Capitalogix

Here Are Some Interesting Links to Read This Weekend

An Undeniable Truth:  If You Do It -- It Will Be Done!

 

via Laura McCann-Ramsey
 

Not the only way ... but it works.

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• For the 3rd Time, Facebook is Poised to Build a Phone. (Newser)
• Major Movements in Philosophy as Minimalist Geometric Graphics. (Brainpickings)
• Bloomberg Plans a Ban on Large Sugared Drinks. (NYTimes)
• Wide Screen. All baby boomers should get tested for hepatitis C, CDC says (TheDaily)
• Chart Detailing How Many iTunes Downloads, Spotify Streams, and So Forth It Takes For a Musician To Make Minimum Wage. (VillageVoice)

 

Trading Links:

• Too Many Seed Investment Choices. A good sign for economy ... (Feld)
• Amazon.com Has Altered the VC Business as We Know It. (Geekwire)
• Why Investors Should Take a Long, Hard Look at Southeast Asia. (SGEntrepreneurs)
• A Rich Backlash. An influx of the super-wealthy begins to annoy Singaporeans. (Daily)
• Eurozone Equities Panic Sale Warning. Private investors have been warned not to panic-sell their shareholdings in the deepening crisis in Europe. (FT)

Alone Together - Instant Gratification & Shortening Attention Spans

Instant Gratification & Shortening Attention Spans.

I was showing my son a web video -- and in less than a minute he was texting someone. 

Let me make that more clear ... it was Less-Than-A-Minute! ... while he was standing with me ... and he did it without hesitation, apology, or sense that shifting his attention to the phone was in any way a bad thing.

I know "get over it".  He was probably texting before we spoke, anyway; right?

You're probably seeing similar behavior more often too.
  

 

It is scary to realize how easy it is to focus on a phone, iPad or e-mail rather than a person.

Upon reflection, we spend a lot of time alone together.

There is a difference between physical presence and being present.

 

 

Focus can be pretty fragile if it isn't a conscious choice.

To demonstrate this, here is a seemingly easy challenge ... simply listen to a favorite song.

The challenge is how you can truly do that without losing focus and having other thoughts intrude (for example, without thinking about your to-do list or other songs that you like, or who you're going to meet with later in the day, etc.)?  For me, the answer was not that long.

Sometimes it feels like modern life causes attention deficit disorder.

Attention Deficit Can Be Dangerous If You Aren't Aware of It.

Yet, losing focus while trading, in business, or even during a simple conversation - can have serious consequences.

When you are not aware of your focus, I bet it wanders.  Mine does; I get distracted easily. 

It didn't take long for me to realize that this happened to me while talking to my wife, while listening to a telephone call, even when ordering food at a restaurant. How can I lose focus on the waitress while I was ordering? Apparently, quite easily.

How about you?  When you're listening to someone talk to you, are you really listening to them - or are you checking e-mail, texting, browsing a website, watching TV, playing a game, or thinking about what you're going to say? 

Be honest with yourself; how often are you fully present?  For me, the answer was not nearly enough.

 

Related articles

• Harvard Business: The Discipline of Listening (blogs.hbr.org)
• The Need for Speed - How Impatient Are We Becoming? (capitalogix.typepad.com)
• The Twitter Generation: Teaching Deferred Gratification to College Students (hollymccracken.wordpress.com)
• What Captures Your Attention Controls Your Life (blogs.hbr.org)

Debt Levels Relative to GDP of PIIGS and Some Other Major Countries

Debt to GDP of PIIGS plus Major Countries

For some perspective on the European sovereign debt crisis, this chart illustrates the forecasted 2012 debt to GDP ratio for each of the PIIGS (red bars) plus a handful of today's major economies (blue bars).

 

 
While the PIIGS are currently enduring relatively high debt loads, it is noteworthy how some of the relatively safe nations/bond markets (e.g. United State and Germany) are not far behind.

These relatively high debt loads are of concern as they could lead to higher taxes sometime in the future and can risk fiscal crises if bond holders sense an increasing risk of default.

