Trading

  • Are You As Smart As You Think You Are?

    VisualCapitalist just shared an infographic showing the Average IQ by state. It caught my eye and my interest.  Here it is.

     

    AverageIQbyState_web

    via VisualCapitalist.

    When I first examined the chart, I focused on the state-by-state differences. Honestly, I was taken aback that some states scored higher than others. And by that, I mean it wasn't necessarily the states I would've predicted. But then I took a closer look at the scale and realized these differences are probably insignificant. The results essentially show that, on average, states' intelligence levels are… well, average.

    I know a lot of smart people.

    I also know many people who think they're smarter than they are (even the smart ones … or, perhaps, especially the smart ones). 

    It's common. It's so common that there's a name for it—the Dunning-Kruger Effect.

    Have you ever met someone who's so confident about what they think that they believe they know more than an expert in a field? That's the Dunning-Kruger effect. It's defined as a cognitive bias where a lack of self-awareness prevents someone from accurately assessing their skills. 

    Here's a graph that shows the general path a person takes on their journey towards mastery of a subject. 

    Dunning-w-caption

    via NC Soy

    The funny thing about the above image… it's not actually a part of the paper on the Dunning-Kruger Effect. But it's now so commonplace that people report that chart as fact—a fitting example of the effect. 

    244667

    David Fitzsimmons via Cagle Cartoons

    Recognizing the "victims" of this effect in our daily lives can often be funny or frustrating. But we're all prone to this; it's a sign of ignorance, not stupidity

    This is a problem with all groups and all people. You're not immune to it, even if you already know about the cognitive bias resulting from the Dunning-Kruger Effect. 

    It should be a reminder to reflect inward – not cast aspersions outward. 

    Two different ways that people get it wrong, first is to think about other people and it’s not about me. The second is thinking that incompetent people are the most confident people in the room, that’s not necessarily true.

    Usually, that shows up in our data, but they are usually less confident than the really competent people but not that much… - David Dunning

    To close out, even this article on the Dunning-Kruger presents a simplification of its findings. The U-shape in the graph isn't seen in the paper, the connection that lack of ability precludes meta-cognitive ability on a task is intuitive, but not the only potential takeaway from the paper. 

    Regardless, I think it's clear we are all victims of an amalgam of different cognitive biases. 

    We judge ourselves situationally and assume "the best". Meanwhile, we often assume "the worst" of others. 

    We can do better … it starts with awareness.

    Progress starts by telling the truth.

  • Remembering The ‘Crazy Ones’

    On September 28th, 1997 (almost exactly 17 years ago today), Apple released perhaps one of the most recognizable commercials of all time. I remember being mesmerized the first time I saw Apple Computer's iconic "Crazy Ones" video as part of their Think Different campaign.

    Steve Jobs originally recorded a version of "The Crazy Ones" himself, but chose to release the Richard Dreyfuss narrated version

     

    via Youtube

    Here is the text version of the script.

    Here's to the crazy ones.
    The misfits.
    The rebels.
    The troublemakers.
    The round pegs in the square holes.

    The ones who see things differently.

    They're not fond of rules.
    And they have no respect for the status quo.

    You can quote them, disagree with them,
    glorify or vilify them.
    About the only thing you can't do is ignore them.

    Because they change things.

    They push the human race forward.

    While some may see them as the crazy ones,
    we see genius.

    Because the people who are crazy enough to think
    they can change the world, are the ones who do.

        –     © 1997 Apple Computer, Inc.

    Click here for extra material about the video and campaign

    I think it has held up pretty well, and I had this piece of art commissioned for my office. 

    Crazy Genius_GapingVoid

    There's a lot to be said for carving your own path, pushing past perceived limits, and accomplishing something hard to ignore. 

  • Remembering Ikigai In Stressful Times

    Over the past century, life expectancies have soared while birth rates have declined. This unusual combination of population dynamics creates significant demographic and socioeconomic challenges for societies worldwide.

    To put things in perspective, adult diapers now outsell baby diapers in Japan. Think about how that likely reshaped Japan's workforce and consumer markets.

