Speculator's Edge
Welcome to the first trading day of 2007. 2006 is now a footnote in history. All that matters now is how much you can make in 2007.
Over the extra long weekend I spent some time reflecting over 2006 and the many turns and twists in it. Markets have uncanny ability to catch most by surprise. The rally which started in July was the highlight of this year. It caught most punters by surprise. When expectations are low and bearish scenarios are all around, circumstances are always ripe for surprises. Only problem for most speculators is, to psychologically have the the guts to become bullish at those stages.
Markets often create a mirage and many punters end up chasing that mirage while the real action is somewhere else. Like in military strategy a diversion tactics is created to focus the enemy on one particular aspect while the main attack comes from somewhere else, the market offered the housing market as diversion. So many got convinced about housing leading to overall weakness that they just ignored other part of the market.
The other reason to miss out on the rally was, everyone thought this rally is over in September. The rally at first was dismissed as mere technical bounce. The Dow Jones advance to new high was dismissed as it has only 30 stocks. Like a typical bull market rally the rally persisted. So you have a classic case of many traders under performing the market despite a 6 month rally.
Third reason for many missing out on the rally was their focus on oil. The oil and oil stocks had topped out in price increase term long ago, but the mirage had many fixated on another rally in oil and gas and 100 USD oil. Amaranth and many other speculators were left high and dry by the oil mirage.
The fourth reason many missed out on rally was because of their beliefs. Belief that there is presidential election cycle. Their belief that high budget deficit is immediate market mover. Their belief that America is going to the dogs. Their belief that perma bears and big picture kinds can actually speculate. Their belief that they should trade their political conviction.
One of the main reason the advance off of July lows caught many market speculators off guard was that the nature of the move was quite different than what we had seen in past years. Value stocks and big cap led. If you were slow to realise it, you were left behind.
2006 was a typical year , most years are like that. Whether you had a good year or a bad one, there is one thing that is for certain: unless you have an edge this game is not easy. 2007 will be like 2006, full of twists and turns, full of mirages, full of surprises and disappointments.
Profiting year after year consistently is more than luck. If you are highly skilled speculator luck will be on your side. There will be periods of time when one's luck will run dry. But if you have deep understanding of markets and well defined methodology, sooner or later you will be back in the game and luck will be again on your side. The key to market success is to never stop experimenting, to always be flexible, and to keep your mental pantry well stocked.
2007 is starting out with uniformly bullish consensus from almost everyone. Soft landing is what even the grandma in Timbuktu is expecting. So I am expecting few surprises in 2007.
The market will always present opportunities for skillful speculators, and as long as you you keep your losses small and protect your capital, you will have a chance to take advantage of good opportunities in 2007. I plan to create my own luck again in 2007.
Over the extra long weekend I spent some time reflecting over 2006 and the many turns and twists in it. Markets have uncanny ability to catch most by surprise. The rally which started in July was the highlight of this year. It caught most punters by surprise. When expectations are low and bearish scenarios are all around, circumstances are always ripe for surprises. Only problem for most speculators is, to psychologically have the the guts to become bullish at those stages.
Markets often create a mirage and many punters end up chasing that mirage while the real action is somewhere else. Like in military strategy a diversion tactics is created to focus the enemy on one particular aspect while the main attack comes from somewhere else, the market offered the housing market as diversion. So many got convinced about housing leading to overall weakness that they just ignored other part of the market.
The other reason to miss out on the rally was, everyone thought this rally is over in September. The rally at first was dismissed as mere technical bounce. The Dow Jones advance to new high was dismissed as it has only 30 stocks. Like a typical bull market rally the rally persisted. So you have a classic case of many traders under performing the market despite a 6 month rally.
Third reason for many missing out on the rally was their focus on oil. The oil and oil stocks had topped out in price increase term long ago, but the mirage had many fixated on another rally in oil and gas and 100 USD oil. Amaranth and many other speculators were left high and dry by the oil mirage.
The fourth reason many missed out on rally was because of their beliefs. Belief that there is presidential election cycle. Their belief that high budget deficit is immediate market mover. Their belief that America is going to the dogs. Their belief that perma bears and big picture kinds can actually speculate. Their belief that they should trade their political conviction.
One of the main reason the advance off of July lows caught many market speculators off guard was that the nature of the move was quite different than what we had seen in past years. Value stocks and big cap led. If you were slow to realise it, you were left behind.
2006 was a typical year , most years are like that. Whether you had a good year or a bad one, there is one thing that is for certain: unless you have an edge this game is not easy. 2007 will be like 2006, full of twists and turns, full of mirages, full of surprises and disappointments.
Profiting year after year consistently is more than luck. If you are highly skilled speculator luck will be on your side. There will be periods of time when one's luck will run dry. But if you have deep understanding of markets and well defined methodology, sooner or later you will be back in the game and luck will be again on your side. The key to market success is to never stop experimenting, to always be flexible, and to keep your mental pantry well stocked.
2007 is starting out with uniformly bullish consensus from almost everyone. Soft landing is what even the grandma in Timbuktu is expecting. So I am expecting few surprises in 2007.
The market will always present opportunities for skillful speculators, and as long as you you keep your losses small and protect your capital, you will have a chance to take advantage of good opportunities in 2007. I plan to create my own luck again in 2007.
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1 comment:
I would differ with your opinion about a "uniformly bullish consensus." Other than that, great post.
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