Reading the Markets
Updated
Please have a look at the accompanying chart to see Money Man’s read on the situation. Money Man cannot believe he drew this, but that is what the plot is telling him now. What could he do but draw it? Hopefully, more data would cause adjustment to the chart. There is an election that should keep things calmer.
Picking up where we left off awhile ago, Money Man would like to test your tolerance to metaphors again while getting to another rule or lens to use, to look at the markets.
The markets are continually telling a story of cause and effect and the emotions of the perceptions on possible effects. It draws patterns and lines around these sentiments, building plots which lead to the reader forming bias as to the outcome of the impending climax. As you know, there is a whole field in technical analysis built around likelihoods of discernible patterns breaking up or down and by how much, reinforcing bias.
Stories have an exposition / the pattern and simply recognizing the start of this happening is an art in itself. Volume is normally the first to be pointed at as the volume sees a decline through the development of the pattern. Caution though; the first decline in volume could simply be the forming of a short-term pattern, leading into a longer term pattern, a good example would be a symmetric triangle morphing into a ascending triangle, (a plot, within a plot). An obvious pivotal area is ultimately reached, and a much-anticipated decision gets made or faked. This is where most chart readers are caught unawares as they have not been paying attention to the realm of rational possibilities, only focussed on the pattern and the advocated probable outcome to the type of plot. They are told that, for example, an ascending triangle has a 72% chance of breaking up (where does this number come from?). So logically traders stake accordingly and place their stop losses according to their staking and the pattern.
Money Man might not be liked for saying this, but this should not be thought of as an edge, and definitely not sold as one (please read the previous “On Edge” ed post for his view on edges). It logically cannot be that easy as per example, breakout trading, alone. If you are a breakout / chart pattern trader, you will have to refine beyond simply the pattern. Breakout trading is a strategy and not an edge which could lead to an edge. There is value to it, but it cannot be all of it as then most traders would quickly catch on and become consistently profitable (more on this in the PS).
Money Man often thinks about how whales can, in a fair amount of safety, inside the low volume of a pattern forming, move the markets with spoof buy and sell walls and strategic comparatively small trades, into strikingly obvious patterns. This would pull in enough interest, on the pattern edge / climax, to buy or sell big amounts – not a new idea and a well-known strategy. We all know that spoof orders and wash trading is real and exchanges, not eradicating it, should be avoided. He thinks arbitrage does not nullify but simply dampens the effects.
Back to the story: You cannot and should not attempt to pay attention to every instance in the story, if looking for rational outcomes and it takes many hours of market participation to start realizing what to note and how much weight it carries for how you trade. It is hard, but most people will bump into their own edge if determined and consistent. It is better to keep reading than to put the book down and then later find yourself at another chapter, frantically looking back trying to catch up with what happened. It is only okay over short periods and could benefit and make things clearer, but not so over long periods of time. So, Money Man is also not a fan of the use of market filters by beginner traders.
Conclusion: Reading the story rule: Do not read the market tick by tick, but still stay with it. Keep an eye out for the consistencies and plan for the worst, the best and everything rational in between. The more the plots change, the more the story stays the same. Simply filtering out the noise is already opening you up to finding your own edge. Very important to me: Please like if you appreciate the effort, please comment to develop this further and Please follow if you think this is leading somewhere that you might like to know about.
PS Money Man sees the fundamental reason for the existence of markets as distribution. This spills over into speculation markets too. This is probably the truth behind the zero-sum game view, but he does not agree fully as there is more to it). The edge to go fundamentally against the grain of a market (please read Hive Mind v Irrational Markets), and accumulate, will not be hidden in one indicator or pattern, because the market will seek out the inefficiency and nullify it. Money Man thinks that the 2% (or whatever) of traders who are consistently profitable is not the aim of a market, but a consequence of those 2% thinking differently to the rest (He has virtually in all ed posts offered different ways of viewing the market to call out the thought warrior in readers).
Picking up where we left off awhile ago, Money Man would like to test your tolerance to metaphors again while getting to another rule or lens to use, to look at the markets.
The markets are continually telling a story of cause and effect and the emotions of the perceptions on possible effects. It draws patterns and lines around these sentiments, building plots which lead to the reader forming bias as to the outcome of the impending climax. As you know, there is a whole field in technical analysis built around likelihoods of discernible patterns breaking up or down and by how much, reinforcing bias.
Stories have an exposition / the pattern and simply recognizing the start of this happening is an art in itself. Volume is normally the first to be pointed at as the volume sees a decline through the development of the pattern. Caution though; the first decline in volume could simply be the forming of a short-term pattern, leading into a longer term pattern, a good example would be a symmetric triangle morphing into a ascending triangle, (a plot, within a plot). An obvious pivotal area is ultimately reached, and a much-anticipated decision gets made or faked. This is where most chart readers are caught unawares as they have not been paying attention to the realm of rational possibilities, only focussed on the pattern and the advocated probable outcome to the type of plot. They are told that, for example, an ascending triangle has a 72% chance of breaking up (where does this number come from?). So logically traders stake accordingly and place their stop losses according to their staking and the pattern.
Money Man might not be liked for saying this, but this should not be thought of as an edge, and definitely not sold as one (please read the previous “On Edge” ed post for his view on edges). It logically cannot be that easy as per example, breakout trading, alone. If you are a breakout / chart pattern trader, you will have to refine beyond simply the pattern. Breakout trading is a strategy and not an edge which could lead to an edge. There is value to it, but it cannot be all of it as then most traders would quickly catch on and become consistently profitable (more on this in the PS).
Money Man often thinks about how whales can, in a fair amount of safety, inside the low volume of a pattern forming, move the markets with spoof buy and sell walls and strategic comparatively small trades, into strikingly obvious patterns. This would pull in enough interest, on the pattern edge / climax, to buy or sell big amounts – not a new idea and a well-known strategy. We all know that spoof orders and wash trading is real and exchanges, not eradicating it, should be avoided. He thinks arbitrage does not nullify but simply dampens the effects.
Back to the story: You cannot and should not attempt to pay attention to every instance in the story, if looking for rational outcomes and it takes many hours of market participation to start realizing what to note and how much weight it carries for how you trade. It is hard, but most people will bump into their own edge if determined and consistent. It is better to keep reading than to put the book down and then later find yourself at another chapter, frantically looking back trying to catch up with what happened. It is only okay over short periods and could benefit and make things clearer, but not so over long periods of time. So, Money Man is also not a fan of the use of market filters by beginner traders.
Conclusion: Reading the story rule: Do not read the market tick by tick, but still stay with it. Keep an eye out for the consistencies and plan for the worst, the best and everything rational in between. The more the plots change, the more the story stays the same. Simply filtering out the noise is already opening you up to finding your own edge. Very important to me: Please like if you appreciate the effort, please comment to develop this further and Please follow if you think this is leading somewhere that you might like to know about.
PS Money Man sees the fundamental reason for the existence of markets as distribution. This spills over into speculation markets too. This is probably the truth behind the zero-sum game view, but he does not agree fully as there is more to it). The edge to go fundamentally against the grain of a market (please read Hive Mind v Irrational Markets), and accumulate, will not be hidden in one indicator or pattern, because the market will seek out the inefficiency and nullify it. Money Man thinks that the 2% (or whatever) of traders who are consistently profitable is not the aim of a market, but a consequence of those 2% thinking differently to the rest (He has virtually in all ed posts offered different ways of viewing the market to call out the thought warrior in readers).
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