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Aviation & Flight InformationThe Big Lie: What Wall Street Makes Not Want You to Know
by:
Jeff Schweitzer, Ph.D.
Discover more at:
www.tradetofreedom.com
Trouble in Paradise
Kenneth Lay, Saint Fastow, and Jeffrey Skilling of Enron
are the preeminent poster boys for corporate greed, but by
no means are the trio unique. In the back alley game of
“Fleece the Shareholder”, adept competitors are abundant.
Dennis Kozlowski, Tyco's ex-chairman and chief executive,
showed several real creativity. Late last year Morgan Stanley,
always promoting an pictures of steady, conservative,
trustworthy values, united
to pay $50 million to settle
federal charges that investors were ne'er
advised just about
compensation the institution received for commerce certain mutual
funds. So more for protective
the little guy. Before that
the SEC settled with Putnam Investments, the fifth largest
mutual fund company, which allegedly had allowed a choice
group of portfolio managers and clients to flip mutual fund
shares to profit from prices gone flat.
A
proposal that would-be force the SEC to give shareholders a
greater voice in selecting board members was defeated in
October 2004. Commissioner Doctor J. Goldschmid, an
advocate of the proposal, aforementioned “The commission’s inaction at
this point has ready-made it a safer earth for a small minority of
lazy, inefficient, grossly overpaid and wrong
CEOs.”
The ugly truth makes not finish there by any means. Even as the
venerable Fannie Mae is suspect
of fleecing investors. The
Wall Street Journal reports that the Justice Department
opened a formal investigation in Oct
2004, following
reports that the mortgage institution may have manipulated its
books to meet earnings targets. This is after Fannie tried
to hinder an official investigation by refusing to provide
relevant information. Oddly, the Enron scandal ultimately
revealed Fannie’s alleged deception, once
the energy
company’s collapse forced Fannie Mae to replace Arthur
Anderson with a new auditor.
When Nice News is Bad
And that is the nice news. The bad news is really bad indeed.
As an individual investor, you power begin to suspect the
game is lateen-rigged against you after hearing the recent spate of
charges and revelations. But the real problem lies not with
the banned activity of a few high-profile rapscallion directors,
acting on the far side
the rather generous and forgiving rules of the
SEC. Instead, the frightening truth is that you have more
more to fear from what is done legally, with impunity, with
the official blessing of regulators.
I am a human by training, not a professional investor,
but I have a substantial portion of my net worth floating
about Wall Street in various stocks and mutual funds, mostly
in self-directed retirement accounts. I want to protect
those assets, so I naturally set out to discover more just about
stocks, bonds, futures, and commodities. Like any
self-respecting scientist, I starting creating by removal and
methodically researching the rules, regulations and
practices of Wall Street to get an objective image how my
money was handled once I ready-made a transaction. Early on I
concluded that the better way to do money was to take
control of commercialism decisions myself, so that I could
identify opportunities for the greatest returns without
looking through the artificial filter of a broker with his
own agenda.
I as well found that institutional investors managing billion
dollar transactions or individuals working with grandma’s
“blue chip” stock all share thing
in common, regardless
of the know-how
of commercialism or the size of the portfolio. All
depend on the au fond imperfect
notion that the futurity is
predictable. As a result, all are doomed to fail over time:
any attempt to predict the futurity is utterly hopeless, and
no figure of fancy arithmetic wish change that changeless
fact of nature.
The unusefulness of trying to foresee the future, however, has
not obstructed traders from creating ever more sophisticated
methods that bank on predicting market movement. This
tragic flaw, this inability to recognize that the futurity
will ne'er
be predictable, is often covert by confusing
terminology and complex
math to create a comforting
image of several higher knowledge. But no matter how clever
the system or elaborate the math, the futurity just can not
be foretold.
Oddly, patch traders of stocks, bonds and commodities suffer
equally from the delusion that the futurity is knowable, the
pernicious effect of this story
is seen with greatest clarity
in futures trading. The earth of commercialism futures,
therefore, wish be the example explored in detail to expose
the depth and extent of the big lie. The lesson from
futures trading, however, applies universally to all
sectors.