    Getting old is tough, and it gets tougher the older you get.   As a result, finding your 'reasons for being' and joy in life becomes even more important … it may also be the secret to living longer and healthier.

    Many people (all over the world) struggle to get up in the morning. 

    There's a Japanese concept called Ikigai that may help.

    Ikigai centers around finding purpose as you grow older. Paradoxically, it makes sense to start the process as early as possible. 

     

    IIB-Ikigai-1

    via InformationIsBeautiful

    Finding your "reason to be" and living with purpose is a key to making the most of your time.

    The graphic highlights something interesting (yet almost counter-intuitive) … When two areas intersect, it creates something positive (e.g., a passion or a mission).   However, where three areas intersect, it creates a pain point (for example, it could be what you're good at, you love doing it, the world needs it … but it doesn't make you any money – so now you're struggling).

    It's worth examining and thinking about for a bit.

    On a related note, here is a TEDx talk about the nine common diet and lifestyle habits that help people live past 100 … whether or not they take you past 100, they're probably a good place to start. 

     

     

    TED-ED via YouTube

    And here is a link to Dan Sullivan's e-book, My Plan for Living to 156. That may sound outrageous, but it's worth reading because Dan shares surprisingly valuable insights in this book. It doesn't matter whether you actually live to be 156; what matters is living as if it were true. Someone who believes they're approaching the end often looks for excuses or an off-ramp rather than seeking purpose, meaning, and a Bigger Future. By shifting your perspective, you can create a more purposeful and fulfilling life, regardless of your actual lifespan.

    Live long and prosper!

  • The Secret To Competing Against Tech Giants

    The last time I drove in New York City traffic, I complained that "I didn’t understand why people came here" because it was too crowded.

    That reminds me of one of Yogi Berra’s famous quotes. “Nobody goes there anymore because it’s too crowded.”

    He said that about a famous restaurant where he used to work.

    The same is true in business. Opportunity draws a crowd … but the best opportunities are often in areas of less competition.

    For entrepreneurs, oversaturation can turn products into commodities, reducing profit potential. Conversely, many shy away when a challenge seems insurmountable, creating unexpected opportunities for those willing to take the risk.

    As an entrepreneur, I’m drawn to projects others might dismiss as science fiction. These are the challenges that often lead to the most groundbreaking and rewarding outcomes.

    Moonshot Projects

    Moonshot projects offer a unique advantage. While they may seem daunting, their audacious nature often means less competition and greater potential for transformative impact and extraordinary profits.

    A moonshot project is a highly ambitious, transformative endeavor that seeks to solve a significant problem or create a revolutionary innovation. These projects are characterized by:

    • Audacious Goals: They aim for breakthroughs that seem nearly impossible to achieve.
    • Disruptive Impact: They strive to create solutions that are vastly superior to existing offerings, often by introducing entirely new paradigms.
    • High-Risk, High-Reward: These projects embrace the potential for failure in pursuit of groundbreaking results.
    • Long-Term Focus: They prioritize long-term impact over short-term gains.
    • Technological Advancements: They leverage cutting-edge or even nascent technologies.
    • Paradigm Shifts: They challenge conventional wisdom and industry norms.

    Moonshot projects are inherently challenging. They demand significant resources, interdisciplinary collaboration, and a willingness to venture into the unknown. This perceived difficulty often deters potential competitors, creating a unique opportunity for those willing to take the risk.

    When successful, they push the boundaries of what is possible and redefine the landscape of their respective fields.

    In part, that is why a 10X mindset is particularly well-suited for Moonshot projects. By aiming for a tenfold improvement over existing solutions, you’re essentially operating in a space with little to no competition or opposition. This allows you to redefine the rules of the game and establish a sustainable competitive advantage.

    Our strategy of creating a unique, sustainable competitive advantage aligns perfectly with the Moonshot approach. By choosing to play a different game (with an asymmetric edge), we’re not just competing; we’re fundamentally changing the playing field.

