Friday, October 14, 2011
Thursday, October 13, 2011
Avoiding Indicatoritis
Would-be traders all tend to focus on indicators. The sense, I suppose, is that if there’s just some magic indicator to be added to the chart, then trading becomes easy.
They’re way off.
Personally, I don’t rely on indicators. I am price & volume based when making decisions on trades, and although I might occasionally glance at a moving average or something, I like to keep my charts clean and put my focus at the roots of all indicators – price and volume.
Does that make me better? Maybe.
Does it make me more decisive? Absolutely.
Back when I first went full-time as a trader (remember I already had over 2 years of part-time experience trading), there was a guy in our trading office who suffered from indicatoritis. His monitor was the most colorful thing in the office, but also the most confusing. It looked like a child had taken the entire spectrum of dry-erase markers and drawn all over his screens – a complete mess from which no sense (or cents) could be made.
This was a man grasping for some kind of a signal, but what he actually got was 50 different signals which contradicted each other. His search for clarity resulted in confusion.
That’s not a technician at work, it’s a futile (and wasted) attempt at adding an ounce of consistency to his results. He was looking in the wrong place.
A few years later, I saw a presentation by a guy (who still maintains a pretty large following in the technical analysis community) who “sees” his plays develop from charts with so many indicators that price itself is virtually obscured. Are you kidding? Suffice it to say, I think he derives zero value from those charts in terms of actual trade signals, but rather makes a really good living off confused traders seeking a magic bullet.
Traders by and large rely too heavily on indicators, when it’s far better to use those indicators for confirmation. The price chart should tell you everything you need to know, but if you want some secondary assurance, then an indicator can provide that – so long as you’re using the right ones and at the right time.
Remember this when it comes to indicators: more does not equal better! Simple is ideal.
The hard part of trading is getting out of losing trades and staying in good trades. The hard part is not locating the magic bullet. Don’t waste your time expecting to find the secret to 99% profitability, because it isn’t out there.
A better use of your time and effort is to focus on improving your methods. Even better, improve your mentality, because that’s where the real game of trading is won or lost.
Would-be traders all tend to focus on indicators. The sense, I suppose, is that if there’s just some magic indicator to be added to the chart, then trading becomes easy.
They’re way off.
Personally, I don’t rely on indicators. I am price & volume based when making decisions on trades, and although I might occasionally glance at a moving average or something, I like to keep my charts clean and put my focus at the roots of all indicators – price and volume.
Does that make me better? Maybe.
Does it make me more decisive? Absolutely.
Back when I first went full-time as a trader (remember I already had over 2 years of part-time experience trading), there was a guy in our trading office who suffered from indicatoritis. His monitor was the most colorful thing in the office, but also the most confusing. It looked like a child had taken the entire spectrum of dry-erase markers and drawn all over his screens – a complete mess from which no sense (or cents) could be made.
This was a man grasping for some kind of a signal, but what he actually got was 50 different signals which contradicted each other. His search for clarity resulted in confusion.
That’s not a technician at work, it’s a futile (and wasted) attempt at adding an ounce of consistency to his results. He was looking in the wrong place.
A few years later, I saw a presentation by a guy (who still maintains a pretty large following in the technical analysis community) who “sees” his plays develop from charts with so many indicators that price itself is virtually obscured. Are you kidding? Suffice it to say, I think he derives zero value from those charts in terms of actual trade signals, but rather makes a really good living off confused traders seeking a magic bullet.
Indicators: Use Sparingly
Traders by and large rely too heavily on indicators, when it’s far better to use those indicators for confirmation. The price chart should tell you everything you need to know, but if you want some secondary assurance, then an indicator can provide that – so long as you’re using the right ones and at the right time.
Remember this when it comes to indicators: more does not equal better! Simple is ideal.
The hard part of trading is getting out of losing trades and staying in good trades. The hard part is not locating the magic bullet. Don’t waste your time expecting to find the secret to 99% profitability, because it isn’t out there.
A better use of your time and effort is to focus on improving your methods. Even better, improve your mentality, because that’s where the real game of trading is won or lost.
The History Of Capitalism: From Feudalism To Wall Street
The roots of what are now commonplace activities - such as buying stocks, bonds, and even things like applying for a loan or balancing a portfolio - is the "evolution" of the various economic systems that have supported them. The development of economics across time and continents is neither uniform, nor complete. This article will focus on the systems that have led to our current Wall Street arrangement.
