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June 1997
Hhave you ever wondered why no one's found the Holy Grail? Have you ever wondered why there still seems to be something missing when it comes to solving the riddle of the markets?To most people, the riddle is one without rational solution; it can't be solved because they think the market is random. To me, though, markets don't seem random; the price movement is a discounting function of the trends of economic fundamentals. And because the fundamentals trend, the markets trend. However, the events of any given day do seem to be more random than not. We as technically based traders tend to view this aspect of the markets as noise around the general trend, and we use tools to reduce the influence of noise in our decision process.
That said, maybe we need to look at our tools.
I read an interesting discussion a few years back about this issue in the book Trading Chaos by Bill Williams. In the work, Williams pointed out that many of the methods that technicians use are drawn from classical physics, a linear science that does not lend itself to understanding nonlinear systems such as turbulence and living systems. The fact is, we can design a missile and predict where it will land, we can even put men on the moon, but we still can't predict this Friday's closing price for the Standard & Poor's 500. And yet many of us are using the same tools for all three. Is that logical?
Don't get me wrong. I'm not concluding that our technical tools are all flawed and should be abandoned forthwith. Not by a long shot. But rethinking the technical tools that you're using and how well they work is never a waste of time. Then again, maybe the tools we use are only part of what's missing; maybe we need to look at the markets in a different way or with an open mind to unique approaches. We don't fully understand how the market works, and until we do, I'll look at anything.
Case in point is Jeffrey Owen Katz's article this month, "Lunar cycles and trading." In it, Katz walks you through a set of trading rules based on lunar phenomena and presents the results. In other words, his work is far from anecdotal evidence, and therefore worthy of consideration. I've said it before, and I'll say it again: Anytime that trading is presented with definable rules and detailed outcomes, it's worth your time to take a good look at it.
Moving along, this month's STOCKS & COMMODITIES interview is with professional trader and author of Aerodynamic Trading, Connie Brown. Like most of us, Brown was involved in other careers and endeavors before she discovered the markets; at one time, Brown was a world-class swimmer. In our interview, she describes some very interesting parallels between the elite athlete and the professional trader, especially the mental toughness necessary to compete in both big-time athletics and the markets. Trading, after all, is a challenge, and like all serious challenges, if you're not fully prepared, then you really shouldn't be playing.
No one has ever said that trading is easy, but that doesn't mean that it can't be very rewarding, and I'm not just referring to the chance to make money. Brown said it best: "Trading can bring you closer to your dreams, trading can add value to who you are -- it can add depth to your life if you're willing to make the commitment.
