TRADING IN UNCERTAIN TIMES

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analyst75

Well-Known Member
The problem of trading in uncertain times crept up on the Mentor Program Alumni forum and I have been thinking about my answer. The original answer I gave is shown below –


I think one of the things you need to be able to do is to define what uncertainty is. If you opt for volatility as a proxy for uncertainty then you see something quite interesting. The VIX which is known as the fear index and should reflect uncertainty is actually at sitting somewhere near its long term average, indicating that the players who make up this index don’t actually see any uncertainty and are not asking for an increase in the risk premium they demand. The same is true if you look at the historic volatility in the Dow which is also sitting at a 9 year low. From my perspective is the issue is not uncertainty in markets but uncertainty in decision making that is brought about by listening to external sources. If you switched off the news and all the associated commentary and simply looked at markets what would they tell you?


What has caused me to think further about this overnight is the notion of what actually is the uncertainty that is being referred to. Is it a true physical uncertainty or a psychological perception brought on by exposure to the narratives of others? I had a look at Wikipedia for a more formal definition of uncertainty and it gave the following –


Uncertainty is a situation which involves imperfect and/or unknown information. However, “uncertainty is an unintelligible expression without a straightforward description”.[1] It arises in subtly different ways in a number of fields, including insurance, philosophy, physics, statistics, economics, finance, psychology, sociology, engineering, metrology, and information science. It applies to predictions of future events, to physical measurements that are already made, or to the unknown. Uncertainty arises in partially observable and/or stochastic environments, as well as due to ignorance and/or indolence.


You will notice that the definition holds at its core the uncertainty inherent in predicting future events. In fact the science of probability is based around trying to deal with the fact that the universe is an uncertain place. However, uncertainty is the default setting in trading – the outcome of all trades is unknown until they are closed. It is this uncertainty that gives us the potential to be profitable, investments that have known or certain outcomes have no risk premium attached as such they offer little in the way of return (think bank deposit). This definition is therefore of little use in unpacking the notion of a change in traders uncertainty quotient. Granted we can respond to changes in volatility and we have tools to measure this but this is a reasonably common occurrence in trading and there are strategies that can be put in place to deal with this. In fact very basic position sizing and volatility based stops self-correct to deal with this sort of problem.


So I am drawn back to the idea that what actually changes is the tone and intensity of the narratives that people surround themselves with. This ever increasing crescendo of noise is bound to take an effect on peoples psyche particularity at present when the world appears to be spinning out of control. However, notice I used the expression appears, I used this term because appearances and reality are not the same thing. What brings some equilibrium back to the noise of others is as always context, the markets tell a completely different story. Whilst the breathless gibbering that is the media may consider the present to be the most troubled time in history and need to shout about it at every opportunity neither that markets nor history itself would agree.


This is the most salient point for traders with regards to what is considered uncertainty. Uncertainty is the environment within which we operate as a broad observation but beyond that it is actually the markets themselves that define what actually uncertainty is and they can do this by readily accessible metrics. When volatility and in turn risk premiums increase then we can say that uncertainty has increased. However, even here people try inject their own primitive narrative into events as the VIX which is a widely known measure of volatility is referred to as the fear index when it is nothing of the sort. However, this is the natural human desire for drama, we all have a friend or relative who is addicted to drama and those in the news media, particularly the financial arena and prime diva’s. So if you find yourself believing that uncertainty has increased but markets don’t agree then you will need to do something about what leaks into your brain.


Author: Chris Tate


Article reproduced with kind permission of: Tradinggame.com.au



Traders’ Mindset: Advfnbooks.com/books/insights/index.html
 
in '97 Tate wrote his first trading book "the art of trading"

in chapter 23 of said book under market gurus he wrote," you either trade or you talk about trading, but rarely both".

not long after Tate released software trading system "trend power" for super charts 4...
 
" you either trade or spew bull to the retail masses. period. "

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I think it's commendable that trading mentors like those involved in the Trading Game mentor program would forgo the enormous earning potential generated by years of trading experience. Choosing to pursue the more altruistic avenue of helping people find their way in the markets and giving them the opportunity of financial freedom.

I'm all warm and fuzzy inside.
 
I think it's commendable that trading mentors like those involved in the Trading Game mentor program would forgo the enormous earning potential generated by years of trading experience. Choosing to pursue the more altruistic avenue of helping people find their way in the markets and giving them the opportunity of financial freedom.

I'm all warm and fuzzy inside.

lollllllllll

Someone ought to be giving these heros a medal
 
There are issues that may cause someone to stop trading in the forex business but saying that we tend to stop because there is a virus that is happening in China that would absolutely be unnecessary because there is actually no relationship between what we are trading in the forex business and what is happening right now, unfortunately some people would automatically make the forex business better, whenever we cannot trade and earn money for ourselves, we make excuses that don't make sense because we are not even certain about what we want to accomplished from trading, meaning that trading in the forex business is one of the challenges that we may face as traders tattered without something else, when there are issues, we need to have some solution rather than running away.
 
Strategies for Investing in Uncertain Markets
  1. Stay Calm and Get Professional Advice. Avoid making quick moves on your own, as tempting as it may be.
  2. Maintain a Diversified Investment Portfolio.
  3. Invest Regularly — In Good and Bad Times.
  4. Invest for Income.
  5. Avoid Jumping In and Out of the Market.
 
I think it's commendable that trading mentors like those involved in the Trading Game mentor program would forgo the enormous earning potential generated by years of trading experience. Choosing to pursue the more altruistic avenue of helping people find their way in the markets and giving them the opportunity of financial freedom.

I'm all warm and fuzzy inside.
The overall tone of this post is excellent :D surely they could donate the proceeds to charity since they can do both I assume? You know, just to attain true altruism.
 
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