What is the "market"?
- Thread starter Merovingian
- Start date
The market is your play ground
Trade your Yen or trade your Pound
Be careful of what you choose
One mistake and you will lose
Should you buy or should you sell
Everythingâs done by the closing bell
Greed and fear is what they say
Discipline, thou must not stray
The market is your play ground
Where money is lost and found.
Kermit
Trade your Yen or trade your Pound
Be careful of what you choose
One mistake and you will lose
Should you buy or should you sell
Everythingâs done by the closing bell
Greed and fear is what they say
Discipline, thou must not stray
The market is your play ground
Where money is lost and found.
Kermit
The theoretical school is correct in theory....
but is not correct in the real world for
some very simple reasons...
Stock supply... is not uniform
Volume........... is not uniform
Stock demand...is not uniform
Execution....... is not uniform....
Execution techniques...not uniform
Execution technology...not uniform
Information...is not uniform
The shorter the time frame..the higher the predictability...
Herein...is where daytrading opportunity awaits...
but is not correct in the real world for
some very simple reasons...
Stock supply... is not uniform
Volume........... is not uniform
Stock demand...is not uniform
Execution....... is not uniform....
Execution techniques...not uniform
Execution technology...not uniform
Information...is not uniform
The shorter the time frame..the higher the predictability...
Herein...is where daytrading opportunity awaits...
It is astonishing to me to realize how little people know about the markets. Even the most educated traders and scientists that I deal with every day are completely clueless about the basic market mechanisms. sometimes I feel like I'm in a nut house! 
I have tried to get to the bottom of this phenomenon (complete ignorance that is) but my attempts were completely fruitless. So, the mystery is not the markets but the people's inability to understand them. 
I have tried to get to the bottom of this phenomenon (complete ignorance that is) but my attempts were completely fruitless. So, the mystery is not the markets but the people's inability to understand them. Your "question" is difficult to answer, because you couched it in terms of a statement; and one with many assumptions built in; some of which are incorrect.
Taking the first one; i.e.:
"90% fail no matter what the SYSTEM"....
First, 95% of those "invested" in the market don't even have or use a system. Of the remaining 5% who actually seriously do use a system; I'd wager that far less than 90% are losing. Probably only 50%, or even less.
It's unclear whether you are speaking of the whole world population, or just active traders.
On the second item; you use the word "trader", but then describe an approach which sounds much more like Joe 6-Pack "investing".
Nothing "inclines" a trader to do anything. That is a 180-degrees backwards view of life...a denial of self-responsibility for one's own actions.
Anything a person does is THEIR choice...THEIR responsibility; not the market's, not the gubmint's, etc..
And again, if you're talking about the general world population, then yes, I suppose "90%" do make bad choices in the market, approach things in a random and chaotic manner, etc..
But you also use the word "trader"; which implies a very much reduced and very specific subset of "everyone"; ....and there your assumptions break down.
In my opinion, the -only- sane way for a trader to look at "the market" is indeed as a wealth-building machine.
Like any piece of complex and powerful machinery, it requires one to study the operations-manual, avoid sticking one's hands in certain places, operate it only at safe speeds, etc..
But it truly is a "machine", and to a TRADER, building wealth is certainly the primary overriding factor in owning and operating it.
Around the house here, we call it the "nickel-machine".
As far as your "question", or statement really, the best answer I can give you is: it doesn't matter "how it works".
You don't need to know how a vehicle "works" inside, in order to drive it, eh?
All that matters is your pattern-recognition ability and your discipline as applied to entry, exit, and cash/risk management.
Due to ten thousand different variables, the market moves in a (relatively) small set of patterns; a number of which have fairly high odds of "completing" rather than failing.
I have no idea what all the variables are, nor do I know how to "model" them....but I don't -need- to know those things. All I need to be able to do is -recognize- a pattern as it forms.
This is why IQ isn't necessarily related to trading success. Perhaps those with excellent inherited -hunting- skills do best!
I.e., those who are best at spotting the tiger lurking in the trees.... It's all about pattern-recognition; coupled with timing and discipline.
Sorry if this wasn't what you were looking for as an "answer"...
The market is a mechanism designed to transfer financial risk from those who don't want it, to those who do. In the process of transferring that risk, the market offers financial opportunity to the "risk acceptors".
This cash intensive mechanism is paid for by the significant vigorish it charges.
Peace and gtty,
Lar
This cash intensive mechanism is paid for by the significant vigorish it charges.
Peace and gtty,
Lar
I don't post much, but your inquiry got my attention.
Greek philosopher Heraclitus once wrote "Much learning does not teach understanding".
Now that I got that out of the way ...
The purpose of the futures markets / stock markets etc., is similar to any other market. It exists solely to *facilitate trade*, and does so by "auctioning" from high to low and low to high.
That answers your first question.
In general, markets move about 30% of the time. Otherwise they're "balancing" or what others call "bracketing".
