The Future Syndrome

The Traderman Diaries have been appearing on and off in my musings. While he maintains a daily diary, most often his notes are irrelevant to trading. But in recent times he seems to have changed to writing about issues that haunt a trader. This is what he wrote on Tuesday evening after the market hours and I reproduce it here.

Dear Diary, I had a great time today. I saw a colleague reading the papers intently. Then I saw it was the horoscope! What is it with people and knowing the future? I tell you I cannot understand it at all! I want to live in the NOW! Any way I am digressing. So I asked this friend, “Can your astrologer predict where the market is headed too?” I thought I had asked a rhetorical question you know. But he actually gave me details of a couple of good astrologers who are specialised in market predictions!

The poor fool, if the astrologer could predict the future, why does he not trade it? In any case dear diary, I, the Stupendous Traderman, am not here to enlighten. I am here to make money so I encouraged my friend to continue in his endeavours to predict the future of the Nifty! One competitor less to worry about I say!

Dear Diary: Then I quickly got down to my analysis of the market! I am long on the Nifty as per my trading system. I then looked elsewhere to confirm my long trade. I looked at the Baltic Dry Freight Index. I assumed that the Freight rates must be a function of volume of trade between countries which in turn must be an indicator of the strength of the economy. I am not completely certain that this logic holds all the time but a cursory google search did not reveal any obvious objections to this deduction. So I went ahead and investigated the Index. To my dismay I found that the BD Freight Index is in a downtrend and definitely does not support my long position!

Dear Diary, after this piece of bad news I doubled my efforts and searched the ratio of Copper to Gold. The logic being if this ratio outperforms then it means that the demand of industrial metals exceeds that of precious metals...... usually a sign of improving economic performance you will agree. Unfortunately, there was nothing there too to support a rally. The trend is still down for that ratio.

Dear Diary, It looks like the economy is not really picking up at all! If the two indices are predicting anything then it is that the market uptrend cannot continue for long. It looks like I am in trouble dear diary!

But what is wrong with me? I must be losing it! How come a superhero system trader like me is worried about other assets and looking for information that can predict the future of the Nifty? Have some villains managed to slip in some virtual kryptonite into my trading software?

Dear Diary, I am beginning to realise that even a great trader like me is not immune from the seductions of predictions or forecasts of the future. I see deep down a need to be able to pre-empt the moves in Nifty rather than react to the moves in the Nifty. This need for prediction afflicts everybody because it is so insidious. It manifests itself in some through a search for astrological predictions and in others in their effort to find some lead indicators which can predict trends in the assets they trade! In some others it manifests itself in reading every news paper and watching multiple Business News Channels in an effort to get every piece of information in the market!

This mental affliction, this syndrome, I will call as the Future Syndrome. A trader afflicted by this Syndrome tries to find a way to forecast the move in the asset he is trading using any and every data that is available in the market.

Dear Diary, you might be forgiven for assuming that I would be satisfied with discovering this incredible Syndrome that afflicts all traders at some time in their career. But not for nothing am I so successful! Not for nothing do they call me the Stupendous Traderman! I had to find out who are the likely candidates to be afflicted by this syndrome, what determines the intensity of this affliction and also find a remedy for this.

On deep introspection and a lot of research-which included staring out of the window for 2 minutes in deep thought- I have come to the conclusion that this syndrome usually afflicts the trader whose P/L is not healthy. And the intensity of the affliction is inversely proportional to the profits in the book. The lower the profits the higher the intensity of the affliction! This I will call the Universal Law of the Future Syndrome.

Do I stop at this and leave the poor sufferers to their lot? No. Never. A lesser person may have been tempted to do so but I am duty bound to serve my fellow trader. I am blessed with great intelligence and as my fellow superhero Spiderman once said “with great power comes great responsibility.”

So again I went into my introspection mode and divined the solution! The cure lies in just trading each asset on its individual merit without worrying about the correlation across asset classes. Just follow the rules of trading for the individual securities. A couple of weeks of this single minded effort will be very effective in ridding oneself of this syndrome.

Can you imagine!!! In one day of writing this Diary I have discovered a Syndrome, found the law that governs it and even discovered a cure. Just think what can happen if I continue to write this Diary for a year!!!.

And so ended one more day of the Diary of Traderman. He is full of himself but there is some truth in what he says. The need to predict the future can lead to some disastrous consequences for a trader. In any case, I am long and will continue to remain long until 5170 is broken on the Nifty futures.