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Stating The Obvious and The Quest For Wisdom

  • #921
  • Mar 20, 2010 12:05am Mar 20, 2010 12:05am
I think one person is looking at news in the LONG term perspective and the other person on a SHORT term perspective. The type of news events and the time frames, I would think matter.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #922
  • Edited 12:31am Mar 20, 2010 12:17am | Edited 12:31am
More thoughts..

Professional traders or value traders, don't see a number come out that misses/exceeds expectations and then trade blindly. These people actually have a specific number or value estimate in mind. If the market under-reacts and values are not discounted enough, they make a profit. If uninformed trades overshoot value they bring correction and profit yet again. This is where there is a huge gap between us little guys and the professionals. They have a number in mind, not pulled out of thin air, they are the ones who have the power to move prices to value. The majority of us don't have a clue about the price impact all of these economic indicators will have. Like you said, news to you is about color coding on a public forum and 'scalping.'

Another factor that makes this even more difficult is that the implication on values is not known until the numbers are released. It's not just a "this number is not what mr analyst said so I'm going to 'scalp."

I beleive that these guys who move prices are smart enough to know that X data = +/- % change in value. They profit from this information by trading with the uninformed market participants.

From all the reading I've done, many of these guys will find a statistical mean value and continue correcting price as deviations occur. I'd be very curious if our man Craig would give us some insights into this. I know this sort of thing is right up his alley.

This all gets back to what we've been saying. Orderflow is all about figuring out whats going on inside the heads of those who make prices informative. What are their motivations, and what are their value estimates. If we don't agree or vote with them, then we lose. I can think of several intuative ways of guaging this better than thinking in terms of colers.

I'm not claiming to be an expert at this. If anybody wants to jump in with ideas then you're mighty welcome.
  • #923
  • Mar 20, 2010 12:22am Mar 20, 2010 12:22am
Quoting LasVahGoose
I think one person is looking at news in the LONG term perspective and the other person on a SHORT term perspective. The type of news events and the time frames, I would think matter.
I agree fully Goose. Harris talks about this at length in Trading and Exchanges. It's all about sentiment (the aggregation of lots of news) that paint the bigger picture. I'm not trying to undo what I just said in my previous post, but I don't think that trading the news in the very short term is a good idea unless you have some idea how the big guys estimate values.
  • #924
  • Mar 20, 2010 12:30am Mar 20, 2010 12:30am
The reason I cannot escape the word value or worth, is because all the trading books I've ever read use it.

One thing that hit this home for me was Mark and Joe Ritchie's interveiws in Market Wizards. He boiled it down to saying that if he KNOWS someing is under/over valued then he's always gonna take that deal. It's just a matter of learning that side of the business. If they can do it, we can all do it too.

They went through the horrid ignorant phase for a few years and lost a lot of cash like everyone else, but they stuck it out and wisened up.

Those two turned 200K into 200M in ten years. Really cool dudes as well.
  • #925
  • Mar 20, 2010 12:50am Mar 20, 2010 12:50am
Quoting Scotty B
One thing that hit this home for me was Mark and Joe Ritchie's interveiws in Market Wizards. He boiled it down to saying that if he KNOWS someing is under/over valued then he's always gonna take that deal. It's just a matter of learning that side of the business. If they can do it, we can all do it too.
Another piece is when markets get one sided. Something Jim Rogers talks about every know and then. If everyone and their mother-in-law is short the Euro (or whatever), get ready.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #926
  • Mar 20, 2010 12:54am Mar 20, 2010 12:54am
There are some very good posts on this forum about news trading. I'll leave people who are interested to dig them up. I believe its possible to news trade. I don't really care what anyone else thinks on the subject because as with all trading subjects I'll look at the stuff myself and if it makes sense to me I'll dig deeper. Not really looking at it in depth right now but its another thing on my list.
  • #927
  • Mar 20, 2010 12:56am Mar 20, 2010 12:56am
Quoting Deusomega
There are some very good posts on this forum about news trading. I'll leave people who are interested to dig them up.
Yeah, for some people that is their bread and butter and they are great at it (scalping the news releases). People just need to keep in mind when news is being discussed here it is not in the same context. If a person has not read the Trading and Exchanges book or have knowledge of micro structure they will not be looking at the discussion in the same context.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #928
  • Edited 1:18am Mar 20, 2010 1:03am | Edited 1:18am
Quoting LasVahGoose
I think one person is looking at news in the LONG term perspective and the other person on a SHORT term perspective. The type of news events and the time frames, I would think matter.
This is highly important and a key reason why it may seem like Fool and I disagree (even though we don't). What he is talking about (and doing) is either execution or time arbitrage; executing his orders faster then other potential event traders. What I'm talking about is sentiment arbitrage. Let me explain...

