What I Hear; What You Say

BarroMetrics Views:  What I Hear; What You Say

The July 19 event in Singapore was what I’d call successful – as least if  the reception I received was any guide (Figure 1). But the event also showed why the lecture method is so  inadequate as a teaching medium for traders. Like surgery, law, etc trading is learned by application of theory. We use deliberative practice to learn BUT we integrate by doing. And in the ‘doing’ process, we come to understand the where we have misunderstood, and we come to learn the nuances of our craft.

Let me give you an example of what I mean.

On July 19, I shared what I call the QE indicator. In the talk I said that QE had distorted the price mechanism, but there was on indicator that had identified corrections of 6% or more caused by  ‘local factors’. The rules are simple:

  1. Look for a drop in the Aggregated  Monetary Base of US$2B or more.
  2. Measure from the AMB high, 3 – 6 weeks. That will identify when the DJIA and S&P started (or will start) a correction that will be at least 6%.

One student wrote after the event:

b) I checked recent chart of St Louis. It didn’t have a 200 point drop in the market top of 2008. It has a 200 point drop on Feb2009 but the market was actually  bottoming and not topping.

Q) Now where’s the misunderstanding?

A ) QE did not begin until 2009! That was my ‘condition precedent’. If we take that as our starting point, then the indicator works well enough, though it did not pick up corrections resulting from the EuorZone crisis. (See Figure 2 for QE impact on S&P).

It was my fault for not spelling out when traders should start their investigation should they want to confirm my ideas.  But, in any lecture, this type of misunderstanding is common. It’s only after the attendee provides example of theory application that she receives the feedback necessary for mastery.

There is of course a downside to this type of education: for the trader, it requires greater commitment of time, effort and money. Two & three-day seminars will not meet the criteria. The research suggests   you are looking at a curriculum of three to twelve months. The upside is, this type of education has a greater certainty of providing the process that leads to a trader’s goals.

It comes down to these questions:

  • if you are not meeting your goals, do you spend time, effort and money in a process that is unlikely to produce the goods? Or
  • do you spend even more time, effort and money in a process that is more likely to produce the results you desire? Or
  • do you just keep doing what you are doing, and hoping that somehow something will change?

I know the choices I have made each time I have been faced with these questions. I have invested the additional amount that may lead to my goal. I say ‘may’ because there are no guarantees that I will improve. Many times my efforts (as well as time and money spent) have been in vain. But, as long as I keep trying, I know that one day, I’ll get there. On the other hand, if I don’t change, it is guaranteed I will fail.

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FIGURE 1 July 19

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FIGURE 2 QE

3 thoughts on “What I Hear; What You Say”

  1. surgery, law etc.
    – conform to “laws”
    – eg. when you cut a person’s hand, if he is a normal living human being,he will certainly bleed

    trading
    – it only conforms to law of uncertainty
    – day trading without stop loss may be a winning trade or losing trade or breakeven

  2. Hi Paul

    We have been down this road many times.

    My view: If you day trade long enough without establishing an exit strategy, sooner or later, at the end of the day, you will be faced with an unexpected massive loss.

    The question you will face is whether you will take the loss or be tempted to hang on.

    If you exit, following your discipline, you will be faced with a loss that will take you a long while to recover.

    Trading without an exit strategy is a mug’s game.It panders to our fear of losing money and of being wrong. It does little to little improve our expectancy return.

    A stop loss is merely one example of an exit strategy. But for beginners, it is probably the best – simply because many fail to execute a discretionary exit.

  3. hi Ray,
    May be I should not use the stop-loss as an example to illustrate what I intend to convey.

    Brett Steenbarger has written a few articles on the importance and processes of coaching/mentoring, based on the sports fields examples/experiences/proven results
    – to apply to financial trading teaching/training.

    For soccer, it follows physical law.
    If you master the kicking technique of Pele’s, definitely you could kick a perfect banana kick to score a goal.

    Same for cooking.

    But the results of trading do not follow any physical, legal … laws.

    Even your best student master your trading system today, he is not 100% certain of his trading outcome tomorrow …
    – prices movements do not obey any law
    – except law of uncertainty/probability!

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