Oct
10
Briefly Speaking, by Victor Niederhoffer
October 10, 2006 |
A good measure of stability, or uncertainty, is the distribution of S&P futures opens relative to closes. Right now, I note five down opens in a row, each succeeded by a up open to close — the average open about -1 point, and four levels of close to close within a 2.5 point range, with the average absolute variation among them 1.7, and nary a big decline since September 6. If only these signals could be unraveled predictively, like those 2000 per game in baseball described in The Hidden Language of Baseball. There are certain coaches in baseball who are expert at reading signs, and are hired mainly for that purpose, and I would like to know of such personages in the markets.
DATE O H L C 10/9/2006 1357.3 1361.8 1355.1 1359.2 10/6/2006 1358.4 1360.0 1352.7 1358.8 10/5/2006 1357.8 1363.2 1356.5 1360.8 10/4/2006 1341.2 1359.0 1339.8 1358.3 10/3/2006 1338.6 1347.8 1336.0 1343.2 10/2/2006 1345.7 1348.1 1339.3 1340.4 9/29/2006 1348.2 1349.5 1345.0 1345.4 9/28/2006 1347.5 1350.3 1343.1 1347.3 9/27/2006 1345.3 1350.2 1343.2 1347.7 9/26/2006 1336.0 1347.1 1335.0 1346.7 9/25/2006 1328.3 1340.0 1321.6 1335.7
Rick Foust responds:
I have no related credentials to hang on the wall, but I have studied this very question at length and I have a definite opinion. I have not seen this question answered elsewhere and no one seemed willing to touch it here. So, I will offer my opinion, for whatever it may be worth.
Examples of such talent exist in every walk of life. I notice this talent most often in athletes, coaches, children, mothers, animals and animal trainers. An off the wall example that never fails to amuse me is the ease with which some taxi drivers negotiate city traffic. I have found the talent to be independent of intelligence or education. The best market reader I have encountered was a grandmother in Texas that day traded options as she worked around the house (folding clothes, etc). For other examples, think of some of the great quarterbacks that were known for being able to read defenses while being cool under pressure (e.g., Joe Montana). I recently received a video of a guy that I think is outstanding. Here is a link. The file is large, so please be patient if you have a slow connection. Just in case you wonder if you got the wrong file, it really is about a guy and a dog.
In my opinion, the essential ingredients are; a willingness to accept life as it comes, perseverance and attentiveness. Experience is a great help.
The ability to accept life as it comes is the most rare of the three ingredients. I generally have difficulty explaining this concept because it is so easily confused with being Pollyannaish or lackadaisical or reckless. It is none of those things. A wise woman once told me that love is unconditional acceptance. So, unconditional acceptance of life means loving life. Accepting life removes the filters that cloud perception and also relieves the tensions that inhibit decisions. And of course, if you love life, it will love you back. (I know that sounds corny and sappy.)
Perseverance is common. But a strong combination of acceptance and perseverance is very rare. All too often, those with high levels of perseverance are just stubborn, doggedly refusing to accept reality. I mean perseverance in the sense of having the courage to do one's best even though down 12 points. (No, I am not a football nut.)
Attentiveness seems common, but I am talking about a special kind. I apologize, but I don't know how to explain it other than by using myself as an example. Although I have always been able to get good grades without much effort, I have never liked school. So I rarely scored the best in any class. Early in my career, I was in some fairly intense training to qualify as a Shift Technical Advisor to reactor operating crews. And true to form, I scored third highest in the class without much effort. What disturbed me was that the top scorer exerted even less effort than I did. I was used to being outscored by the studious. But not this. I watched him in class, trying to figure it out. All I can say is that he just sat there, relaxed, soaking it up like a sponge. Years later I became involved in martial arts. At first, I had difficulty learning the movements and techniques, but it got easier with time. After a couple of years of martial arts training I had more job related training. To my amazement, I found I was able to sit and effortlessly soak in the information. And I was able to turn it on and off. And I got 100% on the tests and was typically first finished. I don't know what happened. My guess is that the martial arts training opened the resistance in some learning pathway.
On related topics: Attempting to profit on readings adds a degree of difficulty because it involves risk and timely decision making. The element of risk has the potential to emotionally disrupt the ability to read the signs. The element of timely decision-making is a problem in that by the time sufficient data has accumulated to enable statistic verification (if that is the correct terminology), the pattern is likely near the end of its useful life. (The exception would be patterns that are so obscure that they are not likely to be seen by many.) Therefore, in order to profit, the trader must be able to act in the face of uncertainty.
Another difficulty is that a black swan inevitably appears when things are otherwise going well. As patterns become evident to too many players, the patterns can no longer be sustained (similar to the cycles of rabbits and foxes). This has the advantage of perpetuating a game where one person cannot end up with all the marbles. If the trader is complacent and/or has not prepared a defense, the end result can be disastrous. In the markets it has cost me money. As a small plane pilot, it almost cost me my life. The misfortune that occurred to Siegfried and Roy is a well-known example.
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