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Let me tell you about this month's interview with Asoka Selvarajah. Selvarajah is the associate director of equity quantitative research in the international equity brokerage department of Rabobank International. His academic work was in nuclear physics, but after receiving his doctorate, he made the switch to the financial markets. I can promise you that after you read the interview, you will come away with a bright new perspective on the markets. I came away with my own views on the markets intact, but expressed more cogently. Selvarajah really hit home with the reasons why I, at least, became a technical trader.
One comment of his really matched my experience, and think about whether that's not true for you as well. Selvarajah comments that small causes can produce disproportional effects and points out "It is true of weather, fluid flow, population growth, and financial markets." Little things can have big effects; I remember starting out back in the late 1970s as a commodity broker and, wanting to help my clients, I would read research that was being offered. I read as much as I could. At the time, I thought that you had to know everything to be effective; that the market discounted all of the current information; and that if you had an understanding of the fundamental factors, you would have a handle on where the market was headed.
I quickly began to see that the markets tended to focus only on one or two important issues at a time. All the market participant had to do was to know which issues were important. But that was still beyond me at the time, and I realized soon thereafter that the market followed a crowd mentality. (Actually, I felt that the market followed more of a riot mentality but without the violence, except for the pillaging of my clients' accounts. But that's another story.)
After watching the sharp, hysterical reaction to some news but the remarkable lack of response to an economic release, I realized that I couldn't add value to my clients' accounts by reading fundamental research, and so I focused on developing my technical skills. By using technical analysis, I found that I had some sort of framework that was tied directly to the market activity, and not to my opinions of how the supposedly fundamental factors would be interpreted by the market. This, I discovered, made a real difference in the quality of the information I could offer to my clients.
Sound technical analysis is similar to the diagnostic skills of any profession, be they doctors or plumbers or technicians. You have to determine the facts, but that's only the first step. Applying intelligent procedures after the analysis is the second. But don't take my word for it. See what Selvarajah has to say about this very important step toward becoming a successful trader.
