Trading Traps or What
is Obvious is
Obviously Wrong
Peter Borish
Uncertain Waters Ahead
“When anyone asks me how I can best describe my
experience in nearly forty years at sea, I merely say,
uneventful. Of course there have been winter gales,
and storms and fog and the like. But in all my
experience I have never been in any accident of any
sort worth speaking about. I have seen but one
vessel in distress in all my years at sea. I never saw
a wreck and have never been wrecked, nor was I
ever in any predicament that threatened to end in
disaster of any sort.”
E.J. Smith, 1907
Captain, RMS Titanic
What’s Obvious is Obviously Wrong
• After the fact, there is always a reason. Price
make news not the other way around
• I may have been wrong, missed something but
in retrospect it is crystal clear
• As an analyst, I can explain things perfectly – As
a trader, I need to focus on uncertain tomorrow
• “If you drive looking in rear view mirror, you’re
bound to hit a light pole.”
Staying Ahead of the Curve
• “Being so critical, I am often considered a contrarian. But I am
very cautious about going against the herd: I am liable to be
trampled on.
•
According to my theory of initially self-reinforcing, but eventually
self-defeating trends, the trend is your friend most of the way: trend
followers only get hurt at inflection points, where the trend changes.
•
Most of the time I am a trend follower, but all the time I am
aware that I am a member of a herd and I am on the lookout
for inflection points.”
• George Soros, Soros on Soros, Staying Ahead of the Curve,
• September 1995.
"If I could figure out a way to determine whether or
not people are more fearful or changing to more
euphoric, and have a third way of figuring out
which of the two things are working, I don't need
any big mathematical models of forecasting the
economy. I could forecast the economy better
than any way I know. Forecasting 50 years ago
was as good or as bad as it is today. And the
reason is that human nature hasn't
changed."
Dr. Alan Greenspan
Probable Outcomes
• Fundamentals aren’t wrong – your interpretation is
wrong
• “The markets are always right”
• Trading and risk management are inherently
unnatural characteristics
• Batting average is relatively low - must have
risk/reward ratio
• Are you making money?
• Don’t use consensus to justify position in market
Possible Inflection Points
• Widely disseminated news that
seemingly comes out of nowhere
• You don’t have to be a weatherman to
know which way wind blows
• On lookout for inflection points
Globalization Can Not Repeal the
Laws of Trading
• Entrance is easy – Exit is hard
• Adding markets is not necessarily
diversification
• When accidents happen they tend to
occur in all markets simultaneously
• No pain when looking back from a
positive outcome
If You Survive, You Win
• Longevity
• Want to have approach that works over
time and through market cycles
• Don’t get into the habit of looking at the
scoreboard