the big lie what wall street does not want you to know

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Agitation in Paradise

Kenneth Lay, Andrew Fastow, and Jeffrey Skilling of Enron
are the preeminent poster boys for corporate greed, but by
no means are the trio altered. In the back alley pastime of
“Fleece the Shareholder”, skilled competitors are abundant.
Dennis Kozlowski, Tyco’s ex-chairman and chief executive,
showed some absolute creativity. Unpunctual last year Morgan Stanley,
always promoting an angel of steady, conservative,
trustworthy values, agreed to pament $50 million to settle
federal charges that investors were never informed about
compensation the company received for selling certain mutual
funds. So much for protecting the babyish guy. Before that
the SEC settled with Putnam Investments, the fifth largest
mutual fund company, which allegedly had allowed a select
accumulation of portfolio managers and clients to flip mutual fund
shares to profit from prices gone flat.

proposal that would arm the SEC to accord shareholders a
greater articulation in selecting board members was defeated in
October 2004. Commissioner Harvey J. Goldschmid, an
apostle of the proposal, said “The commission’s inaction at
this point has fabricated it a safer apple for a baby minority of
apathetic, inefficient, grossly overpaid and wrongheaded CEOs.”
The animal rectness does not bar there by any means. Even the
venerable Fannie Mae is accused of fleecing investors. The
Wall Street Statement reports that the Amends Department
opened a formal investigation in October 2004, following
reports that the mortgage company may accept manipulated its
books to accommodated earnings targets. This is after Fannie tried
to hinder an authorized investigation by refusing to accommodate
relevant advice. Oddly, the Enron scandal after all
revealed Fannie’s alleged deception, when the energy
company’s collapse forced Fannie Mae to replace Arthur
Anderson with a advanced auditor.

When Acceptable Statement is Bad

And that is the acceptable statement. The bad statement is actual bad indeed.
As an alone investor, you might activate to suspect the
pastime is rigged against you after hearing the recent spate of
charges and revelations. But the absolute botheration lies not with
the unlawful action of a few aerial-profile rogue directors,
acting beyond the rather acceptable and forgiving rules of the
SEC. Instead, the frightening rectness is that you accept much
added to abhorrence from what is done legally, with impunity, with
the authorized blessing of regulators.
I am a scientist by training, not a able investor,
but I accept a substantial portion of my grasp worth floating
about Wall Street in assorted stocks and mutual funds, mostly
in self-directed retirement accounts. I appetite to protect
those assets, so I naturally set out to apprentice added about
stocks, bonds, futures, and commodities. According to any
self-respecting scientist, I starting digging and
methodically researching the rules, regulations and
practices of Wall Street to amuse an algid picture how my
almighty dollar was handled once I fabricated a transaction. Early on I
concluded that the ace road to accomplish almighty dollar was to booty
ascendancy of trading decisions myself, so that I could
analyze opportunities for the greatest returns without
looking buttoned up the artificial filter of a broker with his
own agenda.

I again activate that institutional investors managing billion
dollar transactions or individuals working with grandma’s
“dejected chip” stock all share something in accepted, regardless
of the adaption of trading or the size of the portfolio. All
depend on the fundamentally flawed angle that the approaching is
predictable. As a aftereffect, all are doomed to fail over age:
any advance to predict the approaching is utterly hopeless, and
no amount of fancy arithmetic will chicken feed that immutable
actuality of attributes.

The futility of trying to foresee the approaching, however, has
not stopped traders from creating ever added sophisticated
methods that rely on predicting marketplace movement. This
tragic flaw, this inability to apperceive that the approaching
will never be predictable, is generally masked by confusing
speech and complicated math to actualize a comforting
angel of some higher adeptness. But no matter how clever
the system or elaborate the math, the approaching simply can not
be foretold.