The current crisis in Europe provides a clear example of the bond market's reaction (i.e. higher bond yields) to increased default fears.

This leads to a very interesting case study that is Japan. With a debt to GDP ratio of over 200%, the Japanese 10-year bond yield is a relatively low 0.83%. Why? At the moment, the bond market feels that the Japanese have the ability to repay their debts -- in part due to Japan's perceived ability to raise taxes. To that end, Japanese Prime Minister Yoshiko Noda just won opposition support for the doubling of the nation's sales tax to 10% by 2015.

So it's not just the amount of debt but also convincing your banker that you are good for it.

Related articles

• Forget the PIIGS, the EU as a Whole is Insolvent (zerohedge.com)
• In the Parallel Universe, Credit Risk Is Interest Rate Risk (minyanville.com)

Some Links for Your Weekend Reading

Great graphic shows whether you should check your e-mail.

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Top 50 Entrepreneurial Blogs. Pretty good list - (Business2community)
• The Top 10 Regrets In Life By Those About To Die (Infographic). (Addicted2success)
• A Cut Above. Chart Showing Who Has the Most Plastic Surgery? (Economist)
• Keep Out. NASA Asks Future Moon Visitors to Respect Its Stuff. (Wired)
• New Airline Fees: Carry-Ons, Pillows, Water, Once Included, Now New Revenue. (ABCNews)

 

Trading Links:

• An Audacious Promise: The Moral Case for Capitalism. (Manhattan-Institute)
• Indonesia Chases China as Middle-Class Consumption Soars. (Bloomberg)
• How to Place More Effective Stops. (BCLund)
• It's Official: Google Is Now a Hardware Company. (BW)
• This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing Miserably. (ZeroHedge)

Chuck LeBeau on the Importance of Exits and Risk Control

Lots of traders are looking for the right pattern to enter a trade.  One of the great books on the art of exiting a trade is the "Technical Traders Guide to Computer Analysis of the Futures Markets". 

The author is Chuck LeBeau. He is someone I learned a lot from over the years.  He is the consummate "old pro" ... and I always enjoy his stories.  They often serve to remind that human nature is a constant in the face of changing markets.

Here is one of those stories.  He calls it "Trading Messages from Mars".

Back in the late 1960s, I was a young commodity broker at E. F. Hutton and Co. Our office was a brand-new high-tech office (for its time) that was considered the "flagship office" for E.F. Hutton.

In this office about 30 brokers and as many clients shared one very large boardroom, and there were no private offices. The brokers had elegant and expensive desks, and the clients had a comfortable seating area in the front of the office where they could hang out and watch the tapes and monitor our state of the art commodity "clacker board."

Sitting at my desk near the front of the boardroom, I could read my Wall Street Journal and keep track of the commodity markets without looking at the board. By just listening to the rhythm and tempo of the mechanical clicks as the prices changed, I could easily tell when anything important was going on, because the tempo of the clicks would increase noticeably.

Just in front of my desk were a half-dozen comfortable sofas facing a high mahogany-paneled wall with the tapes and the "clacker board." A gallery of traders, mostly retired "old-timers" who were trading real commodities like grains and pork bellies, lounged around on the sofas plotting their charts and talking about life and the markets. They typically arrived early to get a good seat in their usual spot and then spent the day trading, exchanging commentaries and offering unsolicited advice to one another on any subject.

For the most part, they were a very sociable group who would take coffee breaks together and greeted each other on a first-name basis. These traders enjoyed the elegant atmosphere and treated our well-appointed boardroom as their private men's club. (Were you aware that women were not allowed to trade commodities back in those days? My, how times have changed!)

One of these "old-timers" kept to himself and was not interested in becoming a member of the friendly and often boisterous social circle. He usually sat quietly by himself, intently watching the price changes on the commodity board and holding an old glass Coke bottle up near his ear.

The vintage-shaped Coke bottle had been emptied many years before and now contained only a 12-inch tube of bent and broken radio antennae, which extended awkwardly out of the top of the bottle.