    I’m not interested in going head-to-head with tech giants on their turf. Instead, the goal is to carve out our own niche, focused on using our unique abilities to push boundaries and extend our edge. Being slightly ahead of the competition can be a powerful attractor. It often leads potential competitors to seek collaboration rather than confrontation. They might approach you with ideas, money, or opportunities, aspiring to share in your advanced position and capabilities. This dynamic can create unexpected partnerships and accelerate progress in ways that benefit everyone involved.

    When interviewing potential team members, I often share a crucial insight: if you’re seeking a job where you work 9-to-5 solving problems so you can go home feeling satisfied, this might not be the right fit.

    We tackle challenges of a different magnitude. Our projects rarely have quick solutions. Instead, we focus on making steady progress towards ambitious goals.

    I sometimes joke that our motto should be: “We suck less.” Nevertheless, the underlying truth is more profound. It’s about understanding your ultimate objective and recognizing that each step moves you in the right direction, no matter how small.

    This approach aligns with our belief in playing a different game. We don’t just compete; we redefine the rules of engagement, creating our own metrics for success and pushing boundaries in ways that traditional thinking often overlooks. Kind of like this quote:

    I have not failed. I've just found 10,000 ways that won't work. - Thomas Edison

    It doesn’t make sense to challenge a bigger and better-funded competitor in an area where they have an asymmetric advantage. In other words, don’t compete with giants at their own game.

    Choose to play a game you expect to win.

    Playing a different game is a theme at Capitalogix. We believe that you control the game you’re playing, the rules, how you keep score, and even how you evaluate success. These things inform where to spend time, where to invest money, and even what looks like an opportunity to you. 

    Wouldn’t you rather compete in areas where you can create a unique, sustainable competitive advantage? Personally, I want to invest in the things that extend the edges that let us win.

    Why? Because … Mediocrity Is Expensive!

    Mediocrity is Expensive_GapingVoid

    What you lack in size or computer power, you can make up for in creativity, agility, and innovation. 

    We sought to create a niche in the investment industry, not through computing power, but through unique approaches to age-old problems. We use AI and data science to enhance decision-making. 

    We have an incredibly narrow and consistent focus. Within that area, we are willing to take on problems others avoid and pursue goals that others say are impossible. 

    Our niche limits risk and lets us fail faster … and learn faster. This allows us to take confident action while others are tentative. 

    Most big companies – and most of our competitors – are afraid to be wrong. They have to protect their infrastructure, cash cows, and short-term performance metrics. It makes sense (from their perspective) that playing it safe means they’re secure. – but that’s not how it works. 

    You can’t challenge the status quo when you are the status quo. 

    10x Improvement Is Often Easier To Achieve Than 10%

     

    Astro Teller via TED

    "In 1962 at Rice University, JFK told the country about a dream he had, a dream to put a person on the moon by the end of the decade.The eponymous moonshot. No one knew if it was possible to do, but he made sure a plan was put in place to do it if it was possible.That's how great dreams are. Great dreams aren't just visions, they're visions coupled to strategies for making them real." – Astro Teller

    Incremental change is hard – it’s finding new ways to do the same thing, and you often end up competing in very red oceans – saturated markets where you’re competing on price.

    Moonshots sound harder, but you create your own niche, and the constraints of a new idea force creativity and energy. If you’re going after a goal that no one has accomplished before, it’s impossible to be in a red ocean, and it’s easier to mobilize a team around something exciting and new than decreasing some arbitrary metric by 2%. 

     

    Transformation Equals Innovation Plus Purposeful Action_GapingVoid

    There are a couple of important lessons to keep in mind when pursuing the unknown.

