Boris and Kathy's FX Blog www.bktraderfx.com
11/10/2006
Wrong Sucker!
“I assume that markets are always wrong.”
George Soros
“The market can stay irrational longer than you can stay solvent”
John Maynard Keynes
So what brings me to this topic? Well the US midterm elections of course.
As late as the evening of Tuesday November 7th the GOP win Senate contract was trading at 70 bid showing that FX traders are not the only idiots around. The magic power of market predictions was not so magic after all. As one of my favorite bloggers, Atrios, so succinctly noted in a jibe at all the pundits who hold market sentiment so dear, “Markets provide a cute distillation of conventional wisdom, that’s all.” For a prime example just look at the Dow. Global economic growth is contracting. Housing-as-ATM is done. US economy is tipping into a recession – put a fork in it we are done. Yet equity traders are partying like its 1999. Morons? You bet.
But making money out of assuming that markets are always wrong is a lot tougher than it sounds. As Lord Keynes noted irrationality can persist a lot longer than your bank account. Fading the market requires two contradictory qualities – total confidence in your long term view and innate humbleness to take quick losses if prices don’t confirm your outlook. More importantly to truly capitalize on the market turn you need to plow into a position with everything you have. Soros’s other famous quote was, “You can’t be enough of a pig when you are right.”
Think how difficult this is to achieve in real life. You have be constantly defensive when markets don’t go your way and super aggressive when they do. Most people can be one or the other, but rarely both. The game is complicated further by the fact that sometimes the markets go your way for a bit only to pivot and reverse stopping you out in frustration.
Yet this is what makes trading so wonderful. If it was in any way truly forecastable banks would simply set up computer boxes and capture all the profits in all the markets. They’ve tried and failed many times. Thank goodness. Here is to the wild unpredictable, irrational nature of the game. Ultimately it’s what allows all us to trade and survive by that oldest of human tools – our wits..
Oh yea - and are the markets always wrong? No. But don’t fall into the mindless assumption that they are always right either.
“I assume that markets are always wrong.”
George Soros
“The market can stay irrational longer than you can stay solvent”
John Maynard Keynes
So what brings me to this topic? Well the US midterm elections of course.
As late as the evening of Tuesday November 7th the GOP win Senate contract was trading at 70 bid showing that FX traders are not the only idiots around. The magic power of market predictions was not so magic after all. As one of my favorite bloggers, Atrios, so succinctly noted in a jibe at all the pundits who hold market sentiment so dear, “Markets provide a cute distillation of conventional wisdom, that’s all.” For a prime example just look at the Dow. Global economic growth is contracting. Housing-as-ATM is done. US economy is tipping into a recession – put a fork in it we are done. Yet equity traders are partying like its 1999. Morons? You bet.
But making money out of assuming that markets are always wrong is a lot tougher than it sounds. As Lord Keynes noted irrationality can persist a lot longer than your bank account. Fading the market requires two contradictory qualities – total confidence in your long term view and innate humbleness to take quick losses if prices don’t confirm your outlook. More importantly to truly capitalize on the market turn you need to plow into a position with everything you have. Soros’s other famous quote was, “You can’t be enough of a pig when you are right.”
Think how difficult this is to achieve in real life. You have be constantly defensive when markets don’t go your way and super aggressive when they do. Most people can be one or the other, but rarely both. The game is complicated further by the fact that sometimes the markets go your way for a bit only to pivot and reverse stopping you out in frustration.
Yet this is what makes trading so wonderful. If it was in any way truly forecastable banks would simply set up computer boxes and capture all the profits in all the markets. They’ve tried and failed many times. Thank goodness. Here is to the wild unpredictable, irrational nature of the game. Ultimately it’s what allows all us to trade and survive by that oldest of human tools – our wits..
Oh yea - and are the markets always wrong? No. But don’t fall into the mindless assumption that they are always right either.
posted by BKTrader # 11/10/2006 05:25:00 AM 
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