The Generosity of Markets

Trading is a strange profession in that almost all of the traditions, habits and culture surrounding it are unique to the trader. You are free to make up your own beliefs and methods and unleash them upon the market. The end result of this is that most people go off half-cocked. You only have to spend a few minutes on social media to realise the danger of letting people think for themselves and then formulate actions based upon their thoughts.

However, for people who are able to think logically and clearly about complex topics without succumbing to fear and panic the markets offer a fertile hunting ground. But this is predicated on a simple fact – your internal culture must be one of logic and discipline. Having such an approach allows you to formulate metaphors that allow for the navigating of times such as now when we are seeing outbursts of manic behaviour in markets.

For example, I have a series of metaphors that enable me to deal with all market environments. They are as follows –

1. The market will tell me everything I need to know. All I need to do is listen to it and nothing else.
2. The market is extremely generous in presenting opportunities to me which will if I adhere to Rule 1 be profitable.
3. The market will continue you to present these opportunities to me until I am no longer around.
4. My presence is not needed for the market to offer endless opportunities – this rule removes any form of egocentricity and reminds I am not important at all.

The chart below is a daily chart of Brent Crude which has volume plotted along the bottom.

Since the start of the year the market has been asking traders is they want to short, many have been answering in the affirmative but large numbers have not. What is interesting to me is that we are all presented with the same data. Price looks the same for everyone but some view it through a distorted filter that clouds their judgement. This may be as simple as an idea racing through their head that could be as simple as the world is facing a degree of economic uncertainty therefore in times of uncertainty oil always goes up. There are a variety of facts to counter this but they are all irrelevant, what is relevant is why this idea overpowers the evidence of price action, it may be because we are narrative driven and like a good story, it could be that the trader is fundamentally irrational or they could lack any sort of methodology that references price action. Again these are all irrelevant because it seems to circle back to the notion of not listening – the reason as to why people don’t listen don’t really matter to the rest of us. But what this does show is that trading is not as simple as see signal take signal – for many, it is much more complex and this complexity more often than not reflects their psychosocial makeup.

Traders simply don’t appear in the market as individuals without prior experience in other areas – things such as education, family background, and life experiences all shape the trader long before they have taken their first trade. This embedded ecology of ideas then proceeds to influence the trader for good or bad. To give you two extreme examples. I have found that if engineers can get out of the habit of aver analysing trades then they tend to ake good traders, they are numerate, disciplined and mechanistic in their approach. However, they tend to have a habit of being obsessed with the process and not the outcome and many never get around to taking their first trade. Conversely, I have come across many traders who believe in magical thinking, their world is one of conspiracy theories, psychic powers UFOs and astrology. These beliefs were part of them long before they came to trading and they stay with them throughout the trading process, I can say without fear of contradiction that they cannot trade because their overall world view forbids thinking with logic and clarity.

It has long been my view that unless you understand where you came from before trading entered your life then your view of trading will be forever cluttered by what went before. The result is that the market will offer you endless opportunities to be profitable and you might ignore all them for whatever reason.