    • Forget what you know – self-reported “experts” are limited by their worldview. If you’re trying to get a different result, you won’t do it by playing by the same rules your predecessors followed. Heuristics are great for making life easier – but they’re very limiting when trying to create something new. 
    • Attack the hardest problems first – your biggest problems are your biggest opportunities. If you don’t deal with the big problems now, you’ll never get around to it, and you’ll waste time, energy, and potentially realize you have to pivot much too late.  
    • Be comfortable being uncomfortable – Most people find failure taboo, and they’re deathly afraid of it. Tony Robbins talks about our tendency to avoid pain more actively than we pursue pleasure, and it’s true in business. But failure is a part of business. The people I consider most successful got there through incredible pain tolerance and increasingly intense problems that they continued to conquer. 
    • Have a short memory for pain – Focus on the gain, not the pain. People often focus on not having enough money, not enough time, or simply not having enough. That scarcity mindset is dangerous and can lead to getting lost in pain and fear. Acknowledging the pain/fear and moving forward from a place of abundance and opportunity helps create opportunities. 

    As well, a clear identity is important. You have to understand what you’re pursuing and how you want to attack the problem. At Capitalogix, we’ve gotten very in tune with our goals. 

    We invent techniques that identify and adapt to what happens in markets. We apply the lessons learned from past experiences, data science breakthroughs, and hard work to eliminate the fear, greed, and discretionary mistakes that are the downfall of most traders and decision-makers.

    Small businesses don’t have a monopoly on these mindsets and these opportunities, but companies like Y CombinatorX(and no, I don't mean the company formerly known as Twitter), or HeroX are few and far between … Elon Musk is famous for moonshots like Tesla, SpaceX, Starlink, Neuralink, Xai, etc. Google and Microsoft pursue moonshots as well. 

    Good news … the future is big enough for them and you. 

    Choose something that lights you up and leverages what you already know and who you already are.

    So what’s your moonshot?

  • The Cities Of The Future

    Studying historical changes in human population trends offers valuable insights into the factors that have propelled or hindered human development throughout time.

    From ancient civilizations to modern metropolises, population dynamics have influenced everything from economic prosperity to social structures.

     

    A Window Into Our Past Gives Us a Glimpse at Our Future.

    By studying this critical aspect of human history, we can gain valuable insights into the past, present, and future of societies.

    Population growth is a complex and multifaceted phenomenon with far-reaching implications. It offers a fascinating glimpse into the demographic trends that have shaped our world and continue to influence our trajectory.

    Historically, human populations grew steadily but relatively slowly … until something changed that. 

    Scientists estimate that humans have existed for over 130,000 years. However, it took until 1804 for us to reach 1 Billion. We doubled that population by 1927 (123 years later) and then doubled it again only 47 years later (which was 1974). 

    Looking back, early population growth was driven by the agricultural revolution. Since 1804, the Industrial Revolution, health and safety advances, along with technology, have significantly improved quality of life, spurring the rapid population growth. Here is a quick overview of some of the key factors.

    Shaping the Future

    It’s hard to predict some things accurately. So, one goal in data science is to figure out what we can “know” in order to “guess” less.

    Population growth is a prime example. One of the easiest ways to predict how many 60-year-olds there will be in 40 years is to look at how many 20-year-olds there are today. Obviously, the number won’t be exact, but it’s a pretty good head start.

    This principle of using known data to make educated predictions applies to many aspects of future planning, including urban development and resource allocation. By leveraging current demographic information, we can better prepare for the challenges and opportunities that will likely impact the cities of tomorrow.

    • Economic Implications: A growing population can expand the workforce, fueling economic growth. However, it can also strain resources, requiring increased investment in infrastructure, education, and healthcare.
    • Social and Environmental Pressures: Demographic shifts, such as aging populations or youth bulges, can profoundly affect social structures, healthcare systems, and the environment.

     

    Why It Matters

    Population growth is more than just a numerical metric. It is a fundamental lens through which we can analyze:

    • Historical Development: By understanding past population trends, we can better appreciate the factors that have shaped human civilizations.
    • Future Planning: Governments, businesses, and organizations can use population data to make informed decisions about resource allocation, infrastructure development, and social policies.

     

    Have World Population Growth Numbers Peaked?

    World population growth rates peaked in the late 1960s and have declined sharply in the past four decades, but we’re still on a positive trend. We’re expected to reach 9 billion people by 2050, but a lot of that growth comes from developing countries – they also almost exclusively come from urban areas. 

