Derrick,
I was out in the fine weather today thinking about this elongated FA vs. TA vs Trend vs Breakout discussion and it struck me that we are debating only 10-15% of the investing/speculating question.
Speculation involves these steps:
1. Capital analysis
2. Capital allocation
3. Selection of instrument and entry
4. Position management
5. Stop loss management
6. Exit rules
Let us assume that #3 is the only thing that FA/TA has any impact on (yes, of course, if some FA piece of data changes and you must exit a trade even though price is not reflecting the change, but those events are so rare as to be non-existent--by the time that data is out the stock has soared or collpsed against you). Most successful speculators, once they are in a trade, use stops to allow the market to prove them right or wrong. Those who don't, won't be speculating for very long.
So we are saying that to select an instrument and to "buy" it (I use "buy" here for buying calls or buying puts in any sort of combination, and also for going long and going short, although technically going short isn't a buy) we must use a signalling system.
Once we take the signals, whether it's a change in cash flow, a prepackaged bankruptcy announcement, earnings increases or decline or a change in a "technical" indicator, all good speculation is the same. You watch your capital, your position size and adjust your stops to take you out of bad trades and keep you in good ones.
If that is the case, and even stipulating that someone could devise an FA system to give good signals, since it is so much easier to flag and enter non-FA based signals, why would anyone want to go through the backbreaking work of scouring FA for changes?
Ed Seykota said once, and it has a certain Zen like brilliance to it:
"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."
Ed also said, "Fortune tellers live in the future. So do people who want to put things off. So do fundamentalists."
And there is this anonymous quote, which has a lot to do with speculation and our analysis, although you have to think about it a lot to see it:
"The past is history, the future--a mystery. Today is a gift--that's why it's called the present."
Kb |
