Replies to post #3667 on A.I.M. Users Bulletin Board (AIMUSERS)

[extelecom]

TF, It got by me <g>

ET

[Conrad]

There is also a Fuzzduzz someplace!

Conrad

[Conrad]

Anyfuzzymathfuzzyduzzybody?

A thought on market behaviour. Today I wrote a piece on it in Dutch. In short(if that exists) it was this:

Existing market predictor systems(Anything that qualifies under this name) are based on theories developed since 100 years or so ago and the main force/applicability, if any, is a result of the action of a few market players(the general public was to poor or uninformed to play the game).

This precipitated predictor systems with a built-in bias created by the traders of those days. For example, TA being a self-fulfilling predictor system because traders know "the way how and the why of their collective trading behaviour, and respond to the market as they are accustomed to(Few people deviate from their daily routine to go to skid row and become a derelict in an erratic unpredictable way).

The predictor systems are therefore created by a breed of investors that act in a predictable way because the have analysed their own behaviour for 80 or so years. Now, the last 20 years, and mostly in the last 10 years, every Tom(not Tom Veale of course), Dick, Harry and Aunt Jamima has loads of money in the bank(or other assets someplace else) and if not they are pestered to death to borrow it and to invest with it in 100 different financial schemes that banks promote. The herd of ignorant investors(The Scared, Fools, Terrorists and the would-be Rags-to-Riches Millionaires) does not fit the profile of the herd of informed investors that have formulated the rules for reacting to the market.

So, any of the predictors that the professionals are used to no longer predict any better than a monkey with a set of darts can predict, or if there is any predictive power left in the models for becoming rich on the stock market via the 1-2-3 formula then it is a shadow of what it these models once could predict. The masses no longer now who to follow a leader and rush unpredictably in random fashion all over the place without any direction being evident from any vantage point. Add to this the recent discoveries that accountants are now branded as devious criminals so that the Anderson Effect makes totally unpredictable market behaviour a perfect subject for Chaos Theory studies.

The professional investment advisors are going to their psychiatrists in droves instead of to work because the think they should know how the market behaves while they know they have not the slightest clue. The masses are milling around in a daze, waiting for a signal to start stampeding, but they have no idea what the signal will be.

The darn thing is, we intelligent exceptions in this madness, have no idea how we can get the milling herd to stampede into selling more shares so that we can profit from it again. It's a dilemma. No one knows anymore how to sell to the greedy or to buy from the scared.

What are we to do?


Conrad

[fuzzymath]

Hi Toofuzzy! Sorry about the name problem. I started using this nickname a few years ago when I used to write quite a lot on Silicon Investor. But I’ve been pretty inactive for the past 2 years or so…

Yes, my methods are purely technical, though I follow all the economic news very closely. And my methods have worked in real tests trading mutual funds that essentially track market indices. But, the problem with my methods is that they are very short term. You can buy one day, sell the next, buy the next, etc. So, they are not suitable for anyone who can’t watch the market during the day and make a call to the broker at the appropriate time.

The models are based on analysis of market data from 1968 through 2000. None of my analyses has found a way to outperform the market except through short-term trading. So, the type of possible turning points the models “notice” are really changes in short-term momentum.

The main thing I was looking for in inventing the models (the work was started in 1987 before the crash) was a way to minimize the risk of losses while also participating in the long-term market growth. Ideally, I would “beat the market” but not have to endure large drawdowns. This then produces a very high risk-adjusted return. Risk is significantly minimized, bear markets are avoided.

All the bear markets between 1968 and 2000 were avoided. Since I haven’t been investing in the past 2 years, I haven’t yet seen what the models would have done in the current Bear Market. That is going to be very interesting to see, since this Bear is beginning to look a lot more like the ’73-74 Bear than ’87, ’91, or ’98. I would predict that a whole lot of T/A methods will be failing right now because of that.


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