Tooth, Nail and Plants
In the black hole known as pre-history, humans established a complex system of community that includes elements of labor, reward and trade. This eventually included the domestication of plants and livestock, furthering the scope of tradeable goods as well as tying people to the land so economies could develop. The uneven development of ancient economies suggests that many systems were attempted, but the profusion of empires suggests that the rule of powerful elite was the most successful in the early going.
The Spaces Between Empires
The most telling fact about humanity in the ancient world is that when the external controls of a ruler were removed, people reverted to subsistence farming. Although there is only one official dark age in the history text, the disconnected ancient world used to go through dark ages much like the blackouts and brownouts that ripple across energy hungry states. In these dark areas, the people went back to securing enough food for themselves and surviving until the next powerful figure came along to claim them as his own.
Feudalism
Up until the 12th century, less than 5% of the population of Europe lived in towns. Skilled workers lived in the city but received their keep from feudal lords rather than a real wage, and the farmers were essentially serfs for landed nobles. It took the Black Plague, one of the most devastating pandemics in human history, to shake up the system significantly. By killing scores of people in both town and countryside, the various plagues of the dark ages actually created a labor shortage.
Nobles fought to hire enough serfs to keep their estates running and many trades suddenly needed to train outsiders, as entire guild families were wiped out. The advent of true wages offered by the trades encouraged more people to move into towns where they could get money rather than subsistence in exchange for labor. As a result of this change, birth rates exploded and families soon had extra sons and daughters who, without land to tend, needed to be put to work. Child labor was as much a part of the town's economic development as slavery was part of the rural life.
Mercantilism
Mercantilism is now known as an attempt to create trade imbalances between nations, as well as between colonies and their imperial rulers, so that one nation prospers at the cost of others. The word "mercantilism" also has a less known usage, which simply means the principles and methods of commerce. Mercantilism started as trade between towns, but it was not necessarily competitive trade. Originally, each town had vastly different products and services that were slowly homogenized by demand over time. After the homogenization of goods, trade was carried out in wider and wider circles: town to town, county to county, province to province, and, finally, nation to nation. When too many nations were offering similar goods for trade, the trade took on a competitive edge that was sharpened by strong feelings of nationalism in a continent that was constantly embroiled in wars.
During the age of colonialism and mercantilism, the nations seeding the world with colonies were not trying to increase their trade. Most colonies were set up with an economic system that smacked of feudalism, with their raw goods going back to the motherland and, in the case of the British colony in America, being forced to buy the finished product back with a pseudo-currency that prevented them from trading with other nations.
It was Adam Smith who noticed that mercantilism was not a force of development and change, but a regressive system that was keeping the world from advancing. His ideas for a free market opened the world to capitalism.
Industrial Capitalism and Further
Smith's ideas were well timed for the world, as the Industrial Revolution was just starting to cause tremors that would soon shake the world. It was becoming apparent that colonialism wasn't the gold mine that the European powers thought it would be. Fortunately, a new gold mine was found in the mechanization of industry. As technology leaped ahead and the factories no longer had to be built near waterways to function, industrialists began building in the cities where there were now thousands of people to supply ready labor.
Industrial tycoons were the first people to amass their wealth in their lifetimes, outstripping both the landed nobles and many of the moneylending/banking families. For the first time in history, common people could have hopes of becoming wealthy without being born into it. The new money crowd was as rich as the old money crowd, but they had no interest in the status quo. They built more factories that required more labor while also producing more goods for people to purchase.
The Bottom Line
Industrial capitalism was the first system to benefit all levels of society rather than just the noble class. Wages increased, helped greatly by the formation of unions, and the standard of living also increased with the glut of affordable products being mass-produced. This led to the formation of a middle class that began to lift more and more people from the lower classes to swell its ranks.
All over the world, capitalism grew beyond pure industrial capitalism into forms more palatable to the region it settled. The U.S. raised one of the purest types of capitalism with a minimum of government regulation, while Canada and the Nordic countries created a balance between socialism and capitalism. It took a long time to get here, but capitalism is here to stay. As the world becomes more globalized, it is likely that countries who haven't yet adopted this system will jump on the bandwagon as well.
