It’s That Time of Year II

BarroMetrics Views: It’s That Time of Year II

Have you experienced the cycle in Figure 1?

It’s brought about by the fact that we trade with incomplete knowledge in an environment of uncertainty and ambiguity. When I first started trading, the solution suggested was to trade like a robot, ’emotionless’. Unfortunately, we now know that doesn’t work.

In recent years, there has been a move ‘to accept our feelings but to not necessarily act on them. In short, taking the info emotions bring, assessing that info, and then deciding whether or not to act on them. Denise Shull and Rande Howell have been at the forefront of this approach. I liked the questions they raised, but wanted more than the solutions they offered.

Perhaps now that is on offer.

Dr Gary Drayton has published a book, ‘Trading Mindfully‘ . He takes a ‘new’model for therapy (Acceptance & Commitment Therapy [ACT]) and applies it to trading. In effect his book is a manual for self-coaching. I found the work excellent and recommended it to a number of my friends and students. I’ll post a review in the new year.

The questions that arose after working through Dr Drayton’s book were:

  1. Does ACT  work? If so, how does it work?
  2. Where can I find out more about it?

The short answers:

  • Yes. A number of research studies have been carried out see, for example, http://en.wikipedia.org/wiki/Acceptance_and_commitment_therapy 
  • The best primer I found was: ACT Made Simple. The one drawback is, unless you plan to be a therapist, the US$25.00 for a Kindle is an expensive price tag given that you’ll be using only the first few chapters. Still, ACT Made Simple provided me with a contextual understanding of Dr Drayton’s book.

Now, traders have access to a simple method for integrating their emotions into their trading structure. Like most worthwhile endeavours, to do so will require work. On the other hand, if your results are less than you would like, can you afford not to at least consider ACT?

viscious-cycle.png

FIGURE 1 ‘Vicious of Ineffective Trading’

Thanks to Trading Mindfully

It’s That Time of Year

BarroMetrics Views: It’s That Time of Year

It’s that time of year – you know the time when we make promises that this year it will be different – this year we’ll …..(lose weight, have a positive ROI in our trading etc, etc). Most times the new year resolutions last a week, if that.

So, my question to you is: what will you do throughout the year to produce a different result in your trading for 2015?

It’s clear that unless you do something different, you will keep getting the old samo, samo. It’s also clear that the difference has to be something essentially different i.e. different in essence rather than just difference in form. For example, are you looking to produce better results by finding a ‘new system’ or are you going to try a new fangled way to suppress those pesky emotions – you know the ones that keep hijacking great trades and turn them into mediocre ones?

Both of these ‘solutions’ may have a common base – that our trading is governed an attempt to by-pass the feelings of discomfort brought about by the feelings of uncertainty whenever we are in a trade. Let’s face it, the nature of markets is to be uncertain, that is what makes our profits possible. But as humans we are hard-wired to move away from uncertainty. Indeed, it’s said that feelings caused by uncertainty register in the same region of the brain as intense pain. Unless we take appropriate action, these feelings will rise, and too often these feeling cause us to sabotage our trading.

Unfortunately, finding a new system isn’t going to solve the problem. A system addresses the probabilities of success  – the domain of the neocortex (left brain) – it won’t resolve issues brought about the limbic system. Whatever system we use, at some point, the feelings of discomfort will arise and we’ll again have to deal with this issue.

So, if emotions are the problem, why not seek to suppress them? Unfortunately, that won’t work. The work of Antonio R Damasio and others have shown that not only is suppression not desirable for decision-making, it is not even possible i.e. we need our emotions to make effective decisions (see e.g. Feeling Our Emotions).

So, as traders, what can we do? I’ll look to answer this tomorrow.

An Invite II

BarroMetrics Views: An Invite II 

I hope you have all had a fabulous Christmas – the best ever!

As promised in Invite I, below is the link for the survey. Those interested in attending the three (3) free webinars need only answer the questions to secure an invitation. I ask the questions to ensure the content is meaningful to the attendees.  If you missed the earlier blog, please go to Invite I to read the details.  

http://www.barrometrics.com/breakthrough-survey/

I have called the event ‘breakthrough’ because the last time I did this (many moons ago) quite a few attendees made significant breakthroughs in their trading.

Earlier I did send out the invite to those on my list, so we have about 50 seats left.

I’ll close the invite on Jan 05, 2015 to give me time to review the questions and prepare for the webinar. On Jan 10, I’ll send out a summary of the webinar’s content, its registration URL, and other details. 

Looking forward to catching up with you…….Have a GREAT NEW 2015!

http://www.barrometrics.com/breakthrough-survey/

Merry Xmas! ….An Invite

BarroMetrics Views:  Merry Xmas! ….An Invite

Merry Xmas and my wishes for a wonderful and successful 2015!

This year I want to do something special because this year I have an even greater motivation to give back.

As some of you know, I lost 15% in March-April 2014. That is a big loss for me. At the time I was reconciled to either having a losing 2014, or at best, breaking even.

Well, I was able to make back the losses in August-September. But following a flat October – November, I figured I was in for a flat year. BUT that was not to be…….

