Aug

19

BarnfireIn an agricultural society this was akin to a financial heart attack, or at least a very large setback. Today it is still an event that causes great loss and trauma to livestock, goods, as well as property.

I bring this up in connection with speculation because I heard an interesting behavioral aphorism: "The horses escaped from the burning barn and then turned and ran back into the barn and perished". This was in reference to a dollar entry/exit and subsequent re-entry where a trading group was totally burned, but the point is why would smart animals (specs/traders) run back into a burning barn?

Lightning strikes, hay bale combustion, electrical and other reasons are the general causes for a barn fire. What happens to horses in barn fires is quite unpredictable. Some horses, once the doors are opened, just run out, some must be led out, but some willfully refuse to leave and are totally scared by the flames and smoke. These horses will need to have their eyes shielded so that they can be led out. Still this method does not work for some.

Also, the number of horses in the barn may influence the group behavior. If one begins to panic, they all might panic. If they can get free they may be able to get out, but others, even though able to get out, may just shut down and not run–this in turn influences others to stay. It's been said that entire packs have been rescued by the owners, unhurt and let out of the barn; the horses run to some other familiar area of the farm — and then re-panic and all run back to their known place of safety — right back into the fiery barn.

When a trader finds himself or herself in a burning barn, a trade that is totally blown up: a market crash experience, an exchange delay or closure, maybe an event after hours which is going to light things up like a gasoline fire the next day — how will that person react? The horse relies on the owner to help provide rescue; the trader must rely on gut, action plans or some other learned procedures in the event of a "trading fire". Do you know yourself? Are you the type of personality that needs your eyes covered (turn off all TV's) and then quietly follow a preset plan, trusting this to survive?

Seemingly the caregivers of the horses know their traits and behaviors and play to these during emergencies. The shy horse can be coaxed, the excitable one must be eye-shielded. Even then there is panic in the smoke. When panic hits, will the trader naturally cover all positions, buy treasuries and sit-and then upon some internal or external signal, reset with 50% positions, 200% long (but for only x amount of time), or some other volatility trade? Do traders know enough about their learned habits that they can determine not to run back to their trade of safety-can they tell if the barn is still aflame and its too soon to go there?

Regardless of what happens-horses that are in a burning atmosphere suffer a lot of internal damage and can develop disease later on and succumb to wasting effects from being in smoke. Likewise, after a trading fire its best to get yourself fully checked out, re-set your emergency strategy and go over the reasons why you were caught in a burning barn.

Note: Most livestock-killing barn fires occur at night.

Victor Niederhoffer remarks:

This beautiful post reminds me of one of the five things I learned from the Palindrome in our 16 years of very intimate connection: "don't try to make it back." Three of the other four were "always use two cans of tennis balls," "never marry a woman you wouldn't want to divorce," and "never trust anyone." He has a magnificent instinct for survival.


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