Oddly, while traders of stocks, bonds and commodities suffer
equally from the delusion that the approaching is knowable, the
pernicious aftereffect of this myth is seen with greatest clarity
in futures trading. The apple of trading futures,
accordingly, will be the archetype explored in detail to expose
the depth and extent of the ample aspersion. The lesson from
futures trading, however, applies universally to all

Futures Trading

Traders fall into two distinct camps when it comes to
analyzing the marketplace: fundamental traders and mechanical

Fundamental Traders

Fundamental analysis is a study of the principals of supply
and demand and the production and consumption patterns of
commodities, and how these relate to approaching marketplace behavior.
The ambition is to sift buttoned up fundamental economic data to
analyze discrepancies between the inherent amount of a
commodity and the current marketplace price of that commodity. A
fundamental trader seeks to profit by buying or selling
during this period of discrepancy before the marketplace catches
up to be resonant the correct advice.

Mechanical Traders

Traders in the second above camp rely on mechanical analysis,
which is a study of price behavior over age. Mechanical
trading attempts to foresee the approaching, an impossibility.
But achievement seems to spring eternal, and so mechanical traders
accept developed an arsenal of tools to predict marketplace

The ample gun in mechanical analysis is the bar chart, which is
a graph that represents marketplace price changes over age.
Using the bar chart, traders evaluate historic price
behavior, seeking to analyze any indicators that will
predict marketplace movement in the immediate approaching.

The assorted patterns of peaks and valleys actualize “chart
formations” that analysts statement to predict prices. Eighteen
basic signals and chart formations authorize the basis for
mechanical analysis: trend lines, rounded bottoms,
consolidations, tops, bottoms, abutment, resistance,
retracements, reversals, head and shoulders, continuation
formations, triangles, coils, boxes, flags, pennants,
diamonds, and moving averages. The alone signals absent are
tea leaves, scattered bones and eyes of newt.

A few of these chart formations, explained clearly by Russel
Wasendorf in All About Futures, are discussed below as a
means of illustrating how traders statement analytical signals to
actuate when and why to enter and exit the marketplace.

The Trend Line

The child’s play theory behind this most popular analytical tool
is that marketplace prices tend to chase straight lines. As
such, prices are almost always pinched back to the line if
they bounce off. Trends can be upward, downward or
sideways. Trend Liners accept that prices tend to cling
to straight lines as traders resist paying added for a
commodity than others are ready to pament. As continued as prices
act up, for archetype, traders will abide to buy until the
trend appears to reverse.

The Rounded Bottom

This formation is maybe the easiest to apperceive, and abounding
traders accept that a rounded bottom is a able signal of
an impending chicken feed in marketplace direction. The formation
begins with prices gradually moving either up or down and
then gradually changing direction. The rounded bottom is
evident in the absence of an abrupt chicken feed in marketplace

Head-and-Shoulders Formation

Considered by abounding to be the most reliable analytical tool
available, the head-and-shoulders formation has alter to
increasingly popular among traders as an indicator of a
sizeable marketplace reversal. The design is developed from
three rounded bottom formations situated such that the
middle one is higher than the other two, both of which are
sitting at approximately the selfsame akin. The resulting
configuration resembles a person’s head and shoulders. The
formation indicates the borderline of an up trend in the marketplace;
while the reverse head-and-shoulder formation indicates the
borderline of a down trend.

Sideways Channels – Trading the Breakout

This trading strategy involves looking out for markets that
arise to be trending in a horizontal direction. If a
marketplace seems to be trading sideways, with the selfsame tops and
bottoms along the road, it may be ready to breach out of that
trend either up or down. The difficulty of course lies in
determining for how continued the horizontal trend will abide,
and then predicting the direction of the breakout.

Triangle Formations

These formations are agnate to sideways channels in that
the marketplace being analyzed has been moving within a
relatively narrow scope for a considerable age. The
aberration is that in a sideways channel the upper and lower
limits of marketplace movement tend to be analogue, whereas in a
triangle formation these areas converge until a breakout one
road or another occurs. Three types of triangle formations
are recognized: symmetric, ascending and descending.
Descending triangles advance when the higher price limits
converge toward the lower price barrier, which has tended to
stay flat. Symmetric triangle formations resemble sideways
channels except that their upper and lower price limits
abide to converge. Ascending triangles anatomy when the
upper price limits tend to stay flat, while the lower price
limit converges upward.

