What about Trading Strategies both short and long!

Dear Gary,

my name is Lubo and I read your thoughts about trading , yesterday(31.03.) I listened to you on ABC with Tony Delroy program which was very nice to listen to your thoughts about the markets.
I'd like to ask you two questions :
1. Why Educators all the time mention Golf to compare to traders and not other kinds of sports ?
2. and when analysing the markets ,do you take into cosiderations any geopolitical events what happened in recent years ?
I do not want to sound smart, but history does not need to repeat with the same or similar results like from the other market crashes that market will rise again especialy with so much debt. I was brought to spend only what I earn but when I read about these stimulus and they want to draw all the countries to do the same,I see straight away,we are heading like Zimbabwe to the bring of economic collapse. When there are rules they must be adhere to there can be a difference of + or - from the rules but not too much, but what these educated CEO's have done is too much and bring the economy back again won't be so easy because they took us all faraway from the mean and without the economic and social pain it won't be brought back to the mean and with all these stimulus programs - means more debt how these can happen ?
or will it be like in post WW II when people used money to heat houses ?

I just wonder how this is going to be resolved because debt is debt and 1 day it must be repayed and markets,which are us-people will react to it adversaly,because we are expressing our thoughts in the markets in buying or selling.
I think people in the past they had their honour and when they did something wrong they commited suicied and resigned but nowdays they do not want to admit they've done wrong and instead they will collect their 29 million dollars and 1 -or 2 million pension for life like CEO from General Motors and they let you die without penny on the street.
Now these educated people have no social morals and are attached to monies very much and I am talking about CEO's and their cronies which are not much better in running business then any other ordinary people.

Mr. Gary Thank you very much for your time to read my thoughts.

Kind regards Lubo

As always, I find your comments instructive and educative. I particularly like the blogs that focus on the psychological aspects of trading. This current blog is very relevant to trading at any time and particularly at this time in the market. I am not new to reading about psychology and investing/trading but your blog made me stop and reflect. I have now read this blog several times. It has reinforced for me why I need to stick to my trading plan and why I need to stop myself being tempted or feeling scared. Best wishes. Peter

Golf was invented by a Scottish commodities trader.

Response to Comment by Lubo:

At the outset I must say that you have hit a few issues right on the head in your posting. I'll break my response into two parts. Firstly:

"Why Educators all the time mention Golf to compare to traders and not other kinds of sports ?"

I'm not sure that many do but I do because I am a single figure handicap golfer and have plenty of empathy for the psychological parallels between golf, life and trading. IMHO golf is the game/sport that parallels life and trading the closest.

What makes golf almost unique as a sport is that the ball is stationary and it is not a team sport that has dependencies on other members or opponents. You are playing against yourself and the environment (which has a large number of changing variables) both of which you need to overcome through, amongst other things (which we have and will cover in blogs), empathy.

In team sports and other 'singles' net sports you are playing against an opponent(s) and you react instinctively to a moving ball which almost eliminates thinking time. A round of golf takes 4 - 4.5 hours but you spend about 2 minutes actually executing a golf shot, the rest of the time you are thinking about executing shots, just hit or about to be hit. Just like trading where execution of a transaction takes a second but preparing and thinking about it ..........

In trading and golf you are always battling against a benchmark. In trading, your financail goal is to outperform the index. In golf your goal is to break par - the handicapping system provides this challenge for every golfer.

There is no doubt that the right psychological attitude in all others sports is a major asset, especially in contact sports.

I could go on but will leave it there.

Regards
Gary

Comment from: Gary Stone [Member]·http://www.sharefinder.com.au
Response to Comment by Lubo (Part 2):

"..when analysing the markets ,do you take into cosiderations any geopolitical events what happened in recent years ?"

In short, no. I look at price action only. Indirectly I do look at geopolitical events, through price action. The prices of equities, currencies, commodities etc will react taking into account ALL the variables that can possibly interact on the market, including geopolitical events.

Geopolitical events are just a subset of ALL the events and varaibles that thrust themselves on the markets. Being AWARE of ALL the variables that might affect the markets is an impossible task let alone knowing how each and then the sum total of ALL the varaiables will affect the market is an even more impossible task (if something can be more impossible!). Each of us will only ever be aware of a subset of all the varialbes in the universe of the markets.

The only way that we can achieve awareness of the net affect of all the variables on the market at any given moment is to watch price action. It is impossible to predict what may happen if a certain event occurs or not. We can look to history to get an idea and determine the probability of what may happen given a certain set of circumstances that have occurred before but there is no certainty.

".....history does not need to repeat with the same or similar results like from the other market crashes that market will rise again especialy with so much debt..."

In your email you have focussed on the variable of debt which I discussed in our eUGM webinar with customers and on ABC radio on Tuesday evening. Making assumptions on how the debt:GDP ratio will affect market direction is a big mistake. As is taking any single variable or subset of variables and making assumptions on how they will affect market direction. The answer is to surrender to the fact that you will never know what will happen and nor do you need to know what will happen because anything can happen. You execute your surrender through establishing a process that enters and exits the market based purely on price action.

All variables are discounted into price action at any given moment.

In the last 120 or so years we do have 2 other periods besides the period that we now find ourselves in where debt grew because, as a nation, we lived beyond our means. This is measured through the debt to GDP ratio. Refer to the Australian Debt:GDP chart below which measures debt as a percentage of GDP.


