The Journey from the Basement

[Rognvald]

Socrates,

Yes - it would be very useful at this stage to have another animal story to keep the brain in motion and the thoughts focussed on the esssentials of making the journey to better trading knowledge.

This has been an iterative process for me. On each occasion the allegories have provided something that has stimulated me to look further and to try to push the envelope.

So yes - please let us have somthing else to get our teeth into!

What will it be this time I ask myself? Your fertile brain will I'm sure provide the usual mixture of good and thought provoking information and entertainment. This is the mark of every good teacher.

Ok, alright, hands up those of you who would like another Animal Lesson........

 

[TheBramble]

Think of an Enlightened Pedestrian who knows where the valves are in the engine and what a horsepower means - he is still a pedestrian, not a motorist

That is a really useful observation my old China. And one which has led me down a number of interesting mental avenues, the wrong way up a dendrite or two and into more than few axon terminals.

An expert motorist doesn't need to know a thing about mechanics, engines, the internal combustion process, gears - anything at all in fact about the workings of a car. He/she doesn't need to. But how likely is that someone who is an expert motorist would not know a reasonable amount about the underlying processes which facilitate their excellence? And do they learn this before or after they achieve excellence? And does it matter? A genuine question, not rhetorical at all.

And if you don't need to know about these things to be an expert driver, what do you need?

Spatial awareness, good reflexes, rapid forward analysis of probabilities (playground, built-up area approaching, non-working traffic lights), knowledge and experience of the car, road conditions and other traffic. And a destination would be useful too...

There are more aspects I'm sure, but as a quick top-of-my-head exercise, it'll do for now. These are things you need to be an expert motorist.

You don't need and in-depth awareness of the oil-refinery business, state-of-the-art knowledge in metallurgy or a degree in engineering.

I didn't want to push your point too far and analogise it further with respect to the process of being/becoming an excellent trader, but my t2w-persona insists.

What do most traders believe are the vital, core components of their trading success?

Very few will say it's their personal knowledge of 'the market' or one particular stock or another (although some do specialise of course). And few will claim TA or FA do the job for them. Rather more wil claim knowledge of other traders psychological responses are the key factor. But by far the greatest number of traders (successful ones I have read about, spoken to etc) have no doubt that their own personality is solely responsible for their success. The simplicity of their approach, system etc. is usually a surprise. It's their focus, discipline, confidence and...that something else.

I am a successful trader. And I know a great deal about the markets. About TA and FA. I've studied various instruments and methodologies and strategies and systems. I took the time to get an advanced degree in Psychology (not for trading purposes, but who knows?). In those 8 years I've only recently recognised what it was that has made me successful. Primarily because it is only recently that I became successful!

So why am I saying all this? Simply because your comment about pedestrians and motorists pretty much encapsulates what it's all about. Most newbie traders (and I was one for over 7 years) learn all the wrong things in thinking about what they might need to trade the markets. I now know what is required. But I'm not sure I didn't have to 'know' all those other things first in order to trade successfully. And what I do know about the key factor in becoming successful (probably many keys, who knows that either?) is almost ineffable.

Which is also why Socrates, I believe, has to approach this topic from such an oblique angle. Just like a shuttle (successfully) reentering the Earth's atmosphere - it has to approach at just the right angle. Too steep - it'll burn up. Too shallow, it'll bounce off and (potentially) be lost forever.

If this thread is doing anything (and I personally think it is doing a great deal) it is pointing traders in the direction they need to be looking. The real irony is, those who would most benefit from understanding what's going on here are the least likely to be interested in the subject matter. It's taking too long. It's going in the wrong direction. It's not where the action is.

Like I said at the beginning of this post, China's comment has had my top deck quite busy this afternoon, when I should have been out enjoying this fine weather.

China, if I've hi-jacked your point with my own analogy I'm sure you wont mind. And if anyone can think of a way to turn China's analogy into something a newbie would (a) understand and (b) be interested in, we could bung it in 'first steps' and save an awful lot of people and awful lot of time and money.

 

[firehorse]

Ok, alright, hands up those of you who would like another Animal Lesson........

Hand is up!

 

[trendie]

TheBramble,

very good post re: driving analogy.
This is something that I can relate to. You have triggered another anaology !!
When you mentioned what we need to drive, ( spatial awareness, reflexes ) it got me thinking how I drive.
One of the things I do is think for the drivers around me!! Is he really going to turn right? Will that car at the junction pull out in front of me ? etc.
In a sense, I have taken a position, and am looking for reasons to get out !!