Keep in mind that in the 1960s no one had yet heard of cellphones, so the purpose of this Coke bottle was a real mystery to everyone. When the trader would talk to the bottle from time to time, all the heads would turn, and the traders nearby would try to listen to the conversation. But the trader spoke very softly, and no one was able to eavesdrop on his conversations with the bottle.

The traders knew that the fellow with the Coke bottle was a client of mine, and eventually a representative of the group came to me and said they were extremely puzzled about this guy and his Coke bottle and asked me if I knew what was going on. I didn't know the purpose or meaning of the Coke bottle, but I was as curious as anyone was, and I promised I would find out. The next time the client came back to my desk, I promptly placed his order and then politely asked him about the Coke bottle.

With a serious expression and no embarrassment, he explained to me that the Coke bottle was an inter-planetary communication device that had been given to him by aliens. He said the aliens were very interested in our commodity markets and they often gave him trading advice from their various observation points on other planets. He said he had just had a message from Mars and they were buying soybeans, so he had also purchased soybeans. After revealing his unique trading methodology, he returned to his seat and resumed his whispered conversations with the Coke bottle.

As soon as I revealed my discovery of the meaning of the Coke bottle to the other traders, all attention was immediately focused on the Coke bottle trader and the soybean market. The soybean market proceeded to go the wrong way, and the trade from Mars was eventually closed out at a loss. The other traders had no sympathy and were quick to begin ridiculing the trader and to poke fun at his beliefs.

The next trade, however, turned out to be a big winner, and the Coke bottle trader went from sofa to sofa telling his story and pointing to the clacker board while waiving his Coke bottle and bragging about the profitability of his most recent message from outer space. Because he was making money now, his previous critics had to endure his bragging about his success on the current winning trade.

After a few winning and losing trades later, a clear pattern of behavior began to emerge. The Coke bottle trader was ridiculed unmercifully on his losing trades but was able to get his revenge and the last laugh during the winning trades. This trader might have been a little bit crazy, but he wasn't stupid. He soon learned that his only defense against ridicule was to hold on to winning trades as long as possible and to quickly get out of his losses.

As long as he was sitting on his sofa with a winning trade, no one could tell him he was crazy and make cruel jokes about his messages from Mars. In fact, while he was winning he was quick to wander around the room and ridicule the methods of the other traders who were not making as much money as he was. He displayed the profits in his trading account as hard evidence of the validity of his methods and offered copies of his statements as irrefutable proof that he was getting valuable advice from his alien contacts. Who could argue when his advice from other planets was obviously working?

For a young broker, this experience and the firsthand observation of the Coke bottle trader who suddenly became profitable gave me my first important lesson about the importance of exits. I knew the entry signals had nothing at all to do with his success. His batting average was not any better than that of any other trader. However, this crazy old trader seemed to be able to make money consistently, while other traders with more "sanity" and more valid entry methods were losing.

Before long I was able to recognize that this man had become a successful trader simply by his efforts to avoid ridicule. He knew he was vulnerable during his losing trades, so he closed them out very promptly. His winning trades became his shield against the ridicule of the other traders, and he kept his winners much longer than before his unorthodox methods were revealed.

In the many years since this experience, I have encountered many claims of success for entry methods that probably have even less validity than the Coke bottle messages. I have learned to look only briefly at the entries of winning traders and to examine their exit strategies very carefully. I am very fortunate that more than 30 years ago I learned from the Coke bottle trader that success in trading depends on our exits and not our entries.

Controlling Risk in Volatile Markets.

Chuck says "Buy and Hold" is flawed because it encourages a wait-and-hope outlook among investors and does nothing to provide badly needed control of gains and losses. He claims that the most obvious problem with buy and hold is that it is not a strategy at all. Worse, it sacrifices any semblance of control and relies on luck and hope rather than planning and control. Instead, he advocates risk control techniques, and often uses Average True Range (ATR) and the Average Directional Index (ADX) in his Stop calculations.

