Looking at tonight's headlines - "Obama Fires Wagner" - strikes me as a good time to talk about cause and effect.
Ok, whatever.
The useful part of this "news story" is not any specific scenario, but to ask the bigger question, "what is the cause and what is the effect?" For if we understand the nature of cause and effect, we are more able to predict both, for profit.
Let's assume the market initially declines tomorrow.
I submit that if you asked 100 people, "what is the cause and what is the effect?" almost 100 would say, Obama's actions caused the market to realize that government interventionism is not good for future business; the effect was the market decline.
I say, that is wrong. Reality is the opposite:
The tanking market created Obama's interventionism, and the pre-programmed thresholds of "had enough" caused Obama to act at the same time as everyone else. A much broader collective "sell off" is the cause; Obama's actions, and the corresponding news report, is the effect.
Once you view the news for what it is, the effect of collective pre-programmed human emotional thresholds firing, and not the cause of market action, the easier it will be to identify and profit from cause and effect.
Too many traders lose because they read the news with a backwards perspective. Instead of trying to anticipate what the news might cause, one should ask, what will cause the news?
You are a proficient trader when you know a big story is about to happen, one that will move the market in X direction, but you have no idea what it will be. Then, to everyone's surprise, it happens.
If an asteroid hits the earth that news is causal, but all man-made news is effect.
Once the news is viewed for what it is, pure effect, it is easy to ignore it and move on to the causal trend in play. If you view the news as causal, as most do, you will almost always lose.
I'm pretty sure this post is very useful, and full of knowledge. However, I'm having some difficulty understanding it.
ReplyDeleteReally what the news is with respect to the actions of others is part of what's known in engineering disciplines as a feedback system.
ReplyDeleteThat is: events occur, are reported upon, which cause those listening to take certain actions, which generates effects which are then reported upon, ad infinitum.
Obama's reactions are both cause *and* effect, as are everyone else's.
As it happens, the "news" as most people think of it is heavily filtered so as to cause listeners/viewers to act in the way that would best suit those who own (and thus control) the news outlets. And *that* is the best reason to not pay attention to it.
"Once you view the news for what it is, the effect of a collective pre-programmed human emotional thresholds firing, and not the cause of market action, the easier it will be to identify and profit from cause and effect."
ReplyDelete^^^
kcb, it appears that you have a lot to say about the current economic situation, and it does not appear that you particularly agree with everything FDR has to say. Perhaps you should consider starting your own blog. I do not visit this blog to read your opinions, I come here to read FDR's. in other words, I am through reading the comments to FDR's blog entries because they have become infected with debate brought about by a person whom i have no respect for. kcb, please go away. thank you.
ReplyDeleteKcb it would be great if you can start your own blog and express your thoughts there.Though a healthy debate is always welcome for readers to gain more knowledge , it would be great if you could start one of your own blogs wherin you can point out why we wlll inflate and also your predictions for oil,gold and et all.Nevertless i still welcome your thoughts vs FDR's but hope you express it in a more polite manner.Maybe with your blog up and running people can judge for themselves who is right and who is wrong 1 year down the line.
ReplyDeleteMessage received and understood.
ReplyDeleteIf any of what I've said came across as being impolite then I certainly apologize for that, for that was not my intent.
I don't know if I have quite enough to say to put it into a blog of my own, but I will give that considerable thought.
So I will stand down. I may not agree with everything FDR says, but I think he has a much better understanding of what's going on than most people in the world, and deeply respect his opinions (even if there are some that I do not share).
I wish all of you well. Here's hoping we all survive what's coming!
Another great post FDR. Thanks, I'm learning alot.
ReplyDeleteCurious aside. Tolstoi had a similar view on human history.
ReplyDeleteI think you are essentially describing Soros' reflexivity principle
Best,
Armagedon
I`m trying to follow...So you shouldn`t sell on the news...Should we buy then?
ReplyDelete"I`m trying to follow...So you shouldn`t sell on the news...Should we buy then?"
ReplyDeleteThat depends on what you expect to happen next. The news is irrelevant to market movements.
FDR what do YOU expect to happen next?
ReplyDeleteok thank you fdr.
ReplyDelete"I`m trying to follow...So you shouldn’t sell on the news...Should we buy then?"
ReplyDeleteThat depends on what you expect to happen next. The news is irrelevant to market movements.
Sure, you can see small moves occur in conjunction with news releases, today's initial bump down is a good example, but that should not be confused with the trend. It might be the trend, it might not.