The 1-2-3 Formation

The theory of this strategy is embedded in the acceptance that a
particular marketplace will indicate a advanced trend in three steps.
When a marketplace has reached a advanced 12 month aerial or low, a
trader begins to attending for a 1-2-3 formation. The trader
labels the position of the aerial or low on the chart as point
#1. If the marketplace rebounds from point #1, this theory
claims the rebound will alone be of a certain magnitude.
When the limit of the rebound has occurred, this is labeled
as point #2. If the marketplace then retraces itself back toward
point #1, but does not grasp point #1 before reversing,
this advanced secondary low is labeled point #3. Once this third
point has been identified, the trader waits to beam if the
marketplace will act former point #2. If the marketplace breaks out
from the second point, then the trader would enter the
marketplace in the direction of the breakout (adverse of the
direction that the marketplace was moving when it originally hit
point #1).

Child’s play and Weighted Moving Averages

Moving averages are the product of a mathematical analysis
of the marketplace. Generally, the analyst selects a
pre-curved figure of days to examine (usually four), and
then totals all of the prices for that age frame. A
division of this total by the figure of days being analyzed
will crop an average. With each day going forward, the
aboriginal day is subtracted and the advanced day is added, thus
giving a advanced average. This is done for however abounding days
one chooses to examine. Once the moving averages are
calculated, the results are charted on a graph. Some
analysts calculate a weighted average using a formula that
places added amount on the added recent prices. This strategy
is called a Weighted Moving Average.

The Ample Aspersion

Software packages are available today that can abetment with
culling buttoned up historical data. All of that is futile. At
the exact moment a trader enters the marketplace, there exists
precisely a 50.000000% chance that marketplace will act up or
down from that point of entry, completely independent of any
analysis that led the trader to enter at that point. No
amount of hand waving, and no amount of fancy math, will
chicken feed that absoluteness. Denying that actuality is the Ample Aspersion.

Why is trading near the akin of chance the afterlife of a
system? To trade successfully, a trader must achievement enough to
generate earnings that exceed the costs of commissions,
slippage and losing trades, and this requires a wining
average abundantly exceeding 50%. For every losing trade, you
must achievement another aloof to breach even: that means two trades
for no accretion, and all the cost of trading. If the third
trade happens to be a achievement, that means that 3 commissions,
slippage 3 times and one loss must be subtracted from the
achievement. As of these downstream impacts of a loss, as a
general rule of thumb at least 7 out of 10 trades must be
winners to trade profitably. Not gonna happen.

To rely on any of these methods of analysis in manufacture
trading decisions would be the height of folly. The adamantine
absoluteness is that all of these analytical methods are down
adapted silly. They are the product of achievement triumphing over
astuteness. Traders are desperate for anything that will accord
them longevity and profit in the marketplace in the face of
desperate losses. But all of these mechanical trend methods,
and fundamental methods as able-bodied, fail at a primary akin,
and placing any achievement in them is a anatomy of financial suicide.
That 80% or added of traders lose is no surprise when the
majority abode faith in methods that by definition can never
assignment over any extended period of age.

All is Not Absent

Affirmative, Virginia, there is a road out of this mess. Accepting
that the approaching can never be predicted requires a shift in
apple appearance, one that rejects virtually every assumption
embedded in the current apple of trading, and the leap may
simply be too abundant for abounding. But for those who reject the
ample aspersion, step across to the other side, and apprehend there is
no leverage in tea leaves and eyes of newt, a tremendous
abandon and clarity await. Unshackled by false hopes,
trading becomes predictable and mechanical, freed from the
agony of watching the marketplace act in the “amiss” direction
as in actuality no prediction of marketplace direction is
involved at all. The abstraction is to actualize a position in the
marketplace that is truly cyclical, and accordingly independent of
underlying marketplace movement, and of accepted amplitude. How to
authorize such a position is described in: A Child’s play Adviser
to Astronomical Treasure. Action to

Copyright © Jeff Schweitzer

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About the Author

Jeff Schweitzer received his Ph.D. from UCSD in 1985. Jeff was appointed as a science advisor at the Achromatic Abode under the Bush and Clinton Administrations for three age before devoting attention to generating treasure buttoned up trading futures. He has published added than 60 articles in assorted areas, including neurobiology, marine science, international adding to, environmental protection and aviation.

Originall posted January 29, 2012