Socrates; I think you should give an animal story when you are good and ready !!
Why?
Because, the thing about you is you give such good information, but we dont always realise when its coming. Bit like the market.
We cannot know in advance what route you are going to take. Like the market.
We cant tell the market to give us a 100-point gain.
One of things your posts has taught me is patience. This is also a good trading skill.

So, give us an animal story when we least expect it !!

 

[SOCRATES]

Animal Lesson No 8.
################

The Story of the PPP Patrol.
+++++++++++++++++++++

After the Falklands War, when things began to sort of get back to normality on the Islands, a curious anomaly was spotted by the Islanders and was the subject of much curiosity and specualation all over the Islands, because this curious behaviour had never ever been seen before, even by people of advanced age who had been born in the Falklands Islands.

Apparently, in isolated places penguins were found lying on their backs everywhere. As they found it impossible to get up again, they just lay there, on their backs flapping their flippers but not doing very much. The Island Vet was called and he examined each of the horizontally disposed penguins in great detail, and was able to find nothing wrong with them.

Reports came coming in of penguins behaving out of character, The Vet could not work it out, neither could anyone else. This had never happened before. And it isn't as if the penguins were injured, or hurt, or even drunk ! More and more penguins were found here and there lying flat on their backs.

The Army, which still had a considerable presence on the Island, decided to intervene, to help the islanders to try to solve this mystery. And so patrols were briefed to keep a sharp lookout for anything unusual. They spotted nothing.

The penguins continued to be found lying on their backs. Now a joint investigative committee was set up. Of course, the Vet played a prominent part in this, together with the Pub Landlord, the Vicar, The Postman, and a group of Army Volunteers. It was also observed that all this happened only in daylight, never at night. This of course went round the Islands like wildfire. Just imagine, something as unusual as this occurring in a sleepy community, was enough to alarm and intrigue everybody.

All sorts of explanations in the pub and elswhere were offered as to why this would be the case. Some said it must be the wind gusting, others said other things, but no one was able effectively to pin it, you see.

Until one morning an army patrol coming over a small hill saw a wessex helicopter making its way from San Carlos to Stanley, flying at low altitude. And that was it ! The penguins, never having seen a helicopter ever before in their lives were very fascinated by these noisy whirring flying machines and so they looked up to see. As they did not consider thema threat, they looked upon them with avid curiosity and no doubt , wonderment. Such was the fascination with which the belheld the flight paths of the helicopers, that, if they were in their direct path they continued to look at them even when they were overhead, and, in consequence of this lost their balance and toppled over backwards !

Now something constructive could be done, as the helicopters could not be silenced an alternative solution was found. This led to the formation of the PPP, The Picking Up A Penguin Patrol. This Patrol went around uprighting penguins that had toppled over for many months and weeks until the creatures on the ground got used to the creatures in the air.

 

[Rognvald]

First reaction:-
"Gobsmacked" - where to start?

 

[trendie]

Socrates - is this a "pump and dump" move ?

We are busy investing our time in analysing this little myth ( ? ), and it will turn out to be a move by market-makers to wrong-foot us into buying into this fake move ?

 

[TheBramble]

It is indeed a myth and possibly the whole point of lesson #8?

 

[Rognvald]

There is always a reason for whatever happens - however unbelievable it is and however unlikely.

So in this case - we have a very unusual event in the market place that no one can explain. All the usual supects are looked at to no avail

At last the only possible explanation is one that no one had thought of and one that had been brought about by the innocent actions of the people no one would suspect - the defending army - the good guys. In defending the territory they had inadvertently damaged a part of it.

Someone else may be able to take this further - for me its a aaaaaahhhhhh!!!!!

Edit
No - hang on - I've got it - it was market manipulation by the penguins - yes??
& BTW I've run out of penguin pics now - do I hear sighs of relief?

 

[Glenn]

First thoughts:
Similar connotations to the story of the hill-rolling hedgehogs in respect of initial mystery.
"Something as unusual as this ..."
Various explanations proffered until an individual spotted the cause. Perhaps by being in the right place at the right time.
Sooner or later it would have been resolved.

And the penguins themselves - imagine their position.
Something never seen before.
"As they did not consider them a threat..." they watched and fell over (into a trap ?)
Reminds me of March 2000 when everyone held techs and were caught like rabbits in car headlamps.
They were so used to everything only going up .......

Not considering anything unusual to be a threat is somewhat complacent.
Fortunately for the penguins they were rescued, not so many tech holders in 2000. Even the pundits were still pumping. And the Sun and the taxi drivers and anyone you met.

