Trading Traps or What is Obvious is Obviously Wrong

Peter Borish

“When anyone asks me how I can best describe my experience in nearly forty years at sea, I merely say, uneventful. Of course there have been winter gales, and storms and fog and the like. But in all my experience I have never been in any accident of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and have never been wrecked, nor was I ever in any predicament that threatened to end in disaster of any sort.”

Uncertain Waters Ahead

E.J. Smith, 1907Captain, RMS Titanic

What’s Obvious is Obviously Wrong• After the fact, there is always a reason. Price

make news not the other way around• I may have been wrong, missed something but

in retrospect it is crystal clear• As an analyst, I can explain things perfectly – As

a trader, I need to focus on uncertain tomorrow• “If you drive looking in rear view mirror, you’re

bound to hit a light pole.”

• “Being so critical, I am often considered a contrarian. But I am very cautious about going against the herd: I am liable to be trampled on.

• According to my theory of initially self-reinforcing, but eventually self-defeating trends, the trend is your friend most of the way: trend followers only get hurt at inflection points, where the trend changes.

• Most of the time I am a trend follower, but all the time I am aware that I am a member of a herd and I am on the lookout for inflection points.”

• George Soros, Soros on Soros, Staying Ahead of the Curve,• September 1995.

Staying Ahead of the Curve

"If I could figure out a way to determine whether or not people are more fearful or changing to more

euphoric, and have a third way of figuring out which of the two things are working, I don't need any big mathematical models of forecasting the economy.  I could forecast the economy better

than any way I know.  Forecasting 50 years ago was as good or as bad as it is today.  And the

reason is that human nature hasn't changed." Dr. Alan Greenspan

Probable Outcomes• Fundamentals aren’t wrong – your interpretation is

wrong• “The markets are always right”• Trading and risk management are inherently

unnatural characteristics• Batting average is relatively low - must have

risk/reward ratio • Are you making money?• Don’t use consensus to justify position in market

Possible Inflection Points• Widely disseminated news that

seemingly comes out of nowhere• You don’t have to be a weatherman to

know which way wind blows• On lookout for inflection points

Globalization Can Not Repeal the Laws of Trading

• Entrance is easy – Exit is hard• Adding markets is not necessarily

diversification• When accidents happen they tend to

occur in all markets simultaneously• No pain when looking back from a

positive outcome

If You Survive, You Win• Longevity• Want to have approach that works over

time and through market cycles• Don’t get into the habit of looking at the

scoreboard