Adapting to Systemic Dysfunction (part I)

By: Joseph Russo | Tue, Jun 1, 2010
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Same As It Ever Was
With the possible exception of Black Swan events, and beyond the amplification and speed with which share prices can persistently collapse following negative episodes of such, there is no difference in navigating markets now (amidst a heightened state of systemic dysfunction) relative to doing so at any other point in market history.

House of PainBlack Swan

Having sad that, we suppose a better title for this article might have been "Why it is essential to maintain sound risk management and if possible, to systematically automate proven technical disciplines regardless of how good or bad prevailing market conditions appear", but it just seemed too darned long.

Every Investment is a Pure Gamble -PERIOD
Specifically relative to ones clearly defined objectives and tolerance for risk, (another way mainstream answers the question of how much of a gambler one may or may not be), it is in our view, far better to be continuously prepared rather than finding oneself in the awkward situation of enduring excessive levels of discomfort while adapting to changing market conditions.

Dice

Be it a Day or a Lifetime
By their very nature and throughout all timeframes, financial markets have always been and shall continue to be notorious for their sudden and dramatic mood swings.

Whether over the course of a single trading session or that of an entire lifetime, sudden and repetitive swings from optimism to pessimism are the core elements upon which share markets thrive.

The House must thrive or there is No Game
Unfortunately, most fail to recognize the nature of the terrain, which suggests that the very core elements upon which markets thrive are those typically responsible for the inevitable deterioration of participants (gamblers) account balances (bankrolls).

Casino exterior

FormulaHappy and sad

Maintaining Tactical Context
Relative to all levels of engagement, the inevitable and never-ending succession of cyclical shifts from optimism to pessimism, and the near-impossible timing of such, makes it extremely difficult for lone participants to position themselves on the right side of trend, not to mention reversing positions when trends inevitably change direction.

Chess

The all too common quandary described above provides testament to the necessity of maintaining strategic disciplines relative to the context in which one has sought to engage in trade (Gamble, Risk, or Speculate) for his or her own benefit.

America
The land of innovation and entrepreneurial spirit could not exist without risk and high stakes gambles. Simply put, innovation is born of extreme risk and intense speculation. Nothing ventured, nothing gained - and to that we shall add, nothing lost - except earned freedom and limitless opportunity.

Founding fathersHand
We The People ...

Casino Interior

One Big Casino (always has been - always will be)
Be it the long-haul investor hoping to cash out with a big retirement bounty after buying and holding for 20-years, or the day trader looking to scalp a day's wage by the end of a trading session, each are gambling on a future outcome to their benefit.

Casino Interior

Tipping the Odds
Despite the greater odds of coming out ahead over a 20-year period vs. a single trading session, there is NO GUARANTEE that such odds will deliver. Just ask those who in 1989 bought and continue to hold large portions of their retirement nest eggs in the Japanese Nikkei Index. After 21-years, the Japanese stock market is still down some 70% from its all-time highs.

Nikkei Chart

Pervent return

Find a Reliable Compass

Accurate charting and forecasting provides traders and investors with one of the most essential tools of navigation, a compass. A professional chartist should be able to forewarn his or her readers of any potential obstacles ahead, and then quickly reorient them upon moving through such waters with specific contingency for their preferred method of travel and comfort.

Compass

No Surprises
Market shocks, sudden shifts in trend, temporary panics, or true Black Swan events, should never come as a surprise for those who employ the services of a chartist who is worth his or her weight.

In part-II, we explore how this chartist plots a course in real time, and we shall reveal precisely where this chartist believes we stand (in Elliott terms) in the grand scheme of things.

Until then,
Trade Better/Invest Smarter

 


 

Joseph Russo

Author: Joseph Russo

Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology

Joseph Russo

Since the dot.com bubble, 911, and the 2002 market crash, Elliott Wave Technology's mission remains the delivery of valuable solutions-based services that empower clients to execute successful trading and investment decisions in all market environments.

Joe Russo is an entrepreneurial publisher and market analyst providing digital online media solutions designed to assist traders and investors in prudently and profitably navigating their exposure to the financial markets.

Since the official launch of his Elliott Wave Technology website in 2005, he has established an outstanding record of accomplishment, including but not limited to, ...

  • In 2005, he elicited a major long-term wealth producing nugget of guidance in suggesting strongly that members give serious consideration to apportioning 10%-20% of their net worth toward the physical acquisition of Gold (@ $400.) and Silver (@ $6.00).

  • In 2006, the (MTA) Market Technicians Association featured his article "Scaling Perceptions amid the Global Equity Boom" in their industry newsletter, "Technically Speaking."

  • On May 6 of 2007, five months prior to the market top in 2007, though still bullish at that time, he publicly warned long-term investors not to be fooled again, in "Bullish Like There's No Tomorrow."

  • On March 10 of 2008, with another 48% of downside remaining to the bottom of the great bear market of 2008-2009, in "V-for Vendetta," using the Wilshire 5000 as proxy, he publicly laid out the case for the depth and amplitude of the unfolding bear market, which marked terminal to a rather nice long-run in equity values.

  • Working extensively with EasyLanguage® programmer George Pruitt in 2010 and 2011, the author of "Building Winning Trading Systems with TradeStation," he assisted in the development of several proprietary trading systems.

  • On February 11, 2011, he publicly made available his call for a key bottom in the long bond at 117 '3/32. Within a year and half from his call, the long bond rallied in excess of 30% to new all time highs in July of 2012.

  • For the benefit of members and his general readership, he responded to widespread levels of economic and financial uncertainty in the development of Prudent Measures in 2012.

  • He publicly warned of a major top in Apple on October 26, 2012 in the very early stages of a 40% decline from its all time high.

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/