Are the islanders the focal point, or the penguins ?
The islanders are observers - unaffected but curious and mystified. No apparent threat to themselves ?
I think they are not part of the essential substance of the story. Perhaps they represent the Press.
The penguins appear to be the market participants, directly affected to their detrminent.
They allowed themselves to be trapped by something unusual. Their experiences to date did not serve them well in this instance.
Their curiosity got the better of them and they suffered as a result. That is HP stuff.
Had the penguins had a more threatened prior existence, they would probably have responded differently. Their Falklands persona was not so astute.
But not important if their TP had been switched on and caused them to be alert and defensive.
"Let's jump back in the water NOW! (where the killer whales are - at least we understand them.)
A likely market-equivalent TP response could have been "If in doubt - get out".

imho
Glenn

 

[china white]

very good point

.........An expert motorist doesn't need to know a thing about mechanics, engines, the internal combustion process, gears - anything at all in fact about the workings of a car. He/she doesn't need to. But how likely is that someone who is an expert motorist would not know a reasonable amount about the underlying processes which facilitate their excellence? And do they learn this before or after they achieve excellence? And does it matter? A genuine question, not rhetorical at all........

Very good post mate - and may be I shud refrase my analogy. Forget about knowing about the valves. Imagine an Enlightened pedestrian who knows how to drive and very well, he even knows how to press accelerator and brakes at the same time to control a skid etc.... (things MOST motorists do not know) - does it make him a motorist on the street?

It is true most veteran cabbies know LOADS about their motors. However, I personally know LOADS of maverick taxi drivers who just did it for a couple of months to get back on their feet financially - who did not know where wud the oil go!

It is true that most veteran traders can talk for hours about PE, PEG, short interest, ownership split etc...... very important things, I am not trying to take a mickey. EXTREMELY important things if u keep your position for more than a week a play a spread trade. But as a short term intraday trader, wud u base your trade on the fact that by PEG AMAT is so overpriced compared to INTC????

 

[DaveJB]

Penguins - market participants, traders, managing to exist reasonably okay up to the point that the unexpected occurred - their HP was unable to handle the situation in any meaningful way, default (non self harming, it didn't hurt me 5 secs ago so I'll continue to do it) action (watch the chopper) was employed up to the point it disabled them - the HP, intended as a fierce protective mechanism was never designed to deal with this situation so it proceeded to 'do something' that didn't initially cause any harm, thereby deluding itself that the action was (1) Not self harming, (2) doing something, and therefore was as good an option as it could come up with.
Penguin continued to do this, even though it didn't have any noticeable benefit as it was doing something, and it didn't hurt. Many a time people rush around like headless chickens, pursuing aimless or unproductive activity in the mistaken belief that any action is better than none.
Eventually this Penguin in HP mode fell over, the HP reaction was in fact harmful, but insidiously it was not immediately so - by watching right up to the vertical with no problem the penguin continued to reinforce it's HP driven belief that this was the right thing to do, as it hadn't hurt yet.

What about the penguins in the flight path that didn't fall over? I bet they made a killing! (Grab all the fish while the other 80% are waiting for the Army to get around to them). A real TP penguin would have shot the chopper down and gone through the crews' pockets. Astute readers will note this is improbable, as the Penguin missile is surface to surface, mounted on Norwegian ships, and the Falklands are way outside the MEZ (missile engagement zone) of a Penguin SSM.

An event occurs which has not been witnessed before, market participants have no experience of dealing with it - as a new generation of traders seems to appear every decade or so this need not be that much of a phenomenon in reality. Some traders are conned by their HP into effectively imobilising themselves by stages, up to the point they go from 90 degrees angle of beak to 91 and fall over - they are now helpless, at the market's whims, yet their HP told them they were okay for an extended period right up to the crash.

Do not stare at an unusual experience, either develop an effective strategy that takes you out according to a plan, or exit and wait for the surprise to play out - the penguin could have said 'when my beak is at 80 degrees I will stop watching' but didn't, so it fell over. If it had done so, and stuck to the plan, it would either have watched the helo do something it liked or gained from or it would have tracked the helo ever higher and cut its losses.... by not having taken control by means of an executable exit strategy (or even better an exit plus a way to profit from the helo doing other than going bang overhead) the penguin remained in a 'react to events' mode and was lost.

As a child I preferred Blue Penguins, by the way, they were rarer than the red or green ones.

My attempt at Psychology 101 <g>
Dave

 

[Trader333]

Is there a possibility here that everyone so far has assumed that it is the Penguin creatures when in fact we could be discussing the Penguin Chocolate covered biscuits especially as there is a reference to "Pick up a Penguin" which was a well known phrase in the advertising campaign.


Paul

 

[trendie]

I can understand a chocolate covered penguin falling over, as the chocolate alters its centre of gravity, thus making it easier to topple over.
But how could they see the copter through their choc-covered eyes ?