The market as a whole calculates fair value as a discount of the possible future outcomes for given events. As an example we can look at the euro situation. I'm going to assign some BS numbers to make a point...

The greek situation can have 1 of 2 possible outcomes. Either a) greece refinances its debt or b) it doesn't and it defaults. With no information, we can assume the odds are 50/50 that it goes either way. Now add in some info. Germany signals they are willing to do a deal. That bumps the odds up to 70/30 in favor of a refinance. Or maybe France signals they are totally opposed to the EU helping... that drops the odds 60/40 in favor of a default.

The market is constantly discounting those probabilities. So lets say todays price reflects a 72% chance that the deal gets done. Either the market is 72% wrong or its 28% wrong, depending on the ACTUAL outcome. Picking an outcome you can capture that spread between the discount and the actual event (assuming you predict the correct outcome).

You have to suffer through the daily swings in market perception, but at some point in the future the market price will represent the consequences of the actual outcome. As long as you have a good grasp of the situation influencing the market, I can't image a simpler way to trade profitably.

Fool is doing something along the same lines only he is hoping to capture the last few percentage points of the discount. If he can get his order in faster then others trying to close the gap, he makes a profit. I have outcome risk.. he has execution risk. They're both valid systems caturing market inefficiencies...

NOTE:// I feel like I'm all over the place in this thread and that it's confusing for people trying to figure out what I do. The problem is there are lots of people trying to daytrade and ask qustions about stop hunting and dom trading, etc. Then there is what I'm doing now (and encouraging Scotty to do) which is outlined above. I assure anyone trying to follow along that there IS a cohesive theme behind this stuff, it's just not easy to convey in this format. :-/
  • #929
  • Mar 20, 2010 1:03am Mar 20, 2010 1:03am
Quoting Darkstar
I know for a fact that later this year the US economy will be in far better shape then it is now. I also know that at some point later this year the Fed will start raising rates. Both will be dollar positive and are definitly tradeable.

You don't need a time machine to predict the news; a basic understanding of macroeconomics, game theory, and some patience is pleny sufficient to make money on it.

How big of a recovery are you expecting? Of course the financial system is more stable with losses realized and capital raised. While I don't expect a double dip to happen I do think it will be a lot more sluggish than the markets are currently pricing in. High unemployment, still more foreclosures to work through, lending constrained and coming tax increases will dampen consumption. Still expecting stocks to drop around 20% from current levels and commodities to shake people out 1 more time before the whole global growth scenario starts the commodity bull run again.

Looking for a hike sometimes around Q1-Q2 2011.
Private message me for a link to my order flow website.
  • #930
  • Mar 20, 2010 1:14am Mar 20, 2010 1:14am
Quoting Darkstar
What he is talking about (and doing) is either execution or time arbitrage; executing his orders faster then other potential event traders. What I'm talking about is sentiment arbitrage.
Its true. I am scalping on the 10s charts with max leverage and anything over a 20pip winner is huge for me. But even at such an elemental level the issue of microstruture is not moot.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #931
  • Mar 20, 2010 1:20am Mar 20, 2010 1:20am
Quoting Darkstar
I assure anyone trying to follow along that there IS a cohesive theme behind this stuff, it's just not easy to convey in this format. :-/
Just let us know when the DarkStar Webinar is.

