Random Thoughts

I spent a lot of years in a position that didn’t allow me to participate in social media at all.  I’ve now been on the Twitter for over a year and being a relative newbie I’m still struck by how many strange things I see there each day.  Some random thoughts about this:

  • There is constant commentary about how “markets exist to screw people” or “markets are designed to separate people from their money”.  Simply put, this is wrong.  The markets exist to bring buyers and sellers together.  They advertise the prices for buyers and sellers.  That is all.  The market has no other motivation.
  • I wonder what it is that compels a billion dollar hedge fund manager to engage in lengthy multi-day arguments with people on Twitter on topics like inflation or climate change.  This is especially true when the manager holds very different ideological views from those he argues with and knows full well he can’t “win” an argument as a result.  I wonder if I were invested in said manager’s funds what I would think about that.  Perhaps most investors don’t know, or care, but in my experience perception means a lot when it comes to trusting someone to manage your capital.
  • I commented on this last week on the feed but there are about two dozen twitterers that must repeat “cut your losers and let your winners run” at least once a day and somehow they keep showing up on my stream.  I’m sorry but if you are trading a small account I think this is bad advice to follow.  Even if you aren’t trading a small account I repeat the belief here that there are lots of ways to win in trading.  Scalping, in my opinion, is much more desirable for the small account.   It’s especially annoying when this comment is prefaced with “all you have to do” as if letting winners run and cutting losers short is some easy-to-master discipline.
  • I wonder why someone would tweet out a 100 year chart of the Dow and then say something snappy about how awesome buy and hold is.  Do any of my blog readers know a person with a 100 year or more investment time horizon?  I’ve personally never met one and I have worked with an awful lot of individual investors.  In fact, from direct experience with hundreds of individual investors I’d say the average person has something more like 25-30 years during which they can truly save (if lucky on both counts) and invest.  If you believe my timeframe suggestion go back then and study the 100 year Dow chart in this context.  I think its hard to conclude that timing doesn’t matter or that it is entirely irrelevant.
  • Every day I read one of the following types of comments:  “the market can’t go any lower” or “prices should be higher”.  More often than not you’ll find something in these streams some time later along the lines of “this is bullshit”.  I don’t think people that trade consistently for a living speak about markets in terms of what they “can’t do” or where they “should be” on a regular basis.  Of course, if you want to invite your ego into your trading this is a great way to do it.
  • I’ve come to realize just how popular the stats table has become in the trading community.  You know the one’s I’m talking about.  They typically show things like “since 2009 when the market did X then T+5 later it was up 80% of the time with 12 out of 15 trades as winners”.  I look at a lot of these myself and run regular statistical filters on all 12 of the markets I’m active in.  I think that they can often be very valuable tools to help develop a deeper edge in my trading.   I wonder though how much of a false sense of confidence this creates for the discretionary trader causing trades to turn into investments.  These stats tables are not trading plans and you could have a sample size of 1,000 with a 99% win ratio but the fact is you still can’t know the outcome of the very next trade.  I’d guess that a good number of people get trapped into not defining risk on a high win ratio stats trade and end up taking a beating as a result because they keep holding or worse yet they keep adding to a loser.
  • On Twitter you can observe the mad rush in real-time to search for news to explain large price movements during the trading day outside of a scheduled data release.  When news isn’t readily available the default explanation has become “algo”.  Some have even gone so far as to give the algos names.  I think the prevalence of algos has made the old default description when news wasn’t obvious (it’s technical!) extinct. Nice knowin ya.
  • I’m sometimes amazed at the mental gymnastics some discretionary traders perform in order to come up with an investment or trading thesis.  I saw a PTJ quote floated on my stream the other day that captured this observation rather well:

I see the younger generation hampered by the need to understand and rationalize why something should go up or down.  Usually by the time that becomes self-evident, the move is already over.  When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect.  We learned just to go with the chart.  Why work when Mr. Market can do it for you?  These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation.

– Paul Tudor Jones, July 2008

  • I was a little surprised with some of the ridicule I saw for Bill Gross after the big PIMCO announcement that he was out.  Lots of folks out there calling the guy an idiot.  Maybe Bill Gross is an idiot but these comments were in relation to his performance as a PM and some of his recent calls on markets that didn’t work out.  Personally I have no idea what these people are talking about when they call him an idiot in this sense.  Bill Gross has an impressive long-term track record, managed a massive amount of capital, and played a major role in building a company that was running more than a trillion in assets.  The considerable amount of redemptions we have seen since this announcement suggest an awful lot of people didn’t think Bill Gross was an idiot at all.  It just goes to show that on the street, no matter how long you’ve done a good job people will mostly focus on what you’ve done lately and will sometimes go as far as to apply that recent performance to your entire career.  There’s probably a term for this…backwards extrapolation?  Perhaps we should just refer to it as wrong….
  • Speaking about being wrong, I think that people that suggest there is no value in social media like Twitter are completely off the mark, especially for a trader.  In the short time I’ve been on Twitter I have been able to learn many things to help me improve my game by interacting with other serious traders.  I also follow some extremely interesting people that have nothing to do with trading that I probably wouldn’t have known about if I wasn’t using the site.  Follow the right people on Twitter and I think you’ll be hard pressed to claim you get nothing out of it.
  • Twitter has reinforced the idea that combining your politics with your trading is rarely a good idea.
  • I continue to see people speaking to traders that suggest that “we all have different objectives”.  I don’t think so.  We may have different time frames and use different forms of analysis but reality is that all of us trading are trying to make money.  In fairness, I could be missing the point that some people really do want to deplete their trading account….but I doubt it.

Well, that’s all I’ve got for now.  As always, good luck in your trading.

– FatF1nger

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About Fat F1nger

Full time futures trader.
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2 Responses to Random Thoughts

  1. Pingback: ES SP500 Spoo-nalysis (Page 857) - Index Futures Trading | Big Mike Trading

  2. Pingback: What Books Should I Read? | FF Trading Blog

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