….now at end of December, I find myself 18.3% up for the year! If had told me that in April. I would not have believed you.

In gratitude for my good fortune,  I want to…..

……give three (3), 1.5 to 2 hours free webinars, the first to begin on Saturday, January 17 10:00 am HK time (That’s 9:00 pm, Friday Jan 16, US, EST, 1:00 pm AST, Saturday Jan 17).

BUT, you need to do something for me and yourself. I don’t want to waste my time speaking on topics you don’t want to hear about.

On Dec 27, I’ll be posting a link where, if you are interested in attending the three (3) free sessions,  you can go to answer  two simple questions. Your answers will  help determine the content for the webinars.  This way I’ll know the content will be relevant for you. 

All you answer will receive priority invitation to attend.  We have a limit of around 100. And given that I’ll be reaching out to 8,000 or so traders, I do expect to be fully subscribed.

Have a great hols!

PS Just so we are on the same wavelength: This is not a preview of any kind i.e. at no stage during, at the beginning or at the end of the series will I be announcing a course or product.

The sole aim of the webinars is to help you achieve your trading goals. My way of saying thanks to the trading gods for a great end to 2014.

Whither FOMC II

BarroMetrics Views: Whither FOMC II

As I expected. the FED left ‘considerable time’ in the statement. It is now a ‘reference, not a policy’. What does the mean? How have things changed by the FED changing its policy to ‘being patient’.

Beats me.

The FED took pains to state that the two phrases had the same intent. And when a rate hike would take place still depended on the data.  As far as I can see, there change in language has made little difference to FED policy.

I should mention that some FED watchers have taken the view that rate hikes would begin mid-2015 (see http://www.ft.com/cms/s/0/d7652586-861e-11e4-b248-00144feabdc0.html#axzz3MDnUmxSQ). We’ll see.

In the meantime, the US$ and S&P, after some wild gyrations, apparently decided that the statement and subsequent comments by Yellen meant that the FED would not begin raising rates till late 2015 or early 2016 (see http://www.cnbc.com/id/102223871).

My view is: if we continue to see the AMB flow funds into the economy from the St Louis Fed, the resulting inflation rise will force the FED to raise rates sooner rather than later.

I draw your attention to ………the fact that the……

…..last night, the headline CPI showed a drop greater than consensus.  So, why am drawing your attention to this – after all, low inflation means low rates, right?

Yep, but we need to look beyond the headline.

The drop in the headline rate was entirely due to the drop in oil prices. We know this because the core CPI rose 1% (slight greater than expected). Core CPI is the headline rate stripped of food and energy. With the food component being relatively stable, the changes in the headline had to be the oil drop.

In short, we are seeing core, creep inflation, inflation that will start to move quickly once oil bottoms; and that may not be too far away.

Whither FOMC?

BarroMetrics Views: Whither FOMC?

“Between a rock and a hard place” that’s where the FED finds itself today.

After QE having at best a marginal impact on the US economy (and if we accept ShadowStats’ numbers, no benefit), the FED finally started seeing some improvement in the job numbers and GDP (as produced by the BLS). As a result, it stopped QE and foreshadowed a possible rise in interest rates next year.

Unfortunately for the FED, the US stock market has taken a dive (Figure 1). Indeed the warning signs I spoke about (CASE sell signal and Fred AMB down US$2B) are now reflected in the price movement: we have seen a daily bearish-conviction close below the Primary Sell Zone (at 2022.23) (Figure 2). This warns that:

  • at best, the quarterly trend will change from up to down. This signal projects a move to at least the 12-month (yearly trend) line turn price – currently at 1716. And,
  • at worst, a secular bear market has started.

If we see a weekly bearish conviction close below 2011.23, this will confirm the daily’s warning.

Ideally, for the stock market, the FED will once again come to the rescue. But this week, it foreshadowed that ‘the FED does not respond to market volatility’. So, with the down moves of the past few days, the market will come face-to-face with its underlying cause for this bull run (it has been running on the belief that the FED will, and can, keep the bull run indefinitely).

Will or will not the FED come to its rescue?

The problem for the FED is its credibility. Coming to the rescue in the face of BLS’s numbers will either mean that the FED will try to prevent any stock market market downturn; or the FED does not believe in the BLS numbers. Both choices are unpalatable.

As my Singaporean  friends would say: “So how?”.

I believe that for today, the FED will try to have it both ways: it will retain the words ‘for some considerable time’ (short-term interest rates will stay near zero for a “considerable time” ); but will change its statement to imply that it will still increase rates in 2016.

It’s worth noting that:

  1. A dropping of  ‘for some considerable time’ will imply that rates are on track for a rise in 2016.This will probably send the S&P down and the US$ up. Or
  2. Maintaining ‘ ‘for some considerable time’ without any corresponding implication of a rate rise, will probably send the S&P up strongly and US$ down.

sp-13w.png

FIGURE 1 S&P 13-week  swing

sp-18d.png

FIGURE 2 S&P 18-day swing

S&P At the Cusp

BarroMetrics Views: S&P At the Cusp

The S&P is at the cusp. A superficial look at the price action last week may suggest strong downside continuation. But there is still the FOMC on Wednesday to consider. While it did say it would not react to market volatility, the statement is still to be tested.

