Dec

11

 If one visualizes the equity markets as a passenger train and oneself as one of the passengers, many interesting insights can be gleaned.

Imagine a trader, always on the lookout for the next big pattern breakout. Such a trader is akin to a fellow running along a train that has already started to move out of the station. While raising his own velocity in running along the train, such a trader must touch the pole at the door ONLY if his relative velocity to the train is zero. He wont be able to touch the train if he is still running even a .01 mi/hr slower. He can very well touch the pole AFTER his own velocity has gone up by a .01 or a .001 mi/hr in excess of the train. Disaster happens if such a touch is made. The net relative momentum or force is calculated as the Difference in mass of the train and the person X the net relative velocity. The net relative velocity is actually -.01 mi/hr but because the mass of the train is almost infinitely larger than that of the over-smart runner the total force is a gigantic crushing pull that tears the runner under the wheels of the train!

Being early for a trader is being wrong? No, for a trader it can be suicide!

Since no trader will be trading a single lot only or plunge in his entire bid or ask at a go, diversification works not only across assets, but definitely across the time, even if in split seconds.   


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