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TO: RealTraders
From: Eddie
"Great" minds do think alike. This is in response to the post that stated:
"The market should be treated like
a living creature. A creature that adapts to changes
with stunning speed. It's sole intent and existence
is to offset risk, and in the end bring the score
card to zero. And it does it very well."
Here are some excepts from the Appendix of a book I have written that will
soon by published. The title of this Appendix Section is: IGNORANCE IS THE
LIFEFORCE OF THE MARKETS. Note that this is part of the Appendix of a book
about marketing forecasting tools and therefore is not the main subject
matter of the book.
One of the most common complaints that traders make after a string of losses
is that the personality of the market keeps changing. Indicators that enable
traders to make vast sums of money for a comfortable period of time, suddenly
stop working.
The explanation for the markets' expected behaviors is not a change in
personality. The reason, fundamentally, is that the markets have an instinct
for survival. It is this instinct for survival which makes events in the
markets bigger, deeper, wider, smaller, longer, and shorter to be.
The markets are not living organisms. Yet, they exhibit behaviors of
self-preservation that lead us to propose that they do indeed function like
living organisms. Consider the market's behavioral similarities to patterns
of human behavior.
A discussion of that which makes a person human, would center upon the human
mind. Without minds, people are a piles of bone and gristle. The sum total
of instincts, emotions, thoughts, and everything that is manifested as human
behavior is aimed at achieving continued survival and self-gratification
through a fixed routine. Our minds would like our bodies to live in a world
in which we do something fulfilling everyday. But this is usually impossible
in a world of competition, company layoffs, accidental and intentional
dismemberment, dear John/Jane letters, airline crashes, random terrorism, and
natural disasters. The environment is constantly throwing monkey wrenches at
our lives such that living is far from our ideal zippity-doo-dah existence,
but rather a fierce battle with everything in our path. To muddle through, a
person who wants to get ahead must aggressively change his strategies for
living in response to the environment. Those people who successfully win
their life's battles do this continually.
Now if the market had a mind, what would its strategy for sustained living
be? Actually, it would be no different from the stategy of a human mind-that
is to change in response to the environment. A picture of this can be
formulated if we first think of what the market would be like if it was dead.
It would like the electrocardiogram of a corpse; it would display the
proverbial flat line of television medical shows. Absence of heartbeat.
Absence of life. A lifeless market would occur if all potential market
participants agreed upon the value and prices within in a market; there would
be no buyers and sellers, only owners and non-owners. Prices would be
perfectly predictable because they'd always remain the same. Nobody would
trade such a market because there would be no money to be made. If the flat
line is death for a market, then what conditions would prevail if the
market's number one goal was to avoid dying? To avoid becoming a flat line
death, a market would have to do anything it could in order to stimulate
disagreement between masses of people about what the fair value of a stock or
commodity is. If the deadness of a market is a function of how much
agreement and knowledge there about the true value of a commodity, then the
aliveness of a market should be a function of how much disagreement and
ignorance there is about the true value of a commodity. The more ignorance
there is among market participants, more life a market has. Ignorance is
the life force of the market.
Thus, the market would have to have a strategy for living which would promote
greater ignorance among market participants. In anthropomorphic terms,
traders would necessarily be pitted against a cunning, crafty and sometimes
deceitful market that is constantly adapting to what its participants know
and do about its behavior; the objective would be to keep the greatest
possible number of people from being correct about what will happen in the
future.
Based upon this understanding, in order for the markets to continue to exist,
the majority of market participants inevitably must suffer a great deal of
pain.
Adaptation and growth are hallmark behaviors of intelligent living organisms.
When a market's self-survival is its chief motivation everyday from the
opening bell, there is no limit to its creativity in doing what it must do to
frustrate people. The norm is to go beyond the norm. The constant is to
change. There are no extremes. The biggest is never the biggest.
Market technicians eternally search for newer and better technologies in
order to beat the markets just as the R & D departments of pesticide
companies struggle to stay one step ahead of the resistance building
cockroach. But just as the 3500 known species of cockroaches have not
succumbed to 320 million years of natural disasters and manmade pesticides,
the markets are likely to continue outwitting market technicians.
The rest of this Appendix chapter goes into a study of why it is important
that traders focus on properties of the market that don't change. That's the
only way to outwit it. There's not enough room for that here.
Eddie Kwong
http://www.RealTraders.com
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Boggio@xxxxxxx eddiekwong@xxxxxxxxxxxxxxx
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