Futures Trading
Traders fall into two distinct camps once
it comes to
analyzing the market: fundamental traders and technical
traders.
Fundamental Traders
Fundamental analysis is a study of the principals of supply
and demand and the creation and consumption patterns of
commodities, and how these relate to futurity market behavior.
The goal is to sift through fundamental economic data to
identify discrepancies between the inherent value of a
commodity and the current market cost of that commodity. A
fundamental dealer seeks to profit by purchase
or commerce
during this period of discrepancy before the market catches
up to reflect the correct information.
Technical Traders
Traders in the second major camp bank on technical analysis,
which is a study of cost behavior over time. Technical
trading attempts to foresee the future, an impossibility.
But hope seems to spring eternal, and so technical traders
have developed an arsenal of tools to predict market
direction.
The big gun in technical analysis is the bar chart, which is
a graph that represents market cost changes over time.
Using the bar chart, traders appraise historic cost
behavior, seeking to identify any indicators that wish
predict market movement in the immediate future.
The various patterns of peaks and valleys create “chart
formations” that analysts use to predict prices. Eighteen
basic signals and chart formations establish the basis for
technical analysis: trend lines, rounded bottoms,
consolidations, tops, bottoms, support, resistance,
retracements, reversals, head and shoulders, continuation
formations, triangles, coils, boxes, flags, pennants,
diamonds, and moving averages. The only signals missing are
tea leaves, scattered bones and eyes of newt.
A few of these chart formations, explained clearly by Russel
Wasendorf in All Just just about Futures, are discussed below as a
means of illustrating how traders use analytical signals to
determine once
and why to enter and exit the market.
The Trend Line
The simple theory behind this most popular analytical tool
is that market prices tend to follow straight lines. As
such, prices are all but always drawn back to the line if
they bounce off. Trends can be upward, downward or
sideways. Trend Liners believe that prices tend to cling
to straight lines because traders resist paying more for a
commodity than others are willing to pay. As long as prices
move up, for example, traders wish continue to buy until the
trend appears to reverse.
The Rounded Bottom
This formation is maybe the easiest to recognize, and many a
traders believe that a rounded bottom is a strong signal of
an close change in market direction. The formation
begins with prices step by step
moving either up or down and
then step by step
dynamic direction. The rounded bottom is
evident in the absence of an abrupt change in market
direction.
Head-and-Shoulders Formation
Considered by many a to be the most reliable analytical tool
available, the head-and-shoulders formation has become
increasingly popular among traders as an indicator of a
sizeable market reversal. The pattern is developed from
three rounded bottom formations placed such that the
middle one is higher than the different two, several of which are
sitting at around the same level. The ensuant
configuration resembles a person’s head and shoulders. The
formation indicates the end of an up trend in the market;
while the reverse head-and-shoulder formation indicates the
end of a down trend.
Sideways Channels – Commercialism the Breakout
This commercialism strategy involves looking out for markets that
appear to be trending in a horizontal direction. If a
market seems to be commercialism sideways, with the same a-one and
bottoms on
the way, it may be available to break out of that
trend either up or down. The difficulty of course lies in
determining for how long the horizontal trend wish continue,
and then predicting the direction of the breakout.
Triangle Formations
These formations are similar to sideways channels in that
the market being analyzed has been moving inside
a
relatively narrow range for a extended time. The
difference is that in a sideways channel the upper and lower
limits of market movement tend to be parallel, whereas in a
triangle formation these areas converge until a escape one
way or another occurs. Three types of triangle formations
are recognized: symmetric, ascending and descending.
Descending triangles develop once
the higher cost limits
converge toward the lower cost barrier, which has tended to
stay flat. Bilateral triangle formations agree sideways
channels except that their upper and lower cost limits
continue to converge. Ascending triangles form once
the
upper cost limits tend to stay flat, patch the lower cost
limit converges upward.
The 1-2-3 Formation
The theory of this strategy is embedded in the belief that a
particular market wish indicate a new trend in three steps.