Attached is a 5 minute chart of ES U5. I circled an area on the bar chart to define a typical bracket, so I ask myself: "What is this market doing now, and "how" well is it doing it?"
Unless one is willing to put in the time and study required to trade effectively, the outcome is typically why most fail in trading.
Quick tips :
Don't over analyze, that's for analysts ... we are traders.
Don't trade your emotions and don't blindly follow the majority, because you will usually be going the wrong way.
Get with a mentor, if you can, and ask yourself if you can use what he / she teaches you.
Trading is a business, so treat it as such .... not a hobby or to dabble in.
Best books I've read :
Mind Over Markets by Dalton - Jones and Dalton
Trading in the Zone by Mark Douglas
Hope this helps !
Greek philosopher Heraclitus once wrote "Much learning does not teach understanding".
Now that I got that out of the way ...
The purpose of the futures markets / stock markets etc., is similar to any other market. It exists solely to *facilitate trade*, and does so by "auctioning" from high to low and low to high.
That answers your first question.
In general, markets move about 30% of the time. Otherwise they're "balancing" or what others call "bracketing".
Attached is a 5 minute chart of ES U5. I circled an area on the bar chart to define a typical bracket, so I ask myself: "What is this market doing now, and "how" well is it doing it?"
Unless one is willing to put in the time and study required to trade effectively, the outcome is typically why most fail in trading.
Quick tips :
Don't over analyze, that's for analysts ... we are traders.
Don't trade your emotions and don't blindly follow the majority, because you will usually be going the wrong way.
Get with a mentor, if you can, and ask yourself if you can use what he / she teaches you.
Trading is a business, so treat it as such .... not a hobby or to dabble in.
Best books I've read :
Mind Over Markets by Dalton - Jones and Dalton
Trading in the Zone by Mark Douglas
Hope this helps !
Most people with money in equities markets are not traders they are buy&hold investors. Most B&H investor makes money over the very long time frame they are interested in. Thats because diversified long term B&H is a system with a clear positive expectancy. A dunce couldn't buggar it up, but no-one makes money fast out of it
Most B&H investors dont use leverage and as such they can afford something us short term traders cant, they can afford to have a terrible sharpe ratio. Us short term traders using leverage need a smooth equity curve otherwise we're dead.
The reasons most short term leveraged traders lose is because we either overestimate the smoothness of our equity curve and then bet too big. Or we falsely believe our system has an infalible positive expectancy (or both).
Most B&H investors dont use leverage and as such they can afford something us short term traders cant, they can afford to have a terrible sharpe ratio. Us short term traders using leverage need a smooth equity curve otherwise we're dead.
The reasons most short term leveraged traders lose is because we either overestimate the smoothness of our equity curve and then bet too big. Or we falsely believe our system has an infalible positive expectancy (or both).
Hello Merovingian,
I think you are on the right track by seeking to understand the market through the questions you are asking. It is my opinion that all markets are driven by demand-supply dynamics, but each market has unique characteristics with regard to what factors influence demand-supply and expressed buying-selling interest. What has helped me in the process of understanding market dynamics was to really focus on one market, and do extensive and focused research that is targeted at understanding primary market participants trading (read market interaction) strategies.
If you choose a market that has a makeup with many very short-term market participants, recognize the fact that the intra-day market environment is influenced significantly by positioning and adjustment (opening and closing positions) patterns of these active participants. Be aware that intra-day open interest and its fluctuations impact significantly intra-day demand-supply dynamics. The relative positioning (the price-levels where many open positions are being held from) impacts future positioning-adjustment patterns. If you build a solid foundation based upon the proper understanding of what drives the dynamics of your chosen market, then reasons for why many market participants fail to trade effectively will become clearer. In general, poor positioning patterns combined with over-leverage create forced or pressured liquidation patterns and consequential losses.
Keep asking the right questions and they'll lead you to the right answers. Best of luck in your endeavor!
I think you are on the right track by seeking to understand the market through the questions you are asking. It is my opinion that all markets are driven by demand-supply dynamics, but each market has unique characteristics with regard to what factors influence demand-supply and expressed buying-selling interest. What has helped me in the process of understanding market dynamics was to really focus on one market, and do extensive and focused research that is targeted at understanding primary market participants trading (read market interaction) strategies.
If you choose a market that has a makeup with many very short-term market participants, recognize the fact that the intra-day market environment is influenced significantly by positioning and adjustment (opening and closing positions) patterns of these active participants. Be aware that intra-day open interest and its fluctuations impact significantly intra-day demand-supply dynamics. The relative positioning (the price-levels where many open positions are being held from) impacts future positioning-adjustment patterns. If you build a solid foundation based upon the proper understanding of what drives the dynamics of your chosen market, then reasons for why many market participants fail to trade effectively will become clearer. In general, poor positioning patterns combined with over-leverage create forced or pressured liquidation patterns and consequential losses.
Keep asking the right questions and they'll lead you to the right answers. Best of luck in your endeavor!