 

[DaveJB]

Nope,
I remember this story about real penguins featuring in the literature passing around maybe 10+ years ago (I'm ex RAF and remember the story).
In my current teacher incarnation I ask my science classes (the 12-13 yr olds), as we finish talking about the environment etc, "if global warming melts the ice caps, and polar bears and penguins live on the ice, what effect will global warming have on the number of Penguins eaten by Polar bears do you think?'

Discussions can get quite involved, reminiscent of chart analysis, as various theories are propounded with varying force. Only once in the last 4-5 years since I started asking this has anyone bothered to confirm that Penguins live near the South pole and Polar bears at the Northern one and the answer is 'none at all'. I don't do this to annoy or tease - I am trying to get pupils to look beyond the front window of the presentation to the underlying facts, science is full of people fudging results to fit what they expected to happen even when the results a patently at odds with expectation.

Seeing what is really there is a topic dear to my heart, I just wish I were better at it <g>
Dave

 

[china white]

Socrates, excellent lesson, I actually heard about that story but in a different context - as a proof that penquins do not have infrared vision as had been claimed for decades - that is why it was happening only in daylight but NEVER at night.

Anyway back to the lesson. The way i interprete it is that - ok thez nothing wrong being smacked by a trading loss - but if u r on the ground and u constantly need an army patrol to get u back up (no matter whether u were fascinated by something, shocked by your losses, gobsmacked by a flying monster etc.....) u better pursue a traditional HP career and be successful in it. But not in trading. Nothing wrong with that. Most ppl I love and respect have NOTHING to do with trading and rightly so.

I personally know a Russian chap who never did any martial arts or even boxing but who enjoys enormous success in his own circles. NO boxer or wrestler dares challenge him. Why? His reputation is - u get him on the floor, u do whatever u can to him - as long as he is alive he will stand up and fight back - so as his opponent u have REALLY only 2 choices - either kill him or say ok this is enough, peace, u won.

U c my point?

 

[AlexAndrews]

OK, here goes

Thanks Sox, a most interesting allegory. I had to have a good long think about this before I could find a link to the market. Here's my analysis and interpretation, devised without reading any other replies that may have yet been posted.

• Analysis: A new phenomenon (helicopters) is introduced into an established environment (The Falkland Islands), and the resident inhabitants (penguins) are slow to comprehend what it is. Instead, they become mesmerized when observing the phenomenon to the extent that the act of mere observation causes them harm (they end up on their backs, incapacitated).
  
• Interpretation: The correspondence with the machinations of the market is that investors (on the whole) are slow to comprehend and react to a fundamental change in the investing environment. This change could be a macro-economic factor or the peak/trough of the business-cycle for a particular sector.
  
• Example: (You shouldn't really get me started on this, but anyway...) The global investment community, on the whole, is still in abject denial about the future consequences of the current continuing gross mis-management of the world's pre-eminent economy, namely that of the US. The fiscal and trade deficits, the enormous levels of Government and personal debt, the creation of "free" money via historically low interest rates together are a perfect storm for a collapse of the US dollar, and, with it, the US economy and possibly the global economy. Inflation in the US is invetiable, which in turn will force interest rates to rise and to higher levels and for a longer period than anyone would currently deem credible. This will produce an information shock of truly biblical proportions.

OK, no need to tell me, I know I'm a total crackpot. Now to read the other inmates' interpretations

Alex

 

[AlexAndrews]

Just very quickly, cos I really should go to bed, but china and Bramble: wrt your driver analogy, how about considering the very "top" drivers in the world, ie those in Formula 1. They have a very high level of knowledge of all elements of the piece of engineering they are driving, such that they usually provide detailed feedback to their engineers to produce better performance and enable them to drive faster.

Good night,

Alex

 

[china white]

question

Just very quickly, cos I really should go to bed, but china and Bramble: wrt your driver analogy, how about considering the very "top" drivers in the world, ie those in Formula 1. They have a very high level of knowledge of all elements of the piece of engineering they are driving, such that they usually provide detailed feedback to their engineers to produce better performance and enable them to drive faster.

Good night,

Alex

very quickly - do u think Raikonen or Schui cud change tyres on their motors by themselves, without mechanics' help?

 

[Rognvald]

"Most ppl I love and respect have NOTHING to do with trading and rightly so."

China
Here you have hit the nail so hard that only one blow is needed to drive it in. Peeps must find out for themselves at as early a stage and with as little monetary cost as possible whether they are able to do this (trade) successfully and the normally touted routes make this far from easy.The folk who follow this thread seriously are more likely to have what it takes