Other Resources:

• Here is a link to some of Chuck's posts about Risk Control Techniques.
• Here is a link to Chuck's SmartStops Blog.
• Here is a link to his Precise Exits & Entries DVD Course.

Related articles

• Jack Schwager Q&A: setting stops and asymmetric trades (abnormalreturns.com)
• 7 Commodity Traders Worth Following on Twitter (minyanville.com)
• 5 Signs You've Matured as a Trader (ritholtz.com)
• This Is the Dirtiest Secret Amongst Professional Money Managers (minyanville.com)

Here Are Some Interesting Links to Read This Weekend

Ah, the joys of over-thinking.

 

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• The To-Don’t List: Things You Will NOT Do. (TheNextWeb)
• A Carefully Selected List of Recommended Tools on Data Visualization. (DV)
• Misfortune Teller: Stats Prof Says He Can Predict Crime Before It Occurs. (TheAtlantic)
• The History of the Paper Clip. Invented in 1899 & hasn’t been improved since. (Slate)
• Why We Lie. (Wall Street Journal)

 

Trading Links:

• CEO Pay. Average Corporate CEO Paid $9.6M last year (TheDaily)
• Pandora Internet Radio: More Listeners, More Money. (BGR)
• The Tyranny of Numeracy. Interesting blog post. (PsyFiTec)
• Asia’s Message to Europe. Bite the Bullet and Implement Reforms (CNBC)
• Rush for havens as euro fears rise. German two-year bond yields fell to zero, meaning investors were willing to lend to Berlin for no return. (FT)

Emerging Economies Are Growing Cities at Impressive Rates

Emerging-Market Cities.

According to the Economist, currently, 52% of the world’s population currently live in urban areas.  By 2025, this should increase to 58%. Nearly all this growth will take place in emerging-market economies, particularly Asia, as migrants from the countryside move in search of jobs.

Today, these emerging-market city-dwellers account for more than 60% of the world’s GDP growth.

In the past 15 years Delhi’s population has grown by 10m; it will add another 6m (a Miami's worth) in the next 15. 

Over the next two decades urban areas in emerging economies will account for about two-thirds of worldwide infrastructure spending. Most will go on building homes. China and India together will add 16 trillion square meters of housing over this period, to accommodate half a billion extra people.

 

On a related note, here is an interesting video about India's growth.

Amazing Facts about India.

 So is India on her way to becoming a Super Power or has she already arrived? What is your take?

 

 

 

 

Related articles

• The Future of Facebook Is in India (businessweek.com)
• India- A Re-emerging Economy (buzzeratbiz.com)
• The Emerging Markets Slowdown Trifecta (247wallst.com)
• India could be cut to junk, S&P warns (cbc.ca)

Speeding-Up Video Without the Audio Sounding Like Chipmunks

Enounce is updating their terrific video and audio accelerator again. 

They just released a beta of the 4.0 version of their MySpeed plug-in for Flash, YouTube and other video sites.

Think how much content you consume over the Internet.  From news stories to seminars to training videos ... the amount of streaming media use is skyrocketing. 

Now imagine how much time you could save by watching at 1.5x to 2x the normal speed.

 

Use MySpeed to adjust the content to your preferences.

Take control and watch video at the speed you choose. The Enounce MySpeed plug-in adds a speed control slider that will allow you to change the playback rate of Audio/Video content. Patented Signal Processing keeps audio sounding natural (not "chipmunked") at all speeds; and allows listeners to comprehend and remember the information.

Here is a demo.

 

 

 

MySpeed is a great time-saver.  More importantly, it makes things more exciting and easier to remember.  It makes sense.  You probably read a lot faster than most people talk. Well, after getting comfortable watching at 1.5x, going back to "normal" is painful.

I've used their products for years.  MySpeed works great for audio and video.  If you listen to business or training sessions, then this is a must-have.  Check it out at Enounce.

Links for Your Weekend Reading

As we get older, life makes more sense.

