Jump to content

How Watching My Three Year Old Daughter Helped Bolster My Appreciation Of Markets.

Recommended Posts

    I got a strike last time for swearing. So I will keep it clean......... this time. Currently 200 vaccinations down another 325 to go...... My bosses better give me a pay-rise for all this work. Because I am busting my ****-offf here !! I have aged at least 8 years with a growing pot belly. I am only 32!! 

On Fridays,  I usually stay at home, generally looking like a homeless person in sweatpants. In between catching up on much needed sleep whilst my 3 yo naps after bouncing at the trampoline park like a gummy bear and wrestling with her to get some E45 lotion on her eczema, I sit and watch her play or watch kiddie shows with dinosaurs with her ( its a phase ...... i like this phase.... I am quite happy sit there and learn about the history of the cretaceous period whilst she tries to pronounce words that with 4 to 5 syllables)  

You see , kids are like sponges ; they know nothing about the world and will absorb everything and anything you teach them. This curiosity gets lost as we grow older and more cynical. It is more a function of life lessons and interactions with other people .  As I watch her, I find there is a curiosity to her. She wants to know everything, constant questions many of which I have answers to but a few of them I don't. In my time with her I also notice that there is a playfulness she radiates with respect to the way she asks questions. There is no pride, no anterior motive, no conflict of interest , the girl just wants to get an understanding of the world around her. When trying to " crack the code" of financial markets I have found this perspective useful. Curiosity and the willingness to learn from others with the objective of gaining better understanding serves well in this field. Sir Isaac Newton put it best ......"  I do not know what I may appear to the world, but to myself I seem to have been only like a boy playing on the sea-shore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me" .....How simplistic yet elegant...........

 No gin today. It's 8pm in Cambridgeshire,  I'm in a pub, heavily caffeinated.  On to markets.... If you recall in my post below 👇 I warned about chasing prices higher.

I also updated members of a facebook group I am part of  my observations on the DOW on the same day here.👇



     How did I know a correction was the higher probability outcome ?? I didn't , I just did what the data told me to do reduce exposure.... If there is one thing I learnt from the man who's process I used as a template for mine; the ever so bombastic , no nonsense and forever jovial Keith McCullough head honcho @ Hedgeye it is this ; sometimes in markets you win when you don't lose money when everyone else does. I am forever grateful for all his lessons.   So whats next ?? Again I don't **** know but what I can share is a few more observations from my tools. Ready ?  Here we go !!



    As part of my trading process, one metric I check regularly, is the "market regime" of any instrument before I trade it . The blue chart  is a measure of the rate of change of of the the autocorrelation of an asset with respect to their returns based on a  time (t) and the red chart at the bottom is the price.  I find this very useful as a tool to gauge how extreme the auto correlation function of an asset is . If you don't understand it,  don't worry. It took me 6- 8 months of deliberate study to get my head around the idea     ( then again I am as dumb as they come  so it may take you 5 mins hehe) . Simply put, opportunities avail themselves at extreme pivot points. In other words, not all price changes are tradable. 

    I also view market movements as though they are mathematical and visualisation problems . I find it extremely difficult to trade signals and chart patterns on the fly as well as  intraday  so I try to  think about markets in a " price regime" sense.  Shout out to Darius Dale of 42 macro for this! I find that being able to visualise a market in one of three regimes ( Bullish, Bearish or Neutral)  allows me to quickly determine wether an idea is worth investing/ trading  or not . See chart below. Top = price , bottom = returns



   From the above observation, we can see that the FTSE is now in a neutral price regime with returns since May 2021 in bearish territory. Looking back alarm bells should have been ringing  from mid September because that was the initial point in time where returns turned negative and most importantly STAYED NEGATIVE!  Could things reverse ? I dunno maybe but what I am looking for to have higher conviction in the FTSE will be; 

a) Better macro economic conditions ( Energy Crisis resolved, better economic data etc) 

b) A rebound of the returns towards positive territory.

c) A change in the price regime from bearish to bullish.

d) Most importantly, a bearish VIX 

   I would be happy to deploys some capital on the long trade if at least three out of those three conditions are met. These tools are one of many  tools I employ to better understand and appreciate the complexity of markets in the sense that I want to see  the sequence and regime shifts as they unfold.  It's not easy but with a little effort, a few sleepless nights, trial and error anyone can do it. 

Looking ahead, I am starting to warm up to the view that global growth may start to reaccelerate at some point over the next 2 quarters. Given that we are currently in the midst of an Industrial Production slowdown. This is based on the work of Lakshman Achuthan at ECRI macro research. In his observations, he highlighted that the conditional probability of equity market corrections rises when the overall global economy transitions into a slow down. We can see this in China for example. It doesn't mean everything is going to hell in a had basket ( policy makers will not permit this due to various pension obligations) . What it does mean is that corrections like these give investors an opportunity to take new positions that have better risk rewards. So do not think of this correction as a set back but rather an opportunity. Spoil yourself with trade ideas,   start looking to implement the trade ideas you have on your watchlist because this will turn out to be an opportunity in a few months from now. 

Thats all for now.... 

Take Care....

Before I forget..... 

   Here are a few resources/books that I found useful in my journey to better appreciate the ever changing nature of financial markets ; Misbehaviour of markets by Benoit Mandelbrot ( I still don't understand fractals but appreciating the importance of volatility is very powerful , Algorithmic Trading By Ernie Chang teaches various mathematical principles and ideas that enable you work smarter rather than working harder, which is a principle I picked from Anton Kreil ,  Introduction to Fractional Calculus ( wikipedia will do ) , Interviews with Benoit Mandlebrot on youtube, Darius Dale and his  educational videos on youtube, Keith McCullough educational videos ( Often quite funny , the man is a good teacher) Interviews with Anton Kreil from ITPM which are on youtube and based on day to day principles for capital preservation ( this man started me on this journey and taught me the importance of getting perspective )  , plenty of caffeine , tears ,  gin and a lot of patience.  

Thats it from me .... time to leave the pub.


follow me on twitter for more observations.. we have created a new page



Edited by Rintel
  • Like 2
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
  • Create New...