(Source: http://www.debtdeflation.com/blogs/)

This clearly shows (on the right of the chart) that growth over the last 20 years has been achieved through leverage. I don't wish to get into econonic debate but IMHO growth through moderate debt that can be paid off through income in a relatively short period of time and through productivity improvements and innovation is good growth but growth fueled mainly through leverage (even though there has been plenty of productivity improvement and innovation in the last 20 years) is not sustainable growth. Leverage has accelerated during the 1990's and 2000's.

To get an idea of how the market might react in the next few years, let's look at what the stock market did during the previous 2 periods of over-leverage which peaked in 1892 and 1931, respectively. On both occassions the stock market experienced a serious bear market when the over-leverage came home to roost through strains on the banking system, corporate collapses and credit crunches etc. The bear markets occurred in the early 1890's and the 1929 crash. Notice, importantly, that on both occassions the market peak occurred before the debt:GDP ratio peaked. Very similar to what we have experienced over the last 18 or so months where our current debt:GDP ratio is still rising while the market has retraced by 55%!!

What's important is what the stock market did during the period of deleveraging that followed when debt as a percentage of GDP dropped. On both occassions it took 20+ years for the delevering process to reach manageable levels but the stock market rose. Following 1929 and during the 20 years of deleveraging the Australian market rose 290%. A simlar rise occurred following 1890 while deleveraging was taking place.



In the USA exactly the same thing occurred. During the deleveraging period that took USA debt from being 260% of GDP in 1935 to 130% in 1955 the S&P500 rose 300%.

There were other variables that interacted on the market at the time like 2 World Wars. There are other variables that are around now that weren't around then. Things may not accur exactly the same as they did in history but the probabilities are in favour that they will. What else can we go with unless you or anybody knows with certainty what outcome all the current varialbles will produce. Just as it is incorrect to assume that history will repeat itself and we will have a 300% rise in stocks over the next 20 years it is equally incorrect to assume that because the debt to GDP ratio is at all time highs that the market defintely won't rise and make a new high over the coming few years (a new high requies a >100% rise from the recent trough).

My point is that neither you nor I know. Anything can happen. There is one guarantee that I can give you: spectators will not profit. Over the coming years as economies around the world deleverage some investors will lose (either directly or through opportunity cost of inaction) and some will profit. IMHO those with strategies that have an edge that rises by more than the market during rising markets and protects capital during falling markets will do very well in the years to come. Who knows, it may have already started......

In conclusion, the economy and the market are not synchronised and never have been. Markets fall from their highs before economic problems are known on a wide scale. Markets rise from their troughs during economic gloom not when the economic news is good. Don't get the two confused. The way to tell the difference is to watch the price action of the markets.

Regards
Gary

Gary, Simply a great article on confidence. Regards Jock Holland

Hi Lubo

Why Golf? Money Management! As well as Gary's comments.

Big Golf Tournament Clubs only want the best golfers to win their Championship so they make it over 72 holes (4 rounds). This way a golfer with a very good game plan and disipline will always rise to the top over a large number of holes.

The same as a trader as stated by Gary above, an edge over a large number of trades will bring a good trader home a winner. A bank divided by 72 is roughly 1.4% per trade, a roundabout figure that most books recommend to risk at the most per trade.

It's funny because Tennis do the same thing for their biggest men's matches.
5 sets in the finals. The shortest a match can be is 3-0 but there is 6 games in each set which = 18 games and there is 4 points in each game. 15 love, 30 love, 40 love then game. So 18 x 4 = 72 points he has to win to make the match the shortest he can.

It's designed to make sure the best win most of the time. Maths, don't you love it.

Cheers ... Max

Hello Gary and Max,

thank you very much to both of you,for a very nice explanation and it is really amazing how(I thing almost everything) is governed by mathematic and fyzics in this world and when the sums do not sums up togheter as they should everything goes out of balance and then it is very hard to put toghether because onother numbers which came in and distorted the sequence of natural process.
and if we want to come again to the mean( natural process) we have to allow these new numbers to take care of themselves and not to stir in anything new otherwise the process will take longer and longer.
Thank you.

Cheers Lubo

I think confidence is not having to know you are right. Anything can happen. I just accept it (or at least I know I should). Once you're in the trade, keep planning to take that small loss. Expect it. Just don't be surprised when you don't.

Is it possible to have a trial run of SPA? For example is it possible to try it out for no cost for say 6 months?

Replying to Gerry;s comment:
"Is it possible to have a trial run of SPA? For example is it possible to try it out for no cost for say 6 months?"

Unfortunately, this is not practical or realistic for this type of product. There is a lot of propriety and valuable information within SPA that we can't just give away for 6 months. I would agree that before you commit a reasonable amount of money to any product you need to make sure it does what it says, look at its reliability and check its credibility.

We do our best to provide prospective customers with all the information they need to make the decision to become a customer. We have live 1 to 1 demonstrations, discovery sessions with Gary, plenty of phone support and most of all, COMPLETE transparency of our long term results. Our public forum is open for anyone to register and ask questions of existing customers. This blog should also give you a picture of a company that knows about trading and trading methodologies.

Please give us a call and we'll start the information flowing.
Regards,
David