    6a00e5502e47b288330240a4adf81c200b-600wi

    via Axios (Click for an Interactive Graph)

    Urbanization: Megacities

    In the 1800’s, about 10% of the population lived in urban areas. Since 2014, over 50% of the world’s population has lived in urban areas – today it’s approximately 55%. That number is growing.

    Ironically, as we grow more digitally connected, our world is shrinking, and our populations are concentrating. 

    An interesting consequence of this rapid urbanization and population growth in developing countries has been the increased development of Megacities – defined as cities with populations greater than 10 million. Today, there are 33 megacities – more than triple the number in the 1990s. 

    This creates a set of interesting opportunities and challenges. 

    For example, how will these cities deal with infrastructure – sanitation, transportation, etc?

     

    New-megacities-by-2030
    via visualcapitalist

    Today, in most high-income countries, about 80% of the population lives in urban areas – contrasting the primarily rural populations of lower-income countries. 

    As a result, we see many of these megacities forming in developing countries. As a side note, we’re also seeing countries like China making substantial investments and alliances in these developing areas. This is likely done to profit from the expected growth and also to shift the future balance of power in their favor. Sometimes, it makes sense to focus on the marathon and not just the sprint.

    It’s interesting how the world can become more decentralized – and more globalized – amidst a contraction of where people live.

  • Some Perspective: “I’m Way Closer To Lebron Than You Are To Me!”

    With the NFL starting its regular season this week, I was thinking about the talent and effort it takes to compete as a professional athlete.

    Take a second to reflect on the journey required to become a pro. In general, the top players from a youth league became standouts in high school and then were star players in college before eventually making it to a professional team. But here's the kicker … in any other context, they're elite, but unless they're superstars in the NFL, they're considered average or worse. Think about it. By definition, half of the players are below average. 

    Meanwhile, I recently came across an example from the NBA that illustrates this concept in a funny but profound way.

    There's a relatively famous quote from NBA journeyman, Brian Scalabrine, who said: 

    "I'm way closer to Lebron (James) than you are to me!" – Brian Scalabrine

    For context, as a USC Trojans men's basketball player, Scalabrine was the top scorer and a leader in field goals and rebounds. He then played 11 years in the NBA … but at no point in that time was he a star. He didn't put up great (or even good) stats, he wasn't a household name (though he did pick up the nickname "White Mamba"), and he is nowhere near the caliber of player that Lebron James is. In fact, throughout his career, he averaged just 3.1 points, 2.0 rebounds, and .8 assists a game. But, remember, he was good enough to play at a pro level for 11 years.

    Brian-scalabrine-lebron-james

    As a result, many unprofessional (weekend warrior) athletes thought he was an easy target. One day, Brian was playing a rec league game where he dropped 60 points. He tweeted about it, and a bunch of people started tweeting back to the now 40+ years old former NBA player that they could beat him. There are funny YouTube videos about this.

    Brian responded by replying:

    "Listen. I may suck for an NBA player. Those guys are pretty good. But I don't suck compared to you. You suck compared to me." – Brian Scalabrine

    He then accepted their challenge by asking them to send in videos of their play and committed that he would go 1-on-1 against the best of them.

    Scalabrine then went on to play 4 of the best players who responded, with one of them having NCAA D1 experience.

    The end result?

    He outscored them 44-6 – with two of the players scoring 0 points. 

     

    via YouTube

    It should be self-explanatory, but it seems to be a concept many people struggle with. Any given pro player has been the best of the best throughout their journey. They're the 1% of the 1%. 

    But that is probably true for you too. If you're reading this article, you're likely killing it compared to the average Joe. 

    Many of us are in rooms with phenomenal business owners and operators. When you meet people like Peter Diamandis, Ray Dalio, or Richard Branson, it's easy to focus on the distance between you and them.

    Recognize that it is still a huge accomplishment to be a Brian Scalabrine rather than a Joe Schmo. 