Any reading you recommend for Game Theory 101? Doesn't look like anyone has written a game theory for dummies book. Anyone that has a recommendation at an entry level would be fine.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #932
  • Mar 20, 2010 1:28am Mar 20, 2010 1:28am
Quoting Darkstar
This is highly important and a key reason why it may seem like Fool and I disagree (even though we don't). What he is talking about (and doing) is either execution or time arbitrage; executing his orders faster then other potential event traders. What I'm talking about is sentiment arbitrage. Let me explain...

The market as a whole calculates fair value as a discount of the possible future outcomes for given events. As an example we can look at the euro situation. I'm going to assign some BS numbers to make a point...

The greek situation can...
Your posts don't seem disorganized at all to me. I think anyone who has taken the time to read your past posts can recognize certain themes. If I could sum up the main structural theme it is sentiment analysis I think. Whether it be news trading short term, long term, or even stop hunting it is all tied into gauging sentiment and calculating possible hypothetical outcomes that new information might have on sentiment and acting on those outcomes you perceive as having the highest probabilities of success. As you've said before everyone trades their beliefs. The market is really just a set of beliefs.

This is what I've gotten so far as an overarching theme.
  • #933
  • Mar 20, 2010 1:56am Mar 20, 2010 1:56am
Quoting LasVahGoose
Any reading you recommend for Game Theory 101? Doesn't look like anyone has written a game theory for dummies book. Anyone that has a recommendation at an entry level would be fine.
http://faculty.lebow.drexel.edu/McCa...game/game.html

That should give you everything you need to know. You can get deep into it if you want but a cursory knowledge is sufficient.
  • #934
  • Mar 20, 2010 2:10am Mar 20, 2010 2:10am
I'd like to make 3 requests and they are just requests.

I feel the thread has suffered a little bit of the story "Blind Men and the Elephant" (with some participants) , but I think if we all make an effort to take a moment to understand what is being discussed here we can all get on the same page here.

1) Let's discuss and disagree, but let's make sure we are talking about the same thing first.
2) This thread is a more advanced topic (for me at least) and if someone has a disagreement, let's see if we can state things in an educational format.
3) Let's get over the snipes and jabs and just be a group of traders hanging out having a some beers (just not too many beers).

There are traders here at all different levels in their development and I think most people can come out with something positive from this thread.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #935
  • Mar 20, 2010 2:11am Mar 20, 2010 2:11am
Quoting Darkstar
http://faculty.lebow.drexel.edu/McCa...game/game.html

That should give you everything you need to know. You can get deep into it if you want but a cursory knowledge is sufficient.

Great post Darkstar. Looks like i have some reading to do
  • #936
  • Mar 20, 2010 2:24am Mar 20, 2010 2:24am
Quoting Darkstar
http://faculty.lebow.drexel.edu/McCa...game/game.html

That should give you everything you need to know. You can get deep into it if you want but a cursory knowledge is sufficient.

Also,

If any of you guys have Itunes, go to Itunes U and go to Yale's page. They have a complete game theory course in audio and it's free. It's the whole semester worth of classes. The professor puts the class through differant games and talks about best response theory at length. Just throwing that out there.
  • #937
  • Mar 20, 2010 2:50am Mar 20, 2010 2:50am
Quoting Scotty B
So you're saying that the market won't respond correctly to the news? Price changes because perceptions of value change. Take this week's news as example. Negative numbers, along with negative comments depreciated the Euro against the dollar. I don't understand how you can say the news is unimportant when price consistently responds to it in such a logical fashion.

