The Universal Laws of Trading

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Old Feb 25, 2006, 12:39pm   #1
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The Universal Laws of Trading

There are natural or ‘Universal Laws’ that govern us all. Life is so much easier if we accept these laws and harness their power to help us achieve our goals. Fighting these laws is, at best, like swimming against the tide. Damned hard work! A universal law must have an obvious underlying truth to it and that truth must be constant and eternal. It will never change. A well known universal law is that of 'Karma', the Sanskrit word used to describe cause and effect. The idea being that every action (cause) has a consequence or reaction (effect).

In his book ‘Trading Day by Day’, F.H. “Chick” Goslin suggests that it is wise to examine the universal laws (or 'natural' laws as he calls them) - that apply to traders. He is quite dogmatic in asserting that there just three such laws, regardless of time frames, instruments and markets traded etc. They are:
1. The future is unknown
2. Continuation is more likely than change
3. Prices fluctuate

Now, some folks might question my nerve to suggest that a consistently successful trader and respected author such as Mr. Goslin may be slightly wide of the mark with his three laws, but, here goes. . . I agree with laws 2 and 3, completely. However, law 1 is a little bit contentious, I think. There is a whole swathe of traders who believe that the markets conform to some sort of mathematical model. Elliott Wave theory and the Delta Phenomenon do, as I understand it, have forward projections or predictive values. The latest big name exponent of what could be termed ‘magic maths’ is Steve Copan with his ‘Market Matrix’ system. I don't use any of these methods, but I imagine that their devotees would challenge the idea that ‘the future is unknown’ and question its status as a universal or natural trading law?

In addition to the main universal or natural laws, maybe there are additional 'sub-laws'. For example, one sub-law might be: 'There is no Holy Grail'. If there was, then everyone would find out about it and the markets would, through necessity, have to destroy the grail in order to survive. So, the opportunities to profit in the markets are infinite and there is no 'one way' to trade. Two more sub-laws perhaps?

The purpose of this thread is to see if, collectively, we can agree as precisely as possible on the number and characteristics of the universal laws that govern our activities as traders. Additionally, maybe there are 'sub-laws' which, underpinned by the universal laws will provide a very solid foundation for our trading strategies. If so, how many of them are there and what are their characteristics?
Tim.

Last edited by timsk; Feb 25, 2006 at 1:48pm.
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Thanks! The following members like this post: Charlton , bobsyd
Old Feb 25, 2006, 1:29pm   #2
 
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Heisenberg and other matters

Quote:
Originally Posted by timsk
There are natural or ‘Universal Laws’ that govern us all.

The idea being that every action (cause) has a consequence or reaction (effect).
I agree with this statement. It may not always be clear when or how the reaction (effect) occurs, but occur it will do.

However many incorrectly assign a causal relationship between 2 events, when none really exists. This is especially so in trading strategies and methodologies.


Quote:
Originally Posted by timsk
In his book ‘Trading Day by Day’, F.H. “Chick” Goslin suggests that it is wise to examine the universal laws (or 'natural' laws as he calls them) - that apply to traders. He is quite dogmatic in asserting that there just three such laws, regardless of time frames, instruments and markets traded etc. They are:
1. The future is unknown
This depends upon whether one believest that all futures co-exist in the so-called present. Even if you take the view that the future is in reality consecutive to the present then you can always talk in terms of probabilities. Does this event have a high degree of probability ? The highest degree of probability lies in events that you directly control. The market makers, for example, have a more certain degree of knowledge about the future than the ordinary private trader.
Quote:
Originally Posted by timsk
2. Continuation is more likely than change
I would not agree with this at all. Taking the more philosophical view of Karma and, in particular, Buddhist teaching it is said that change is inevitable. Life requires change - old life gives way to new life. Taking the scientific view the theories of entropy point towards more chaos being the norm.

Continuation is merely a state between 2 changes. From a trading perspective most trends will eventually end.

Quote:
Originally Posted by timsk
3. Prices fluctuate
This is clearly the easiest with which to agree

Quote:
Originally Posted by timsk
The purpose of this thread is to see if, collectively, we can agree as precisely as possible on the number and characteristics of the universal laws that govern our activities as traders. Additionally, maybe there are 'sub-laws' which, underpinned by the universal laws will provide a very solid foundation for our trading strategies? If so, how many of them are there and what are their characteristics?
Tim.
Now this is a fascinating question. I will need time to think this through properly, but as a starter I would propose the following as a universal law:

We are all individual but at the same time we are all one

There are theories that the beating of a butterfly's wings in one part of the world will influence events in another part. Think of your body - at a microscopic level atoms and molecules are passing between your body and the environmet around it. Can one really distinguish at this level where the body ends and "outside the body" begins ? Delve a level deeper - subatomic particles act like probability curves. The exact energy, speed and position is unknown but fluctuates. This is the theory known as Heisenberg's uncertainty principle (http://en.wikipedia.org/wiki/Uncertainty_principle). Thus you cannot really state that this subatomic particle is distinct from that subatomic particle.

As traders then we can associate all the events of the market and all of the market participants. Again I have not fully thought through the consequences of this, except to say that it supports the cause of TA by stating that there is a causal relationship between events that we may be able to discern by evaluation of price and volume, but equally the process of doing this - the technical analysis itself- affects the very thing that it is measuring.

Charlton
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Old Feb 25, 2006, 1:37pm   #3
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Tim,

The future is very predictable and I will pm you with a prediction that I guarantee will happen


Paul
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Old Feb 25, 2006, 3:20pm   #4
 
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Quote:
Originally Posted by Trader333
Tim,

The future is very predictable and I will pm you with a prediction that I guarantee will happen


Paul
I bet I can guess what that is too!
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Old Feb 25, 2006, 4:23pm   #5
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Chris,

PM me and I will let you know if you are right


Paul
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Old Feb 25, 2006, 7:56pm   #6
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Hasn't this exact same thread occurred before?