    They don't recognize what you and me do recognize. When you're in the NBA, there's all kinds of tells, right? Like if a guy puts his hand like that, you know what he's gonna do. If a guy does a hesitation, you know what he's gonna do. All that stuff is like in real time in the NBA, you got to be so on top of the reads. It's not speed. You can't look at me and say my brain is slow. My brain is fast. My body might be slow, but I have to read whether a guy's gonna shoot, drive, go to the middle, pass. If you're not reading those things, you're not playing in the NBA. – Brian Scalabrine

    A helpful reminder.

    Keep it up – and as always … Onwards!

  • Pattern Recognition In Trading

    The Market has been volatile recently, with unusually large gains and losses as we enter the homestretch of the election season. Even though many markets are still near their highs, I'm sensing an increase in anxiety and fear in many of my peers. 

    While some believe that markets are random, others make money using rule-based trading systems that rely on specific patterns to identify favorable trading conditions.

    Traders, at every level, search for a tradable edge. Some find it in fundamental analysis, others in technical analysis or chart-based patterns, while still others rely on an algorithmic or execution-based edge.

    So, is there some magic unifying equation that defines the Market? Personally, I doubt it. Even though nothing always works, "something" always works in the markets. The challenge is to identify what that is and to ignore the rest. 

    Though many patterns work, from time to time, when a particular pattern works may seem random, and here is why.

    Understanding the Markets. 

    There is no such thing as a "Market" … It is a collection of separate traders (each trading based on what they focus on, what they make it mean, and ultimately what they decide to do).

    As a result, one of the reasons that markets experience volatility is that different groups buy or sell for different reasons at different times.

    Consequently, even if one group trades using a consistent set of rules, a strategy that effectively combats it only works until that group stops trading those rules.

    It works the other way too. If a large trader imposes their will, it changes the playing field for smaller traders.

    Elephants Leave Tracks. 

    Smart traders follow the big money.

    Large traders like governments, sovereign wealth funds, or mutual funds can affect markets while they buy or sell.

    However, when they're done, some other group's strategy becomes the dominant force.

    Experienced traders recognize that it is important to understand "who is in control" … but not necessarily why they are trading.

    That means you don't have to figure out every bit of information or rationale behind a strategy to make money. For example, suppose you were about to walk into a movie theater but were suddenly confronted with hundreds of people running in the other direction screaming. In that case, you don't have to understand precisely why it's happening to respond intelligently.

    110129-Running-For-The-Exit 
    On a superficial level, that's the basis of trend following. It is also an example of pattern recognition.

    Most hedge funds now use some form of pattern recognition in their trading systems.

    Much of the analysis done to get a trading edge is simply a way to identify "who is in control" and what they are doing … rather than why they are trading.

    Here, we will examine why some traders rely on specific patterns to identify favorable trading conditions.

    Some Patterns Are Logical.

    Let's look at a common trading pattern called a "Triangle". You can think of the Triangle as a well-contested battle between the bulls and the bears. It is almost like an arm-wrestling match. Inside the pattern, neither side gives up much ground. However, when one side loses conviction, the market surges in the direction the winners push. 

    Here is a picture of a Triangle and the pattern's likely price projection.

     

    110219 Example Triangle Pattern  

    Triangles are an example of a logical pattern. It is easy to see and easy to understand. In addition, it is easy for a trader to use a setup like this to define the likely risk and reward of a trade they are considering.

    Why Do Patterns Form in Markets Repeatedly? The Answer is Human Nature.

    Markets are not always logical. Some would argue that Markets are rarely logical. If they were, intelligent people would get rich by following their instincts … but that isn't how it works.

    On some level, markets represent their participants' collective thoughts and emotions. So, even though conditions change, the collective response to fear and greed remains reasonably similar.

    As a result, many patterns show up in market price data.

    In General, Here's What Is Happening.

    A move up of a certain degree will be met with some people who fear the move won't go higher … so they decide to sell. Meanwhile, others will believe the move will trigger a whole different group of people to recognize an opportunity … so they decide to buy.

    The same thing happens with a big move down. At first, it triggers fear and selling. But at some point, to a particular group of traders, the move down will look like a discounted buying opportunity.

    At its core, price is the primary indicator of investors' willingness to buy or sell. Things like velocity or slope are secondary, and show the intensity of their motivation.

