Way back in the day, so far back in fact that I only vaguely remember it as reruns, there was a TV game show called The Newlywed Game. It had a pretty simple but entertaining premise – put several newlywed couples together in front of the cameras and ask them some silly and embarrassing, euphemistic questions about their domestic life to see which couples knew their spouses the best. Winning was pretty simple too. Answer correctly and accumulate points. Rack up the most points to win a new fridge, microwave, or washing machine. Domestic bliss indeed…
You may be thinking what’s this have to do with trading? Well, in a word, everything.
Over the years I have become convinced that in order to succeed at trading anything well over the long haul you must come to know your particular instrument(s) and its behaviors just like you would a sibling, spouse or significant other. Some of you have heard me say it before, and I am saying it again now.
If you were called onto a game show which asked you some pointed questions about your favorite trading instrument, would you stutter, stammer and stumble over your answers? Or would you answer with the calm confidence that only comes from deep understanding?
In this new series of posts I am going to explore some practical ways you might use to get to know your instrument, quantitatively, as well as create some new market studies and publish them here. In truth, I think there are two kinds of knowledge in this domain: qualitative/intuitive; and quantitative/hard facts. If you haven’t guessed already, this series will focus on the latter.
So, What Do You Want to Know?
All formal inquiry starts with curiosity, articulated as a question and then wrapped in a hypothesis. To that end, we’re going to explore the process, step by step, of trying to understand essential price, volume and time-related characteristics of several instruments individually and in relation to each other. Many instruments, especially the futures, have very distinct personalities. So let’s discover and quantify those distinctions. And hopefully we’ll increase our chances of taking home that snazzy new dishwasher or refrigerator-freezer combo like the couples on the game show.
So until next time… trade ’em well.