On Wednesday, failure by the FED to confirm that it will raise rates next year e.g. by omitting keeping rates low ‘for a considerable time’ would confirm the market’s suspicion that the FED will come in to maintain the uptrend.

Is there any technical evidence that supports a possible bounce? There are two slivers. The first is seasonal strength is due this week. The 15-year chart suggests a long-drawn out affair where the low may come in Dec 15 to Dec 20; while the 30-year and 5-year suggest a bounce Mon (15) or Tues (16).

In addition……..

Figure 1 is the Daily Market Delta. It shows that as the ES has moved down, we have seen declining selling volume. This is a positive sign for the bulls.

Finally, what will trigger, for me, a sell signal? A daily bearish-conviction close below 1966 would raised a red flag. A weekly bearish-conviction close below 1977 would confirm. (Figure 2)

es-mdd.jpg

FIGURE 1 Market Delta

sp-18d.jpg

FIGURE 2 S&P Daily

Unrealistic Expectations II

BarroMetrics Views: Unrealistic Expectations II

In Unrealistic Expectations I, I raised the question why, despite the improvements in learning theory and technology, the failure rate remains so high.

Part of the reason, lies with the way we are hardwired. Specifically

  • we have difficulty dealing with uncertainty – the fundamental nature of the markets – and prefer certainty.
  • we are geared to maximising, in the near term, pleasure and avoidance of pain.
  • we seek short cuts rather than look to do what is necessary.

The difficulties caused by our hardwiring are exacerbated when we start with unrealistic expectations of what is needed to succeed. Too often we mistake good luck for superior trading skills. Read “I Lost $700K in 3 months“. The fact is trading/investing is as much a profession as law, architecture etc. Professions require courses of at least four years to prepare us for the profession. Tell a prospective trader that it will take her four years to learn her craft and you’ll probably see her balk with disbelief.

Add to this the many, many courses promising (but obviously not delivering) easy riches with a minimum of effort and time, and you have another part of the answer. Baz asked how can a newbie separate the wheat from the chaff?

I’d suggest to first look at the promise made. If it sounds too good to be true, it probably is. An easy test is to substitute for ‘trading/investing’ with a profession e.g. ‘law’. Would you believe the claims if they were being made about a law degree?

The final part of the answer comes down to our ego. Rather than admit that what we are doing is not producing the desired results, we play a charade to tell the world and ourselves that, despite what the trading statements tell us, we are a success. This attitude stops us from taking remedial action.

Bouquets and Brickbats

BarroMetrics Views: Bouquets and Brickbats

It’s that time of year when I rate the newsletters I am subscribing  to or have subscribed to during the year.

Bouquets: Still Robert Hanna’s Quantificable Edges. His approach and mine could not be more different, but his delivers value time and again. I read Quanttifiable Edges because Robert provides an alternate methodology that stops me from slipping into myopia.

If you are just after solid S&P trading signals, his letter is a must.

OK:

  1. Sentimentrader:  A contrarian service. I felt the quality had dropped off a little in 2014. But, given the US stock market’s absorption with QE. that would be understandable.
  2. McClelland Daily Edition: Interesting tools for the stock market with comments on Gold and Bonds. I subscribe mainly for his analog ideas and cycles.

Brickbats: Has to go to Sentient Trader. I have always been interested in Hurst’s work. ST seemed ideal.

However when I returned from a trip, I found that my access had been cut off for two months (current month and past month) even though ST had received payments from my PayPal account. When I lodged a complaint, the current month access was reinstated but ST refused to give credit for the prior month on the basis that “I should have let him know earlier”.

So let’s see if I have this right…ST makes a mistake, takes my money but fails to deliver due to a oversight/problem at his end. And, its my fault……?

Needless to say I cancelled, and lodged a complaint with PayPal. PP  was very gracious; it explained that its guarantee for delivery applies only physical products. But, given the circumstances, it reimbursed me for the prior month.

Perhaps I should also award PayPal with a Bouquet.

Bubble – Shanghai Index?

BarroMetrics Views: Bubble – Shanghai Index?

I was surveying the stock indices and what caught my eye was the gyrations in the Shanghai Index in yesterday’s trading – plus:

  1. The fact that since  July the index had gained 46.5% (Figure 1); and
  2. Of that 46.5%, 30.62% was gained since Oct 31 (Figure 2)

Reports  in FT and the local press suggest that participants are betting that the poor data of recent times will result in more easing.

For me, what is most telling, is the fact that margin trading is on the increase. Permissioned  in 2012, the loans from broker, as at Friday’s close was up in excess of 70% since Sept (see Four Things….). Now FT reports that banks are getting into the act.

Given this increase in leverage, it won’t take much of a pinprick to cause the bubble to burst. Another potential Black Swan?

si-month.png

FIGURE 1 Shanghai Index Monthly

si-week.png

FIGURE 2  Shanghai Index Weekly