    So, many of the patterns that you read in books or magazines (with names like "head and shoulders", or "cup and handle", or "double bottoms") are all just ways of explaining the natural response to certain conditions.

     
    110219 Trading Pattern Art and Science
      

    There is science involved in recognizing a specific pattern … and art in selecting which pattern to rely on today.

    But You Don't Have to Predict Anyone's Action – All It Takes Is An Intelligent Response.

    It's the law of large numbers. An insurance company doesn't have to accurately predict when any individual will die; their actuaries have to figure out a reasonable estimate of how many people like that in their risk pool will die during the relevant period … and price the coverage accordingly. Likewise, in the Market, patterns don't predict what an individual will do; they indicate what the majority will likely do.

    So now that you understand patterns, the rest is easy … right?

    Of course, it's not as easy as it sounds because these patterns are being played out across every Market and happen in different time frames as well. That means some people respond to the Market using a much longer time horizon than others. A pattern for them may be noise at a different level of focus.

    It may be comforting to see familiar patterns occur whether you're looking at a minute-by-minute chart of the S&P or a weekly chart of gold … but comfort doesn't make you money. Instead, ask whether what you are looking at is a coincidence or causal. Said another way, does it simply explain what happened, or is it a valid prediction of what will happen?

    Since many patterns are playing out across many markets at any given time, a human can't identify, validate, and trade all of them in real-time.

    This is where computers and artificial intelligence truly shine. For example, we've developed a pattern mining technology that doesn't rely on traditional technical analysis patterns. Instead, it searches for patterns across various markets and time frames, uncovering edges that humans would never be able to detect on their own.

    But even that simply adds more ways to win.

    The only thing I can confidently predict is that volatility and noise will increase due to how markets work and the arms race for enhanced technical capabilities and information asymmetry. As volatility and noise continue to rise, what separates smart money from dumb money will likely be the ability to focus on what matters when it matters.

    It is hard to do – and even harder to do consistently. But some things are inevitable. While technology may not immediately replace all human traders, it's becoming increasingly evident that those who leverage computers and advanced technology will outperform and eventually replace traders who rely solely on their human capabilities.

    We live in interesting times.

  • An Antidote For Anxiety & Scary Times

    People seem rattled right now, don’t they?

    Wallets have been tight, and fears of a recession have run rampant.

    Even though markets and the economy are not the same thing, many voters believe they are. Consequently, in an election year, I suspect the government will push every button and pull every lever to boost the market leading into November.

    Speaking of the markets, they have been pretty volatile the last few weeks. They have posted some of their worst days since COVID-19 but some of the best, too.

    We find ourselves in a particularly partisan election year, with lots of uncertainty about who is running, what they stand for, and whether they can make a difference – or even do the job.

    The situation feels worse because scary geopolitical events (that threaten World War 3) punctuate seemingly endless negative news cycles.

    Now, on to the real point … those things don’t matter and shouldn’t steal your focus. Why? Because that’s the playing field we all have to navigate.

    There will be winners and losers. The key distinction lies in whether you choose to focus on opportunities or risk. 

    So, I thought this would be an excellent time to revisit how to cope with losses and manage your anxieties in “scary times.” 

    The Anxiety Antidote

    During scary times, many people suffer from “I should have …”, or “if I would have …”, or “if I could have …” thoughts.

    The problem is that thoughts like those create more stress and distraction. 

    I’m reminded of a quote.

    "When the trough gets smaller … the pigs get meaner." - Dan Sullivan

     

    Pigs-feeding-at-trough

     

    Negative focus highlights loss, difficulties, past events, missing things, and what you don’t want.

    Think of them as an unhealthy reflex that wastes energy, confidence, and time.

    All We Have To Fear Is Fear Itself  

    I often talk about market psychology and human nature. The reason is that markets reflect the collective fear and greed of their participants… people tend to get paralyzed during scary times like these.

    But it’s not the economy that makes people feel paralyzed. People feel paralyzed because of their reactions and their beliefs about the economy. Your perception becomes your reality. 

