GIRI – Peaks of Success

From the Era of Technical Analysis

The practice of finding trading cues in the historic price data of a stock, also known as Technical Analysis, is not lost to the world of finance. Although old studies and strategies produce predictable outcomes or worse, losses. But we have two important reasons why price action analysis is still worthwhile.

1. Every trader starts with some kind of technical introduction—SMA, volume, bands, etc. in the initial period.
2. Every price change is studied by algorithms and models for behavioral inefficiencies and execution errors. For further data generation and prediction.

What Retail Capital gets wrong?

Everybody criticizes something they know and are familiar with. Nobody criticizes the future, but only the past. It is easy to blame the retailer for his naivety. But the tools and technologies available with top trading firms are novel and steep, for lack of easy adjectives. Not to mention expensive.
A new or novice trader can start by keeping it simple and clean. Ensure all parameters (slippage, brokerage, taxes, etc.) produce a net positive Expected Value (Profit). With enough positive repetitions, profits can accumulate.
How expectations lead to disappointment—every drawdown is a fair testimony.

A method or a methodology could work under certain conditions and around specific events. But it cannot work continuously, cannot work on everything, and will not work every time. Most traders never realize this until late. The retailers, blinded by hope and cursed with fear, often try to force their tricks to a script (stock, crypto, index, commodity, etc.) of their liking. This inability to look beyond a few trading ideas can be due to several biases or a simple aversion to disciplined learning.

Simple and Fundamental

Traders constantly invest in their skill sets, strategies, and systems. Often making them complex and confusing. The irony is that in learning as well, the direction of efforts matters. Here they differ and deviate from their more professional or institutional counterparts. Who consider the quality of their effort as a function of probability and a numbers game. Not just a mere game of chance.

Luck, lottery, or advanced math? The stock market, or rather the representation of it, is a study of patterns. Every trade, transaction, and decision has a pathway and an outcome. Or, an imprint and a timestamp. Visible and accessible to us. The fundamentals of trading remain the same for the retailers and their bigger counterparts. The scale, speed, quality, size, or frequency of their operations differ. So do their budgets, research, and originality of ideas. Success in markets does have a high barrier to entry.
Though the institutions don’t feed on retail capital for their outsized profits. It has been well observed and documented when one hedge fund or trading desk has made money over the losses of their peers.

One mistake, One lesson, A thousand patterns

The trading mistake or lesson is one and the same. It is the inability or ability of the newbies vis-à-vis the pros, to discern information into knowledge. Knowledge of patterns. Not only the chartist patterns of price action but also some meta-patterns affecting trading decisions.
Such as:

• Patterns of market participation.
• Patterns of capital allocation.
• Patterns of asset correlation.
• Patterns of economic cycles.
• Patterns of behavior.
• Patterns of psychology.
• Patterns of errors.
• Patterns of risk bearing.
• Patterns of risk avoidance.

Even the patterns of individual success and failure are crucial for assessment of progress. Through these patterns, or rather with their understanding, one can rise to one’s level of skill, knowledge, and aspiration.
A pattern of mistakes repeating on a scale of time can be studied for peculiar insights or best—can even be franchised!

The stock market does not follow the laws of the jungle, if at all it respects the faculties of intellect. Most money that is lost in the market is lost either due to time, volatility, or stupidity. Stupidity here implies the inability to recognize, perceive, ignore, or acknowledge risk. Those who gain, also gain a lot.