Think of the trend as instinctive, programmed herding activity which nothing can change (except a major external influence, like the scenario in red).
Example:
Consider birds flying south ...I can shoot at them, I can scatter them with noise from the shots, sometimes they will scatter to the north, sometimes they will scatter to the south, but when the shots subside, they will regroup and fly south. I can't change their behavior with news events. If I try to bet that the news of shots fired will change (stop, reverse, or accelerate) their flight, I will lose.
Market behavior is innate, the news has no effect, it is the same instinctive behavior expressed through a different venue.
Hi FDR,
ReplyDeleteHave you noticed that talk about guns has increased a lot lately?! As soon as things get violent I'm heading out bush....
FDR,
ReplyDeleteI am, as others on this board appear to be, attempting to learn and understand the unfolding nature of the waves. I think what you are telling us is to look at what the waves are telling us. We are headed south and can use the last fourth wave as a guideline for our path. It is not the news or any actions taken leading the charge but nature taking its course with the 'news' not only used to explain the trend but also used to explain our instinctive behavior to follow the crowd. It does not mean either 'sell or buy' the news but rather ignore the news and follow the waves.
Am I getting the least bit close to an understanding?
Grasshopper, if you have to ask, you're not there yet. When you can snatch the pebble from my hand, you will know.
ReplyDeleteHi FDR,
ReplyDeleteA little off topic but kind of relevant. I'm expecting something worse than the Great Depression and I believe you are too. Is that right? (I understand none of us have a crystal ball.)
"Have you noticed that talk about guns has increased a lot lately?!"
ReplyDeleteI was at our local Cabelas Saturday and the handgun ammo above .22LR was just about sold-out. I nice older gentleman at the counter said they cannot get/keep 9mm ammo in stock.
"Have you noticed that talk about guns has increased a lot lately?! As soon as things get violent I'm heading out bush...."
ReplyDeleteI can't say I haven't spent some hoarded inflated dollars on future security. Exactly how is for me to know and some poor sap to find out.
Not sure what wave we are in, but today has the feel of the beginning of another leg down.
ReplyDeleteOn the contrary i believe we are on the verge of a massive multimonths rally which could take Dow back to 10-11k and surprisingly Gold to around 500$.
ReplyDeleteAnother aside FDR.
ReplyDeleteThis is precisely why I don't believe in Elliot Wave theory. While the overall patterns ARE predictable the exact order and sequence are not in the short run.
It is like trying to predict ocean waves. You can detect patterns, but they are chaotic and do not hold in a reliable fashion. But just like chaotic systems they have a strange attractor so in the long run they present a degree of predicability. Eg. I am definately in the "sell and hold" camp.
Best,
Armagedon
Dont think KCB was a problem. dont even think he should go or think about going. if you dont agree with him some or all of the time, just skip over his posts
ReplyDeleteThat is what I do with ehoffer.
ReplyDelete"This is precisely why I don't believe in Elliot Wave theory. While the overall patterns ARE predictable the exact order and sequence are not in the short run."
ReplyDeleteCouple of comments, for whatever they are worth.
First, EWT takes a great deal of study and application to get the most out of it.
Getting the most of it *does not* mean it can be predictive in all cases. There are at least two examples of where this might apply. 1) is when the market action is non-sense when trying to apply EWT, and 2) when the trend becomes clear too late in the game to take any real advantage of it.
I look to EWT for major moves because of what it is and because I (purposely) don't trade all the time. I also use other technical indicators I have learned to read and a good rule of thumb, which I follow, is to only trade when 3 or more trusted indicators confirm each other.
LOL FDR...I won't be snooping around your place at midnight them...
ReplyDeleteYour blog has proven to be quite creative and different (in a good way) from the usual financial/economy downturn type blogs which stay very one dimensional.
You also know how to put humour into your charts and diagrams. You definitely have an entertaining style of saying things so the blog was a good idea.
"http://www.vanityfair.com/politics/features/2009/04/iceland200904
ReplyDeleteIceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness."
Notice the part about hoarding cash. So much for the Schiff theory of worthless dollars after an economic collapse.
.
Anonymous - Michael Lewis' description of life on Iceland was merely entertainment fodder, totally inaccurate, and not to be taken seriously.
ReplyDeletePeople are not hoarding food, blowing up their Range Rovers, or suspecting elves in the local Alcoa plant. (The last one also mentioned in Lewis' article)
Think about who's writing the news and whose payroll he's on.
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