5 things we should all be able to agree on.

I have not written much lately because I have been frustrated by what I am reading and the lack of clear understanding and opinions dressed up as facts.  I do not mind bias at all, it is important.  But to communicate something as fact is both dangerous to the reader (human nature to want a short cut) and is dangerous to the writer (they start to believe it).  Do not get me wrong there aren’t many facts in trading but reasons it is more optimal for one person over another.  It could be capital, time frame, how the individual feels about risk, what works best for them, etc. Also it takes awhile to sort out all the facts and could take months or years to be certain what happened and audiences do not have that timeframe.

So maybe we all can agree on these 5 things and move forward:

Economy does not equal the market:  They can be related but nothing says they have to be. This probably cannot last forever but somewhere along the line media and economic text books wrote this in stone.  Now which one corrects to the other will determine if the market moves higher or lower.  What the economy does effect is risk capital which can change participation.  The theme of the last three years is participation.  The market is definitely biased to the upside because of lack of participation.  It is one thing to bet on your neighbors house burning down but hard to see the benefit of burning down your own.

Importance of a volume: Volume is declining.  The pessimist says that it is because people the market is broken.  Optimists say it is because there aren’t as many opportunities.  Being forced to trade is never a good thing.  Making up reasons to trade never turns out well for very long.  It is some combination of the two factors. What is important currently is what the high volume areas are saying.  My observation is that the market is having trouble getting very far from its intraday high volume bar (HVB).  No one is being that aggressive once volume starts to come in.  Volume is important when it increases over fewer prices.  (If anyone wants to do an average volume by price for the ES study from 07-current send me an email eli@traderhabits.com)

1.6 billion:  MF Global collapse was hard for every person involved in the futures market, some hit even harder.  As of right now 80% of the money has been returned to US customers.  I realize that it does not sell copies or get clicks but the dollars that were “vaporized” was significantly less than the often quoted 1.6 billion.  So what is more important selling shit and eyeballs or telling the truth?  I am not trying to minimize what they or he did but if we are going to fix the problem we have to tell the truth about it.  $1 is too much money to go unsegregated but being dishonest is not a good way to nail home your point.

Cash markets:  You cannot trade the VIX, the DJIA or SPX etc cash market.  A cash market is a calculation.  That does not mean they are any less important and a not great barometer you just cannot trade them directly.

Two parts to a prediction:  A prediction is a story followed by how the market reacts to the story.  You can have the story right but the reaction wrong or story wrong and reaction right.  To me I do not care about the story only the reaction.  If you are in the public prediction business understand the difference.  If you get the story wrong and the prediction right it does not make it anymore likely that your next story will be right it probably means you were lucky or missed something.

Sorry about the mini rant.  If you want page views just be honest about it.  I do not want to be sold tires from my priest. I might buy the tires but I am not going back to confessional.  I am not mad that he sold me tires it is just that I can’t go back.  As always take a moment to understand the messenger, my own advice I wish I was better at taking.  Even as you read this, understand the messenger.

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2 Responses to 5 things we should all be able to agree on.

  1. Jack Damn says:

    Couple interesting articles on volume over at dshort.com if you haven’t read them yet:

    – Market Volume: Summer Doldrums, or Something Else?


    – Market Volume: Additional Thoughts

    Couple of decent charts and thoughts.



    • Eradke says:

      Thanks, nice work.  I wonder how those compare to the futures.  I am not sure the right way to look for the data.  I remember Nanex saying how the amount trading at each price in 2008 was not that much to prove their point the market was not liquid.  But we also had 50-100 point ranges.  I wonder what that translates in today’s 10-20 point ranges.  I guess the most simple way to find out is to take  ATR and divide it by volume.   

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