Monday, August 10, 2009

Prosperity for God's People - Monday August 10, 2009


The Fed Buys Last Week's Treasury Notes

Trader Linda Raschke: Tips On Day-Trading the S&P 500

Beautiful Lies
I am currently reading Satyajit Das's book, Traders Guns & Money. I'm loving it and find myself continually laughing out loud.

The back cover of the book describes it as "a wry and wickedly comic expose of the culture, games, and pure deceptions played out every day in trading rooms around the world, usually with other peoples money".

Here are a few samples.

"Beautiful lies' are the lies that we like to believe; we know they are not true but everything makes us want to believe them - that is what makes them beautiful.

I used to be responsible for showing the trainees around the trading floor. 'Look, it's quite simple, I said, breaking down the hierarchy of the trading floor. 'There are salespeople - they lie to clients. Traders lie to sales and to risk managers. Risk managers? They lie to the people who run the place - correction, think they run the place. The people who run the place lie to shareholders and regulators.' I remembered our quantitative colleagues. 'I forgot the quants - our fabulous rocket scientists! When last heard from, they were trying to develop a model for lying.'
'And clients?' one of the trainees asked tentatively. I thought about it for a few seconds. 'Clients. They lie mainly to themselves!' To enter the world of derivatives trading is to enter a realm of beautiful lies.

There is only one way to make money - you buy low and sell high. Sorry, forgot the second rule - sell high, buy low. Listening to traders you get an entirely different view of their business, especially its complexity.

Some traders engage in elaborate analysis of market forces. There is technical analysis consisting of trying to find patterns in price movements over time, there are head and shoulders, rising and falling pennants, retracement points, resistance lines, oscillation indexes, RSI (relative strength indicators, not repetitive strain injury). There are more arcane techniques - Elliot waves, Fibonacci series, Japanese candle stick techniques. The list is endless. It is a modern version of reading the entrails of a slaughtered ox.

Success in trading relies on on simple rules. Overwhelming force is generally good - you just have more money than everybody else and can hang on until everybody is forced out of the game. Ganging up is effective - you just get together with other traders and fall upon a weakened animal like hyenas or wolves. Ambush is also good - you know something that the other guy does not know, at least not yet. Flow traders are well versed in ambush. It also helps to be lucky - better to be a lucky fool than an unlucky genius." Satyajit Das, Traders Guns & Money
Traders, Guns & Money: Knowns and unknowns in the dazzling world of derivatives

I believe we, the independent traders, are the weakened animal that the institutional hyenas devour.

The line about technical analysis being the "modern version of reading the entrails of a slaughtered ox" is my favourite.

Of course that doesn't include my magic blue bars, right?

Methods of a Wall Street Master

It is a common observation that "you can't change people, they have to change themselves." It is also typical that many people don't change until their whole world comes crashing down on them, until their backs are against the wall and there is no longer anywhere to go but forward. My purpose in discussing all these things is to urge you not to let yourself get caught in the downward spiral of the search for glory. Don't wait until your back is against the wall. Desperation doesn't have to precede change. Start now and look for some of the symptoms I've described. It all comes down to learning to own your problems and take responsibility for them. Making mistakes is part of the business of trading. In those moments when reality slaps you in the face, try to ask yourself what you have done to make them happen; not in context of self-reproach or punishment, but in the context of the opportunity for positive change and growth.

Trader Vic

Daily Audio Bible

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