When a market has reached a new 12 month high or low, a
trader begins to look for a 1-2-3 formation. The dealer
labels the position of the high or low on the chart as point
#1. If the market rebounds from point #1, this theory
claims the rebound wish only be of a certain magnitude.
When the limit of the rebound has occurred, this is labeled
as point #2. If the market then retraces itself back toward
point #1, but makes not reach point #1 before reversing,
this new secondary low is labeled point #3. Once this third
point has been identified, the dealer waits to see if the
market wish come past point #2. If the market breaks out
from the second point, then the dealer would-be enter the
market in the direction of the escape (opposite of the
direction that the market was moving once
it originally hit
point #1).
Simple and Weighted Moving Averages
Moving averages are the product of a mathematical analysis
of the market. Generally, the analyst selects a
pre-determined number of days to examine (usually four), and
then totals all of the prices for that time frame. A
division of this total by the number of days being analyzed
will yield an average. With each day going forward, the
first day is deducted
and the new day is added, thus
giving a new average. This is done for however many a days
one chooses to examine. Once the moving averages are
calculated, the results are charted on a graph. Several
analysts calculate a weighted average mistreatment a formula that
places more value on the more recent prices. This strategy
is called a Weighted Moving Average.
The Big Lie
Software packages are accessible now that can assist with
culling through historical data. All of that is futile. At
the exact moment a dealer enters the market, there exists
precisely a 50.000000% chance that market wish come up or
down from that point of entry, all independent of any
analysis that led the dealer to enter at that point. No
amount of hand waving, and no figure of fancy math, wish
change that reality. Denying that fact is the Big Lie.
Why is commercialism near the level of chance the death of a
system? To trade successfully, a dealer must win enough to
generate earnings that exceed the cost of commissions,
slippage and losing trades, and this requires a wining
average greatly extraordinary 50%. For every losing trade, you
must win another just to break even: that means two trades
for no gain, and all the cost of trading. If the third
trade happens to be a win, that means that 3 commissions,
slippage 3 times and one loss must be deducted
from the
win. Because of these downriver
impacts of a loss, as a
general rule of thumb at least 7 out of 10 trades must be
winners to trade profitably. Not gonna happen.
To bank on any of these methods of analysis in fashioning
trading decisions would-be be the height of folly. The hard
reality is that all of these analytical methods are down
right silly. They are the product of hope triumphing over
reason. Traders are desperate for thing
that wish give
them longevity and profit in the market in the face of
desperate losses. But all of these technical trend methods,
and fundamental methods as well, fail at a primary level,
and placing any hope in them is a form of business suicide.
That 80% or more of traders lose is no surprise once
the
majority place faith in methods that by definition can ne'er
work over any extended period of time.
All is Not Lost
Yes, Virginia, there is a way out of this mess. Acceptive
that the futurity can ne'er
be expected requires a shift in
world view, one that rejects virtually every assumption
embedded in the current earth of trading, and the leap may
simply be too great for many. But for those who reject the
big lie, step across to the different side, and realize there is
no leverage in tea leaves and eyes of newt, a tremendous
freedom and clarity await. Unbound by false hopes,
trading becomes foreseeable and mechanical, freed from the
agony of look the market come in the “wrong” direction
because in fact no prediction of market direction is
involved at all. The idea is to create a position in the
market that is truly cyclical, and therefore independent of
underlying market movement, and of best-known amplitude. How to
establish such a position is delineate in: A Simple Manual
to Astronomical Wealth. Go to www.tradetofreedom.com.
Copyright © Jeff Schweitzer
PERMISSIONS TO REPUBLISH: This article may be republished in its completeness free of charge, electronically or in print, provided it appears with the enclosed
copyright and author’s resource box with live website link.
Just just about the Author
Jeff Doc received his Ph.D. from UCSD in 1985. Jeff was appointed as a science authority at the White Home under the Bush and Clinton Administrations for three years before devoting attention to generating wealth through commercialism futures. He has publicised more than 60 articles in diverse areas, including neurobiology, marine science, international development, environmental protection and aviation.
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