 

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• The Simplicity Thesis. Delivering Low Complexity & Maximum Value. (FastCompany)
• Why People Remember Negative Events More Than Positive Ones. (NYTimes)
• Google Explains How It Searches the Internet In Under Half a Second. (Engadget)
• How Little Can We Do and Still Benefit? The 20-Minute Workout Video. (Well)
• The "Sitting Is Killing You" Infographic Shows Just How Bad Prolonged Sitting Is. (Lifehacker)

 

Trading Links:

• Does the Facebook IPO Flop Signal Bad News for Global Economy? (Time)
• David Einhorn: The Fed's Jelly Donut Policy. (HuffingtonPost)
• Nikkei Just Had Its Longest Weekly Losing Run in 20 Years. (CNBC)
• Anatole Kaletsky on A New Capitalism. (FiveBooks)
• The Six Billion Dollar Bet. PBS video about the disastrous gamble that brought down MF Global (PBS)

Understanding Trading Patterns - Part 2

In the first part of this series, we discussed that a Market is a collection of separate traders, and much of the analysis done to get a trading edge is really just a way to identify "who is in control" and what they are doing ... rather why they are trading.

Here we will examine why some traders rely on certain patterns to identify favorable trading conditions.

Some Patterns Are Logical.

Let's look at a common trading pattern, called a "Triangle".  You can think of the Triangle as a well-contested battle between the bulls and the bears.  It is almost like an arm-wrestling match. Inside the pattern, neither side gives-up much ground.  However, when one side loses conviction, the market  surges in the direction the winners push it. 

Here is a picture of a Triangle and the pattern's likely price projection.

 

  

Triangles are an example of a logical pattern.  It is easy to see, and easy to understand.  In addition, for a trader, it is easy to use a setup, like this, to define the likely risk and reward of a trade they are considering.

 

Why Do Patterns Form in Markets Repeatedly?  The Answer is Human Nature.

 

Markets are not always logical.  Some would argue that Markets are rarely logical.

On some level, markets represent the collective thoughts and emotions of its participants. So, even though conditions change, the collective response to fear and greed remains reasonably similar.

As a result, many patterns show up in market price data.

 

In General, Here's What Is Happening.

 

A move up of a certain degree will be met with some people who are afraid the move won't go higher ... so they decide to sell.  Meanwhile, others will believe the move will trigger a whole different group of people to recognize an opportunity ... so they decide to buy.

The same thing happens with a big move down. At first, it triggers fear and selling. But at some point, to a certain group of traders, the move down will look like a discounted buying opportunity.

At its core, price is the primary indicator of investors' willingness to buy or sell. Things like velocity or slope are secondary, and show the intensity of their motivation.

So, many of the patterns that you read in books or magazines (with names like "head and shoulders", or "cup and handle", or "double bottoms") are all really just ways of explaining the natural response to certain conditions.

 

  

There is science involved in recognizing a specific pattern; and there is art involved in selecting which pattern to rely on today.

 

But You Don't Have to Predict Anyone's Action - All It Takes Is An Intelligent Response.

 

It's the law of large numbers. An insurance company doesn't have to accurately predict when any individual will die; their actuaries just have to figure out a reasonable estimate of how many people will die during a certain time period. Likewise, in the market, patterns don't predict what an individual will do, only what the majority is likely to do.

So now that you understand patterns, the rest is easy ... right?

 

Fractals and Holograms.

 

Of course it's not as easy as it sounds, because these patterns are being played out across every market, and happen on different time frames as well. That means some people are responding to the market using a much longer time horizon than someone else. A pattern for them may be noise at a different level of focus.

The patterns occur similarly whether you're looking at be minute by minute chart of the S&P, or a weekly chart of gold.

Since there are many patterns happening on many markets at any given time, it's impossible for a human to identify, validate, and trade all of them in real-time.

That's where technology comes in. And that is what we'll look at in the next article in this series.

Hope it helped.  Let me know if you have questions or comments.

 

Related articles

• An Explanation of Why Pattern Recognition Works in Trading (capitalogix.typepad.com)
• 14 Elliott Wave Trading Insights You Can Use Now (safehaven.com)
• The Best Pattern For Profits In A Downtrending Market (community.tradeking.com)