10.08
It has been well studied by economic theorists and well recognized by financial operators that markets are not predictable. If so, how is it possible to outline a speculative theory? What good is conceptualized that the market will do this or that, if they do not respond to any theory or oracle? Is it possible to speculate with some success in the markets? In this article, we will try to answer these questions.
First, we think, that it is possible to speculate in the market, not based on any technical or financial model of ex-ante prediction, but based on speculative principle.
Markets move back and forth along a sinusoidal path and unfortunately do not behave exactly as predicted by Modern Portfolio Theory, as it constantly breaks with the balance embodied in the CAPM. When broken balances, trend-setting markets: upward or downward. Within these trends, they move the various sectors that comprise the index. In particular, the Standard & Poor 500, consists of 9 different economic sectors. The relative movements of these sectors are mainly produced by the phenomenon known as distribution but always within the lines established by the aggregate market. Thus, if a market is clearly bullish, which is reflected in the indicator known as Momentum, most sectors will move in that direction under the distribution scheme outlined above.
One area that does not move in phase with the market momentum is definitely a sector that has problems. The nature of that problem may be well known or not. But that is not relevant to the speculator, the important thing is to know that there are problems and we must conclude that it is not convenient to think of compromise in that sector and in the direction of Momentum.
Within each sector, we have the various titles that move mainly in phase or in “tandem” with its sector. If we find a title that definitely moves opposite to the general movement is a title with problems. The investor is very interested in the details of which may be the difficulty of the enterprise. The speculator is enough to know that this specimen is in trouble and should not be used to speculate on the direction of Momentum.
Speculative Principle states that if a title does not behave “as should” function as explained here, should not be seen, not to negotiate and if he had taken sides in this position must be covered, ie, the title should be terminated. Not arguing against gravity. In general, not argue against principles. The speculator does not argue against speculative principle.
It is improper to build speculative ideas on the title with “bad behavior” by which, at some point and based on some pricing theory or another, to come back in phase with the main movement. That is the task of the investor, not the speculator. The speculator is not predicted, not predicted, in a word, it keeps expectations. That is not their role and if he does a bad speculator.
This seems an anti-sense not to keep our expectations operator. So how speculation? The speculator does not work under the scheme “is entitled to do so” but under the “title is doing” that is, the speculator must act strictly as an instrument made objectively and in relation to what the market and without Divergence. In the markets, do not think anything will happen, until it is happening.
There are different indicators and methodologies by which a speculator decides to take action. This in aspect will not cover this short article. What if we want to emphasize is that the action finally entering its order should start generating cash. We placed an order for it to work, not to suffer hot flashes. If once placed the order, the market clearly contradicts our speculation, the operator must be adhered to any concept or idea, the speculative principle.
While not treated the speculative principle, there will always be concepts for which we must remain in infamy: losing money. Assimilating the principle set is like the speculator will comply fully with that old advice from a legendary financial operator: “I sell what I show a loss, keep showing me what benefit” speculators So friends never argue in against the monitor.
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