    A little examination reveals that most fear is based on a “general” trigger rather than a “specific” trigger. In other words, people are afraid of all the things that could happen and are paralyzed by the sheer scope of possibilities. These things don’t even have to be probabilities to scare them.

    You gain a competitive advantage as soon as you recognize that it’s not logical. Why? Because as soon as you distinguish that fear as not necessarily true, you can refocus your insights and energy on moving forward. You can act instead of react. You make better decisions when you come from a place of calm instead of fear… so create that calm. 

    Even a tough environment like this presents you with opportunities if you watch for them … or even better … if you create them. 

    The Scary Times Success Manual

    The goal is to move forward and feel better.

    Strategic Coach offers ten strategies for transforming negativity and unpredictability into opportunities for growth, progress, and achievement. They call it the “Scary Times Success Manual,” and what follows are some excerpts:

    Forget about your difficulties, focus on your progress.

    Because of some changes, things may not be as easy as they once were. New difficulties can either defeat you or reveal new strengths. Your body’s muscles always get stronger from working against resistance. The same is true for the “muscles” in your mind, spirit, and character. Treat this period of challenge as a time when you can make your greatest progress as a human being.

    Forget about events, focus on your responses.

    When things are going well, many people think they are in control of events. That’s why they feel so defeated and depressed when things turn bad. They think they’ve lost some fundamental ability. The most consistently successful people in the world know they can’t control events – but continually work toward greater control over their creative responses to events. Any period when things are uncertain is an excellent time to focus all of your attention and energy on being creatively responsive to all the unpredictable events that lie ahead.

    Forget about what’s missing, focus on what’s available.

    When things change for the worse, many desirable resources are inevitably missing – including information, knowledge, tools, systems, personnel, and capabilities. These deficiencies can paralyze many people, who believe they can’t make decisions and take action. A strategic response is to take advantage of every resource that is immediately available to achieve as many small results and make as much daily progress as possible. Work with every resource and opportunity, and your confidence will continually grow.

    Forget about your complaints, focus on your gratitude.

    When times get tough, everyone must make a fundamental decision: complain or be grateful. In an environment where negative sentiment is rampant, the consequences of this decision are much greater. Complaining only attracts negative thoughts and people. Gratitude, on the other hand, creates the opportunity for the best thinking, actions, and results to emerge. Focus on everything you are grateful for, communicate this, and open yourself to the best possible consequences.

     Click here to download the full PDF version.

    Final Thoughts

    We can pontificate all day long on the short-term causes of the rises and falls of markets, but I don’t think it does much good. I let the algorithms worry about those. It’s the larger trends we have to be personally aware of.

    I sound like a broken record, but volatility is the new normal.

    • Markets exist to trade, and if there’s no “excitement” on either side, trades don’t happen.
    • Trades are getting faster, which means more information has to confuse both the buyer and the seller.
    • You’re no longer competing solely against companies and traders like you. It’s like the cantina from Star Wars; you’ve got a bunch of different creatures (and bots) interacting and fighting with each other, trying to figure out how to make their way through the universe.

    Pair that with all the fear and uncertainty, and you’ve got a recipe for increased volatility and noise. That means that the dynamic range of a move will be wider and happen in a shorter period of time than ever before. You’ll hear me echo this thought over the next few years as the ranges continue to expand and compress. Cycles that used to play out over weeks now take days or hours. The game is still the same; it just takes a slightly different set of skills to recognize where the risks and opportunities are. 

    Today’s paradigm – both in life and trading – is about noise reduction. It’s about figuring out what moves the needle and focusing only on that.

    The crucial distinction is between adding data and adding information. Adding more data does not equal adding more information. In fact, blindly adding data increases your chances of misinformation and spurious correlations.

    My final comment is that there’s a difference between investing and trading, and while humans can invest, if you’re “personally” still trying to trade – you’re likely playing a losing game. If you don’t know what your edge is, you don’t have one. 

    If you’re investing, I’ll advise you to act like a robot. If you removed human fear and greed from your decision-making – what would you do?

    Keep calm and carry on.