Can Traders Adapt?

The bison is near extinct as a species because a new predator moved into its living space. The bison herds had no way to adapt fast enough to avoid near extinction.
Ordinary securities traders are, as a result of high frequency traders, in the same shape the bison herds were in when the white man started killing them off. I am including hedge funds and anyone else who trades and doesn’t hold securities long term.
High frequency traders may or may not be profitable themselves but cause losses to others by distorting the market in ways that have nothing to do with supply and demand.
High frequency traders have several advantages in their operations. Firstly they are above the law in every sense of the word. They do not have to obey laws that regular traders are subject to. Their persuasive powers are enormous. They have the vast majority believing their activities are innocuous and no effect on securities prices.
Traders could adapt and the high frequency would have no advantage at all. So, why do traders fail to adapt? Mostly, they are stupid. The time honored sacrament of placing stops is a guarantee of losing money, especially where short sales are concerned. A trader is short, so he covers immediately when the short goes against him. Good money management you say? High frequency trading algorithms game the time honored technical analysis dogma. There is no money to be made trading this way in the current area.
The answer for the individual is to lengthen the time frame he trades in, and to trade without stops. It is generally considered un-trader like to holler foul. Never mind the stigma of being called a wimp. Besides, nothing needs to be said.
One time a professional poker player said, he just doesn’t play in a game if the thinks someone is cheating. He finds another game. He knows there is no way to win if other player can manipulate the outcome of the game. Change games by working in a different time frame and lose the now outdated technical analysis dogma.
I am short a portfolio of stocks because I think a big play is coming to the downside. I could be wrong and if I am I will get the loss I deserve. But, I do have a chance to make a profit as does a bull who takes the opposite side. There is no point in using an approach that makes gains impossible by virtue of serving a food for a predator.

(Visited 33 times, 1 visits today)
0 0 votes
Article Rating

About Fantasy Free Economics

James Quillian independent scholar,free market economist,and teacher of natural law. Who is James Quillian? Certainly I am nobody special, Just a tireless academic and deep thinker. Besides that, I have broken the code with respect to economics and political science. Credentials? Nothing you would be impressed with. I am not a household name. It is hard to become famous writing that virtually no one in the country is genuinely not in touch with reality. But, if I did not do that, there would be no point in my broking the broken the code. If you read the blog, it is easy to see that there are just a few charts, no math and no quantitative analysis. That is not by accident. Given what I know, those items are completely useless. I do turn out to be highly adept at applying natural law. Natural law has predominance over any principles the social science comes up. By virtue of understanding natural law, I can debunk, in just a few sentences , any theory that calls for intervention by a government. My taking the time to understand the ins and outs of Keynes General Theory is about like expecting a chemistry student to completely grasp all that the alchemists of the middle ages thought they understood in efforts to turn base metals into goal. Keynesian theory clearly calls for complete objectivity. Government can only make political decisions. Keynesian techniques call for economic decisions. So, why go any further with that? Fantasy Free Economics is in a sense a lot like technical analysis. Technical analysis began with the premise that it was impossible to gain enough information studying fundamentals to gain a trading advantage. Study the behavior of investors instead. Unlike technical analysis, I don't use technical charts. What I understand are the incentives of different people and entities active in the economics arena. For example, there is no such thing as an incentive to serve with life in the aggregate. In the aggregate, only self interest applies. It is routinely assumed otherwise. That is highly unappealing. But, I am sorry. That is the way it is. I can accept that because I am genuinely in touch with reality. Step one in using Fantasy Free Economics is for me to understand just how little I really know. A highly credentialed economist may know 100 times what I do based on the standard dogma. Compare the knowledge each of us has compared to all there is to know and we both look like we know nothing at all. There is always more than we don't know than what we do know. I am humble enough to present myself on that basis. Why? That is the way it is. I am not bad at math. I have taught math. What I understand is when to use it and when to rely on something else. Math is useless in natural law so I don't use it. While others look at numbers, I am busy understanding the forces in nature that makes their numbers what they are. That gives me a clear advantage.
This entry was posted in Daily Comments and tagged , , . Bookmark the permalink.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inline Feedbacks
View all comments