“The market is similar to a person with this disorder in behavior that is modeled, but not sensitive.”
Robert Prechter
Comment & Analysis
True confessions! Being “smart” does not mean you will win money in FX
I was on the radio last Saturday to discuss the coins. Unfortunately I had some phone problems and could not finish the interview. One of the things I was going to speak before my phone was cut was the fact that the gentleman in front of me (a pleasant and intelligent man I respect) was absolutely huge demonstration on the Canadian dollar rises. Is it time to start looking in the other direction
This man said on the show how wonderful it was to vacation in the U.S. because things are not so cheap. It was really all excited and proud of everyone apparently wanted to put money to work in their country fair and Canada. It seemed, so I figured it was a foregone conclusion that the Canadian dollar was in a perpetual slide longest running (USD / CAD lower).
What I said about the conditions was true. All numbers are validated. But often when an intelligent man who has been around the area of investment for a long while and are excited little question about Goldilocks is usually a sign we are nearing a top.
When I hear that kind of obvious that comes from any kind of assets or money, they immediately think of Mr. Yin-Yang. [As far as I know Mr. Yin-Yang is still free, the Chinese have not disappeared, however, although they have been trying very hard.
So, to steal a line from the famous film, “say hello to my little friend”
Hope in the face to disappear. The optimism to pessimism … the wheel turns. We know it does. You have to, is the way it is. The only question is when the spin of the wheel? It usually turns before it is widely recognized for our cause analytical and logical mind against the Newtonian effect validate based on evidence, it is time to turn. [I apologize for that sentence, but could not resist.]
This was the consensus reading of bullish versus bearish speculators of the last commitment of traders report in Canadian dollars:
Bullish Bearish 96% 4%
This bull / bear positioning number suggests that there are a lot of people that comes on the Canadian dollar. Most interesting is the huge number of COT was before the recent new high against the dollar in CAD. Starting this week, probably close to 100% … hmmm.
There is never, never any guarantees in this game. There is never, never, no perfect measure – is the nature of the beast of human behavior and irrational rational that this is so – but I think if we could deliver a single indicator of all we use – and technical foundations – Trust would best. It must be, because it captures the feeling of all fundamental and technical analysis of all players to reach a conclusion yes or no – commercial or not.
The problem for us and our Western analysis is that we want “real” proof of facts and statistics. This mentality has evolved very good reason and served us well in our daily lives. But it’s the kind of mentality that gets us into trouble in the investment world, this is a world in which the most important information can come in the “soft” stuff, where few people are focusing on.
Let me give an example of what I’m trying to say. Suppose you’re a hotshot analyst and asked to be on CNBC with Becky Quick buffet, Joe Kernan and Carl (can not spell his surname) – assessment of accommodation. So, Mr. Hotshot analyst, why do you think the Canadian dollar is near a top? Well Becky, everyone likes the Canadian dollar. There is an acute trust. That’s why.
Nope. That I will not. Becky, Joe, and Carl is pressed to the facts and figures. Economic comparisons of growth, yield spreads, the central bank’s monetary policy, the impact of the QE2, why Canadians decided to get involved in Libya, the latest results of hockey, and deep powder in Whistler against Aspen. Of course not, wanting to make a fool, stick to their principles, and walk off the set and lose those “big fish” credentials, source statistics that blur the brains of most listeners.
This is how the “big fish” analyst game is played. Wow! That guy is very intelligent, learned that Marta? 72.567498% There is a correlation between snow depth of Whistler and duration 14.5786 tendency week the USD / CAD.
What I call the “statistical confidence” game.
When launching rockets into space, or building bridges, or do something in the real world is important, you better be able to play this game well – otherwise people die. But in the investment world, this game seems very overrated and often kills the trading accounts.
In the world of the single currency, thanks to all possible sound reasonable grounds ranging from crude oil prices to what Bernanke had for breakfast, I am increasingly finding that less is more.
If it sounds too smart and try to “be” too clever, you may fill your head with tons of analysis leads to the dreaded “analysis paralysis.” The first sign of infection is that you can not pull the trigger on a trade. And when it does pull the trigger, following an anxiety attack.
As I get older I’m finding that less is definitely more when it comes to winning at forex trading. Damn I’m still learning the lesson itself. I learned this again recently. This is true and a real life example is using me as the subject and unfortunately my customers pay the price of my learning this again.
I decided to subscribe to Reuters 3000 (currently the Eikon platform) for a while so it would make news and analysis in virtually all living and dead assets anywhere in the world 24 / 7. I can even get sum scores of fight when they want. The day I have that system, so they could do more tests and become “smarter” is the day he began to negotiate seriously. And the day I stopped using the system and reverted to my old ways simpler graphical analysis and evaluation of market views basic theme is the day my business began to improve. That’s my confession. And no, I’m going to Oprah about it.
Does this mean that my trade will be good? No. Does it mean Reuters is a bad idea for retailers? No. But I say that less is really more for me, and I bet it’s the same for many of you.
The more we ignore the soft, fill our minds with statistics – the hard, keep trying to sound “smart” and stop taking some time off to sit and think, the worse our trade, and yet we do not know why, because we are doing “everything” right.
So thinking about what my little friend tells me about springing for the Canadian dollar, just maybe it’s time to start looking in another direction. Stay tuned.
