The market inside the market.

I remember the first time I found the trading holy grail.  I couldn’t sleep.  It was software that read patterns.  I was going to be the richest person in the world.  I fell into one of the very few equations throughout the history of finance that is pure, new to trading = knew everything.  I kept it under wraps and worked for a month to work out the kinks.  When I first showed it to someone they were polite but uninterested.  The similar reaction I have to baby pictures.  Sorry no one really cares except family.

That situation taught me two important things:  The shortcuts have all been thought of.  The only shortcuts that work are doing the right things more quickly.  Secondly that a chart records it does not tell a story.  I stopped looking at the market and started to find out more about the market inside the market.

A series of tweets recently came across my stocktwits and twitter stream.  The series of tweet about a momentum stock in the technology space from someone highly involved in the industry.  To his credit he gave a thesis, basically that they company was not making money and the high price was not appropriate.  And surprisingly he gave the price he was short from.  The stock started to rally and of the time I am writing this it is up something like 6 bucks and he was down 2 bucks.

I haven’t looked for anymore of his tweets.  For all the credit I am giving him for his transparency.  His plan is lacking.  He did not say where he was right and where he is wrong.  When you do not know either of those things you are never going to get out on the best tick.  You are always reacting not acting.  You can’t take advantage of random.

He was looking at the stock and its “value”.  The market.  He failed to see the market inside the market.  I do not trade stocks so I am going to speak in generalities, please feel free to correct me if I am wrong.  But in 30 seconds of evaluating the stock.  I found out it was coming from all time highs, had 8+ days of volume in short interest, and google search found 1.2 million for “short interest in X”, 102% of the stock is owned by institutions with low turnover (once again do not know stocks so unsure how this can happen), and product manages sales organizations.  And short selling is a tough thing to master.  All of those things and there are probably many more, make up the market inside the market.

Once again, I have not checked back on his tweets but I am sure it will eventually say something about the stock market being rigged.  That is the conclusion of many people who did not give credit to the months and years it takes to understand the market inside the market to make a more informed trade.

When things look too obvious to the casual investor, chances are they are missing something.  It takes a lot of time to find the obvious that works.  You can get lucky and attribute it to your trading prowess but that never lasts.  Simple works when it comes to spreading a story but to get more people behind it you need something else.

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  • Unconscious
    incompetence – we’ve all been there. Many stay there for ever. The level
    of incompetence is easily recognized and highly correlated with the amount of key
    words used, such as “manipulation”, “rigged”, “too high”, “too low”, “will” and
    “must”. 

One Response to The market inside the market.

  1. Benko says:

    Unconscious
    incompetence – we’ve all been there. Many stay there for ever. The level
    of incompetence is easily recognized and highly correlated with the amount of key
    words used, such as “manipulation”, “rigged”, “too high”, “too low”, “will” and
    “must”. 

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