And no PMs required... I'm there already

Tim, yes. Let's see how this one develops. I think I would have had a similar problem with deciding which forum to run this one in too.

My opening position on your query is that Universal Laws (if they exist ), by their very fundamental nature, are not easily observable - otherwise you wouldn't be asking the question. It's like looking inside your own eye with your own eye.

And if there were such a thing as Universal Law or Laws which 'govern' us as traders - it would have to be at a very basic level (see above) and apply to all equally - with the end result we'd all do the same. Clearly we are not all so governed. So if this Law or Laws exist, they must operate on us or we must employ them (Unconsciously) as a function of or via a process of some other variable or set of variables which produce the spectrum of behaviours we witness in the markets - and in every other area of life as well of course.

And in mentioning Delta, Market Matrix, Elliott, Gann, Ocean and so all. Look at all the systems and methods (commercial, free, personal and home-grown) individually and you'll find (I suspect) a normal distribution of individual traders who have (a) enormous success (b) average success and (c) no success at all. If there are any Universal Law(s) they appear to operate, in the realm of trading in any event, in a non-deterministic manner for any one specific trader. Over the group as a whole however, you may well be able to establish some basis for your query.

Not sure if this has helped, but as I said, my first thoughts on your query.

Good Luck
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Old Feb 25, 2006, 8:19pm   #7
 
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Talking The Universe and all it's contents (again)

Who needs Universal laws when you've got
(a) A Holy Grail (http://www.music123.com/Electro-Harm...l-i60029.music)
(b) A crystal ball (http://www.imagi-nation.com/moonstruck/question.html)

or, if you're quick

Trading Magic.
http://www.rhythmofthemarkets.com/tradingmagic.html

It's a steal AND it landed free in my inbox this morning.
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Old Feb 27, 2006, 9:36am   #8
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Another thing that occurs to me Tim (and I don't know why waiting to see if a re-test on Cable at 7396 should make me think of this thread, but there you go...) is that if you do go down the route of believing we are 'governed' by UL (not something I currently subscribe to, but willing to be convinced) then be careful what it is precisely you are looking for. And from whom.

There is a consensus that far more 'traders' fail than succeed. Which set do you wish to consider?

I'm making no value judgement here, as input from either/both sets would possibly yield an answer, either in direct response to your query or one which indicates the possibility of there ever being an answer - just as valuable IMHO.

But if you took as an initial hypothesis that we are deterministically governed, we are clearly all not governed equally nor in the same manner.

Or perhaps it is to the degree we resist such governing that we are more, or less, successful in trading - or any any sphere of life?
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Old Feb 27, 2006, 12:23pm   #9
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Quote:
Originally Posted by TheBramble
Another thing that occurs to me Tim (and I don't know why waiting to see if a re-test on Cable at 7396 should make me think of this thread, but there you go...) is that if you do go down the route of believing we are 'governed' by UL (not something I currently subscribe to, but willing to be convinced) then be careful what it is precisely you are looking for. And from whom.

There is a consensus that far more 'traders' fail than succeed. Which set do you wish to consider?

I'm making no value judgement here, as input from either/both sets would possibly yield an answer, either in direct response to your query or one which indicates the possibility of there ever being an answer - just as valuable IMHO.

But if you took as an initial hypothesis that we are deterministically governed, we are clearly all not governed equally nor in the same manner.

Or perhaps it is to the degree we resist such governing that we are more, or less, successful in trading - or any any sphere of life?
The theory of Universal Law does not state that said UL governs us deterministically only that there is a framework of UL within which we must all operate. We all have free will and within the framework of UL can exercise that free will towards either our betterment or our detriment. The UL is neutral in this respect, governing all equally and in the same manner.

To paraphrase the law of aerodynamics a plane will lift off and fly because the air under the wing is of greater pressure than the air above the wing and this higher pressure basically "pushes" the plane into the air. This UL does not state where the plane must fly when it is in the air though.

As for UL in regards to trading, I freely admit I am far too new to the game to have any idea what the UL's would be. I'm hoping to find out real soon though!

Cheers,
PKFFW
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Old Feb 27, 2006, 1:34pm   #10
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Quote:
Originally Posted by PKFFW
The theory of Universal Law does not state that said UL governs us deterministically only that there is a framework of UL within which we must all operate.
I hadn't realised there was any single specific theory of universal law relating to personal pre-determination or non-determination. I thought Timsk was using that phrase for want of anything better. There are many 'universal laws' each specific to the various subjects or topic matter they address (universal laws of gravity, electricity, momentum etc.), but are you saying there is a single, over-arching Universal Law for which a theory has been postulated? Or if not, which particular UL are you referring to?

Quote:
Originally Posted by PKFFW
To paraphrase the law of aerodynamics a plane will lift off and fly because the air under the wing is of greater pressure than the air above the wing and this higher pressure basically "pushes" the plane into the air. This UL does not state where the plane must fly when it is in the air though.
Same phenomena, but totally different viewpoint and I have no idea if Tim will find this relevant to his original quest, but as an example, it may be of interest.

I've always taken the airflow around an airplane wing (or boat's sail for the matter - same thing) as the larger surface area of the top of the wing when compared with the underside, creating a reduction in air pressure over the top of the wing which effectively 'sucks' the plane upward - rather than it getting pushed up. Makes no difference to the aerodynamic design of the aerofoil or the airplane's subsequent flight dynamics in flight - just a subtle difference in view point. Both of which are correct of course.
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