(Editor's note: When I asked for folks to contribute to Slope, dozens and dozens of folks raised their hands, but only a few of them have contributed consistently. I am very grateful for these contributions. One particularly consistent guest poster has been Biffermas, whose last post of the year is below. Thanks, Bif, from all of us! – – Tim Knight)
Humans conceive reality in linear (straight) ways. There is a starting point and a destination,
If A, B, C, and D are performed, than E is the outcome. Houses are built in simple geometric forms,
not blobs. We enter school in
kindergarten and follow the straight line of education upward through college
before attacking the world. Roads are
built as directly as possible, using bridges, tunnels, and carving away any
earth in the way. Scientific study is
notoriously linear, with research designed to eliminate as many variables as
possible. Linear thinking is likely an
evolutionary design used to reduce a complex world into a simplified form
understandable to humans. There’s
nothing wrong with this, provided that we realize it’s happening and account
for it.
Markets and stock prices don’t move in straight lines, they
move like water over uneven terrain.
Viewed from above, a river takes the form of a snake, and appears to
follow a very inefficient path while flowing from valleys to ocean (or Southern
California). Runoff from snow-capped
mountains will eventually reach the rivers, but the pathway is inconsistent and
constantly shifting. Leaves on a tree
don’t sway in the wind in uniform and consistent fashion, but in a chaotic
dance. Weather patterns are too complex
for 100% prediction by experts in the field.
With millions of variables, why should markets be any different?
Technical analysis is an excellent tool to survey the
market, without a doubt. There’s
nothing wrong with basing your trading plan around the linear concepts of chart
patterns and setups, provided that you pay homage to the higher complexity and
unknown forces in control. You must
yield to such forces by taking losses quickly when appropriate. If you refuse this you’ll cease to exist as
a trader; just another corpse in a large pile of like-minded who insisted on
forcing their two-dimensional world views against the violent multi-dimensional
market.
This short Alan Watts video captures the linear trap that many
Americans fall into. Grinding away
their entire lives going down the predestined path of education, work, raising
kids, paying off the debt and mortgage, etc.
A short, largely joyless life wasted simply to reach that great point on the
time-line: retirement! I hope all my
friends here on the Slope remember that in life it’s not the destination that’s
important, it’s what happens along the way.
Don’t forget to dance while the music plays!
Have an excellent holiday season, and best of luck in 2010! Thanks for all the support you've shown me, a relative newcomer. I'm leaving for Bora Bora on Wednesday, so I'll be largely absent until the new year.