The roots of what are now commonplace activities - such as buying stocks, bonds, and even things like applying for a loan or balancing a portfolio - is the "evolution" of the various economic systems that have supported them. The development of economics across time and continents is neither uniform, nor complete. This article will focus on the systems that have led to our current Wall Street arrangement.
Tooth, Nail and Plants
In the black hole known as pre-history, humans established a complex system of community that includes elements of labor, reward and trade. This eventually included the domestication of plants and livestock, furthering the scope of tradeable goods as well as tying people to the land so economies could develop. The uneven development of ancient economies suggests that many systems were attempted, but the profusion of empires suggests that the rule of powerful elite was the most successful in the early going.
The Spaces Between Empires
The most telling fact about humanity in the ancient world is that when the external controls of a ruler were removed, people reverted to subsistence farming. Although there is only one official dark age in the history text, the disconnected ancient world used to go through dark ages much like the blackouts and brownouts that ripple across energy hungry states. In these dark areas, the people went back to securing enough food for themselves and surviving until the next powerful figure came along to claim them as his own.
Feudalism
Up until the 12th century, less than 5% of the population of Europe lived in towns. Skilled workers lived in the city but received their keep from feudal lords rather than a real wage, and the farmers were essentially serfs for landed nobles. It took the Black Plague, one of the most devastating pandemics in human history, to shake up the system significantly. By killing scores of people in both town and countryside, the various plagues of the dark ages actually created a labor shortage.
Nobles fought to hire enough serfs to keep their estates running and many trades suddenly needed to train outsiders, as entire guild families were wiped out. The advent of true wages offered by the trades encouraged more people to move into towns where they could get money rather than subsistence in exchange for labor. As a result of this change, birth rates exploded and families soon had extra sons and daughters who, without land to tend, needed to be put to work. Child labor was as much a part of the town's economic development as slavery was part of the rural life.
Mercantilism
Mercantilism is now known as an attempt to create trade imbalances between nations, as well as between colonies and their imperial rulers, so that one nation prospers at the cost of others. The word "mercantilism" also has a less known usage, which simply means the principles and methods of commerce. Mercantilism started as trade between towns, but it was not necessarily competitive trade. Originally, each town had vastly different products and services that were slowly homogenized by demand over time. After the homogenization of goods, trade was carried out in wider and wider circles: town to town, county to county, province to province, and, finally, nation to nation. When too many nations were offering similar goods for trade, the trade took on a competitive edge that was sharpened by strong feelings of nationalism in a continent that was constantly embroiled in wars.
During the age of colonialism and mercantilism, the nations seeding the world with colonies were not trying to increase their trade. Most colonies were set up with an economic system that smacked of feudalism, with their raw goods going back to the motherland and, in the case of the British colony in America, being forced to buy the finished product back with a pseudo-currency that prevented them from trading with other nations.
It was Adam Smith who noticed that mercantilism was not a force of development and change, but a regressive system that was keeping the world from advancing. His ideas for a free market opened the world to capitalism.
Industrial Capitalism and Further
Smith's ideas were well timed for the world, as the Industrial Revolution was just starting to cause tremors that would soon shake the world. It was becoming apparent that colonialism wasn't the gold mine that the European powers thought it would be. Fortunately, a new gold mine was found in the mechanization of industry. As technology leaped ahead and the factories no longer had to be built near waterways to function, industrialists began building in the cities where there were now thousands of people to supply ready labor.
Industrial tycoons were the first people to amass their wealth in their lifetimes, outstripping both the landed nobles and many of the moneylending/banking families. For the first time in history, common people could have hopes of becoming wealthy without being born into it. The new money crowd was as rich as the old money crowd, but they had no interest in the status quo. They built more factories that required more labor while also producing more goods for people to purchase.
The Bottom Line
Industrial capitalism was the first system to benefit all levels of society rather than just the noble class. Wages increased, helped greatly by the formation of unions, and the standard of living also increased with the glut of affordable products being mass-produced. This led to the formation of a middle class that began to lift more and more people from the lower classes to swell its ranks.
All over the world, capitalism grew beyond pure industrial capitalism into forms more palatable to the region it settled. The U.S. raised one of the purest types of capitalism with a minimum of government regulation, while Canada and the Nordic countries created a balance between socialism and capitalism. It took a long time to get here, but capitalism is here to stay. As the world becomes more globalized, it is likely that countries who haven't yet adopted this system will jump on the bandwagon as well.
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