I don't understand how you can trade the response to the news if that response is just random and counter intuitive anyways. I doubt that's what you mean, but it would be helpful if...
The response is never random but you just never know what will be from all the possible outcomes (on the short term).

Here is one example: I can very easily predict that oil will go up in the long term (10+ years) but I have no idea how it will behave in the short term (1-2 years).
  • #938
  • Mar 20, 2010 3:36am Mar 20, 2010 3:36am
Quoting Darkstar
This is highly important and a key reason why it may seem like Fool and I disagree (even though we don't). What he is talking about (and doing) is either execution or time arbitrage; executing his orders faster then other potential event traders. What I'm talking about is sentiment arbitrage. Let me explain...

The market as a whole calculates fair value as a discount of the possible future outcomes for given events. As an example we can look at the euro situation. I'm going to assign some BS numbers to make a point...

The greek situation can...
I really like this example. It brings a few questions to mind though. One being: are these smaller news items (like we've seen this past week) already discounted into price according to the expected or forecast numbers? I only ask because as I've observed, #'s that come close to expectations don't ussually move the market much, thus one could deduce that the EXPECTED info was already factored into price at the time of the announcment. When numbers are way off then, well....

Also, do most of the big guys arrive at roughly the same expected numbers about specific economic numbers? For example, if you went down the FF calander and saw all the expected #'s, does the broad market agree about that? You can see from what I said above about what I assume to be true, I just wanted to get your spin on this.

Many of you will want to slap me in the head for the following logic, but please bear with me...

Greece is screwed up and their situatin has scared a lot of money away. A lot of that money will not come back into the currency just becase Greece resolves the issue. The consequence is permanatley compounded into price @ some mimimum level. That's why we are not expecting november highs when buying comes back in, albeit temporarily. The EU will simply be worth less because of this. However, because buyers will come back in if the Greece outcome is positive, the market has added in the discount of the problem itself PLUS the expected result, or some percentage of the expected result, thus allowing some real spread to exist to make the case for a bullish or bearish move.

I'm speculating here, but It makes some basic intuitive sense to me to assume that price as it stands in it's current range, is somewhere close to the 70% range regarding this outcome. Meaning that if the news is good, price will pullback and remove that 30% spread and will ceiling at the 'price consequence level' that greece truly caused. However, if the news is bad, the consequences will be much further reaching and the subsequent drop in price will be much bigger than the potential rise in price had the news been good. Does this make sense? I'll attach a really stupid diagram to show the basic thought. Don't beat me up too bad because of this guys, but it makes sense that the differential in price adjustment percentage would not be 50/50 regarding good or bad news.

I'm scotty, but beat me up this time.< scotty..you guys>
Attached Image (click to enlarge)
Click to Enlarge Name: Greece.JPG Size: 40 KB
  • #939
  • Mar 20, 2010 3:48am Mar 20, 2010 3:48am
Quoting Scotty B
I really like this example. It brings a few questions to mind though. One being: are these smaller news items (like we've seen this past week) already discounted into price according to the expected or forecast numbers? I only ask because as I've observed, #'s that come close to expectations don't ussually move the market much, thus one could deduce that the EXPECTED info was already factored into price at the time of the announcment. When numbers are way off then, well....

Also, do most of the big guys arrive at roughly the same expected numbers...
Sorry...To add to this thought. If I am roughly right, it would be intersting to find out if it was possible to know what the correction in price would be to account for even a smaller news event that came out with an unexpected outcome. You could have a grid setup setup based on differing outcomes to guage how far the correction needed to be. So if such and such a news event has expectations of X, and X represents current pricing, you could have a series of prices plotted in advance based on differant outcomes. How you would do the math I have some idea, but anyone with some experiance here, please chime in.
  • #940
  • Mar 20, 2010 3:53am Mar 20, 2010 3:53am
Dang..I always have something else to say...I am away from home right now, but later this morning I will attach a couple more charts with thoughts and tie it all in to the longer term picture.
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