by Alexander Mirolubov
Imagine that we have started successfully and feel ourselves good enough in the three dimension world. We keep in mind currency pairs dynamics. We were able to provide a chart for our financial instrument. We have learned the signs of its coming up trend, and we know the means of controlling it. Why do we do all these things? Maybe, we do it to get the maximum profit from our position?
Again, I say "No!"
Actually, we did all that with one purpose only - to make ourselves able to throw this created in secrecy, sophisticated, not without touch of genius, plan - and we really worked hard to create it! - just to throw this piece of paper into the closest garbage bin. Why? Are you asking me? Don't you have guessed yet?
Yes, you are right, - just because the reality - surprising and multifaceted - always is more complicated than any single diagram born by our small (in comparison to the Universe) mind. There is no doubt in that.
Are you scared now? You better be... At that stage, I guess, many of you may decide that financial markets are not for them. How true they are...
Stop. So many efforts - and for nothing?
OK. There is always some hope. Those who are brave enough to pass through this stage - they will come into another, forth, dimension. Yes, to the forth dimension. I would like to point out: when we discussed earlier the necessity of throwing away our chart, the stress should be not on "throw out". It should be on the word "single". It gives us a hope: if we are not able to guarantee the quality, we may try to add quantities to our forecast.
It makes sense. Instead of one chart with one forecasted scenario, we may create two. Or more. Several different scenarios of a sequence of the future events are much better than just one. It increases our chance to win. So, now we get to the fifth dimension. It looks like that the further we go, the more dimensions we have.
Some skeptics may say that there is no use in having so many graphs of the future market behavior as we do not know what scenario will be implemented. You do not need to know that. It is much more important to learn how to feel the forces that lead to the implementation of some or other scenario as well as to feel how far we are at any given moment from the bifurcation point where one scenario can be changed to another with a very small effort. And, of course, every - every! - second you should keep your mind, and eyes, and ears open.
What do we have now? Different scenarios, lots of charts, an understanding of forces in play, levels of resistance, the closeness to the point of change (turning point? bifurcation point?). How many dimensions are we talking about? Six? Seven? Maybe, nine (remember, nine cat's lives)? I guess, there are more. Believe me and have no doubt: events that lead to a well-known two-dimensional price chart are revealing themselves in a multidimensional reality. Two-dimensional price chart is just a weak attempt to reflect this fact. It is just a shadow on the sand...
Keeping in mind all these things, does it mean that we must live in this very complicated multidimensional reality to be able to make money on the financial markets? Let us leave this question for now.
I see more people leaving. They decide to pursue some other career. Good for them. I do mean it. Those who stay should be prepared for more unpleasant surprises. There will be nothing new, just more dimensions added. And it becomes really nasty as we have to look now inside ourselves.
If we compare trading to some other human activity, it reminds me sailing in the ocean. The markets are like the ocean, with all its fascination and danger. And we are sailing there, in a frail boat, with a frayed bottom that has somehow fixed holes in it, and with rotten planks, slimy and slippery, that are ready to help a careless mariner to fall any moment.
Where we are? We have several scenarios that should help us to adjust to future changes. It means that we need to monitor the situation, analyze it and its possible development, - and make our decisions, sometimes painful decisions. Though it is not easy, we are still managing it, we are comfortable, relaxed, and our emotions are under control - as long as our money is not involved yet. It is a stage of paper trading. Some beginners believe that it will continue to be so when they move to a real trading. What a mistake! The first touch of reality will bring new challenges.
So, we made a decision and put all our money on something. We opened a position according to our model. And the market goes to the "wrong" side! We start losing money. What has happened to our minds? Are we still thinking clearly? And what about the analysis we were so good at while paper trading? To keep in mind all these levels needs a lot of energy while a big portion of this energy is wasted on controlling our emotions. Instead of multi dimensional world, we find ourselves looking again at that same two-dimensional chart, and we are panicking: "What is going on? what should we do? To buy or to hold a bit longer? God help us!". Therefore, it makes sense - before starting to do anything with the real money - we have to define how far we are able to go in terns of risking our money. And all different scenarios of the probable price movement that we have discussed earlier must be reconsidered in the light of our risk tolerance that we have just figured out. Plus: remember that everything here - everything! - is not stable and is changing all the time due to many reasons, known and unknown to us.
Are you too confused, my the most devoted reader? It is quite possible that only you are still reading this while all others left. It is also quite possible that you might become a good trader - that one who can afford to fly for a weekend from Boston to New Caledonia, just to see the plants survived the dinosaurs time or windsurf a bit... Or do you prefer going there some weekdays, too?
OK, it does not matter. Let us return to the question of living in multidimensional reality of the financial markets and to the question of a necessity of considering as many dimensions as possible. Should we do all that? The answer is simple: to survive and to live in the market reality - yes, we must be aware of multi dimensions; to take them all into account at any given moment - no, we should not. It would be the worst mistake that we can do - to go for a task that cannot be achieved. Trying to consider everything is the most stupid thing to do, even stupider than a naive understand of financial markets that I have started with. It would be, I believe, the most pathetic mistake of all possible ones. As we say nowadays, the only reaction to it could be "laughing out loud - LOL".
You may ask me why I have written all of this. I guess just to show you that it is not a simple matter, that you should expect hard time ahead, sometimes really hard time. And the desired result is not guaranteed... I would compare it with ... a dance. Yes, a dance. My teacher told me about that. Just imagine that you invite a beautiful woman to dance with you. How many dimensions are affected when you do that? Definitely, not just three common dimensions... How about the expression of your face, her smile, your and her emotions, a feel of her hand in yours? Add there an occasional touch of your bodies, words and glances that you have exchanged, the music, a special tune, and... The secret of success in dancing is keeping the rhythm. Only a fool would try to predict something here. But - after many awkward moments, failures that you will face for sure (however sad it may sound) - after all that experience something may trigger inside you, and you will understand - a right proportion of intuition, technique, cold blood calculations and desire to take the risks. The secret of successful speculation is unspeakable as is unspeakable the secret of a perfect dance that leads to a night full of passion and pleasure...
October 26, 2010