Each market has its rhythm, its language. I have not had the opportunity (and never really wanted) to participate in the floor trade at the NYSE or in the outcry system. But having seen the seedlings in their early stages of germination, I only see supply and demand and the various factors that affect these.

In this digital age, it is easy for one to go long bonds and short stocks or long XOM short CVX without ever realizing that the market for every single security represents a unique gathering of those who run the market and those come to the market. If I had to put this picture into something related to music, I'd imagine a choir of professional singers that sing a particular song we recognize. At some point, we join in singing in our heads and then at one point begin to sing out loud thereby changing the overall experience of everyone around us until we move on to the next choir singing a different song. Could one be successful in singing with multiple choirs all at the same time? Can we really understand the market for the SDS and SPY which are derived from hundreds of unique markets with their tunes in addition to their own market creating noise at the same time? What about the noise from the "gold" room affecting the singing going on in the "dollar" room or the other way around?

When it comes to commodity markets, I remember the fruit and vegetable market where some of the sellers would sell what they had grown and the others would sell what they had bought from those who couldn't or didn't want to travel to the market. Does that have a music? If you have ever been in a similar market, you'd recognize the buzz, the "singing" of the man selling his delicious watermelon, and the aroma coming from the area where peaches are sold.

The big question - is all this random or is it predictable? There is nothing random to it, yet it is completely unpredictable. The market makers operate in a very normal expected way, yet those who come to the market act in ways I cannot anticipate or predict. The only elements visible are my own instincts, wishes and desires which happen to approximate those of the people who go to the market very well. Imagine you have a phone to your ear that is connected to a line on a speakerphone where hundreds of people are talking at the same time. What do you hear? Noise! Can you find patterns and conversations in the noise, in some cases yes. Are the conversations and patterns going to repeat? In some cases, absolutely ("How are you today?" is typically followed by "I'm well thank you." or some variation of that) I'd like to be convinced that they could be consistently reliable but then again if that was feasible someone would have already found a way and would have proudly advertised that "past performance does not guarantee future results" does not apply to them.

Jim Sogi writes:

One constant regularity of form in music is the return to the root or home base. I think the market tends to have a root or home for each of its pieces. Recent root seems to be 800. Prior jump on Fed had to return Treasury plan to resolve. 800 was a big theme earlier in the year as well. Now we are in the contrapuntal mode, as Bach would play it doing it from the reverse. In a larger sense, it all satisfies the craving for symmetry and resolution.

Often the craving is frustrated creating a tension. Music is all about emotions on different levels, as is the market. Musical gaps are one of the greatest sources of tension. We still have this Monday gap right below created by maestro Timmy G and the trillion dollar blues. Too much tension and disruption of rhythm to make good music.


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2 Comments so far

  1. Jon Burr on March 22, 2009 11:31 am

    Thanks for the mention, Victor!

    Last night I saw a terrific, topical musical theatre production comprised of music from the Great Depression.

    In the words of the late great Yogi Berra: “it’sdeja vu all over again!”

    The show is really terrific. The songwriters and performers of the day chronicled the unfolding of the catastrophe through their emotional experience - and that of the Nation - at the time. You can see it come to life again in this work

    Those who ignore history are doomed to repeat it, as they say… here’s a chance to experience the emotional side of history!

    http://www.triadnyc.com/

    Here’s my review of it
    http://jonburr.wordpress.com/2009/03/22/go-see-this-show/

  2. douglas roberts dimick on March 24, 2009 10:08 am

    Chart or Musical Score

    Both markets and music are man made. Case in point, the founders of Tradestation.com…

    “Neither of the brothers was very technically oriented, in fact both were classical musicians.”

    http://www.allbusiness.com/banking-finance/financial-markets-investing-securities/10587207-1.html

    Ralph notes that one dramatic change over last 20 years has been the time compression. “Before people looked at daily and weekly information, even monthly sometimes. Now the time interval is getting shorter and shorter, and that has had an interesting impact. As technology gets better, the market has gotten more efficient in some ways and faster at responding to some information. So it forces a trader to be more detailed, and quicker in what they are looking at. That is one of the reasons we got into the brokerage business is a lot of our clients in the past have used our software as an analysis tool and then they generated orders, and then on their own they place those orders by phone in the market. [That] wasn’t fast enough. They needed to respond more quickly to opportunities, which in effect is program trading, which is what TradeStation has evolved into.”

    dr

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