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11/28/2005
Two Conceptions of Communications, by Victor Niederhoffer

In Beethoven: His Spiritual Development, the author, J. W. N. Sullivan, describes a meeting with a beautiful girl, Elizabeth Brentano, the Immortal Beloved, where Beethoven says "Art is a means of communicating knowledge about reality. Music verily is the mediator between intellectual and sensuous life. Those who understand my music must be freed by it from all the miseries which the others drag about with themselves." This noble sentiment, inspired doubtless in the heat of the moment by his hope for Ms. Brentano's kind attentions, seems to me a good way to think about the beautiful figures traced by the charts of many technical analysts.

A contrasting view of markets is presented by Larry Harris in his book Trading and Exchanges, perhaps the second most valuable book about markets after the Triumphal Trio's work. He divides traders into "information traders" and "futile traders." The former try to buy low and sell high based on the superior information they encapsulate. The latter have no chance of ever winning, and the more you trade with them the greater your chances are. I often attempt to trade with these latter, especially those who sell low after a sustained move down in markets with an upward drift, be their trades based on a descending moving average, a breakout to the downside, a secular bear market, or their own hatred of the free markets economic system.

Harris labels a related third category of traders as "bluffers" who disseminate false information to make others change their bids and offers. Rumor mongers and touts would be included here, as well as those who provide part of the truth but not the whole truth, for example the blogger who reports that employment in Berks County, PA looks terrible, and the situation in China is bad, so that it would help his bearish position along. Dealers and speculators and investors must be very wary of someone planting information like this so that they don't go out of business. Harris believes that being a good poker player is excellent training for such, and I would add that patience and counting are other virtues that will help you withstand such a bluffer. He would probably recommend the books of Malmuth and Sklansky on gambling for the investor as an antidote, but I might recommend the works of Snedecor or Anderson or Galton.

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