Sunday, 20 April 2014

The Secret World Of Gold

In light of the Chinese demand we discussed earlier, the ongoing manipulation of ‘rigged’ markets everywhere, and rising geopolitical tensions (as the de-escalation continues), we thought it worth dusting off this excellent and wide-ranging look at the history and present of the barbarous relic, gathering many perspectives (pro and con) on gold.

The following documentary moves from historical shipwrecks to Nazi ‘death gold’ and England’s war chest to recent years where widespread economic uncertainty has given the yellow metal a “new lustre in the world of high finance.” Valued for its permanence, beauty and scarcity, people will lie, cheat, steal and kill in the name of gold; and the clip provides colour on many of the market manipulations of the last few years. As MacDonald says, whether it’s a few gold coins or gold bars stored in one of the many vaults around the world, many investors are taking a shine to gold. But there’s not a lot of it. It is said that, even melted down, there would not be enough to fill an Olympic swimming pool. Some claim that much of the gold held by the Bank of Canada, the Bank of England, the Federal Reserve and Fort Knox is gone – that for every 100 ounces of gold traded, there exists only one ounce of real, physical gold. So, where is the gold – and who really owns it?


The Four Types of Trades

First, I encourage you to remember that the market can go up, down, or sideways, in any time frame, and it is out of our control. We all know that.

But there are things within our control. Trading what, when, and how much are within our control. Our P&L is at the intersection of what is within our control and not.

In order to navigate this busy intersection, it’s helpful to think of four possible types of trades or trade outcomes.

Type One:
The first type of trade is when you execute on your edge, your thesis, or your plan and the outcome is positive – you make money. The trade is in synch with the market – or as one of my clients says, “The market cooperated”. Everyone’s favorite type!

Type Two:
The second type of trade is where you execute on your edge, your thesis, stick to your plan and the outcome is negative, you lose money. For whatever reason, the market did not cooperate. We know there will always be a number of these type two trades. Good traders not only know this, they accept it as part of the business.

Type Three:
The third type of trade is when you do the wrong thing – you veer from your edge, forget your thesis, or ignore your plan and the outcome is negative – losing money. This is the trade we look back on after the fact and say, “Why did I do that again”! And often you can see pretty clearly, after the fact, what you ignored or minimized during the trade, when you were caught up in trading your P&L more than the market.

Many traders experience this type of trade, but the better traders have much fewer. The better traders learn from their type three trades. They learn about the market and they learn about themselves.

Type Four:
The fourth type of trade is when you do the wrong thing, ignore your plan, but the outcome is positive. Examples of a type four trade include an impulse trade that pays off, or doubling down on a loser, or holding a loser far too long (incurring opportunity costs along the way) until it finally turns into a winner. Type four trades are an example of getting rewarded for the wrong behavior. Type four trades have the potential to be the most dangerous type of trade with respect to your mind.

Type four trades are an example of variable, or random intermittent reinforcement, getting rewarded randomly. Psychologists have long known behaviors rewarded with random intermittent rewards are among the most difficult behaviors to extinguish.

A great example of this is the obsessive or addictive behavior seen when some people play the slot machines in a casino. On the behavioral level they are responding to a variable intermittent schedule of reinforcement. On a biological level, the brain’s neurological reward circuits involving biochemicals such as dopamine are very active; creating a neuro-behavioral system that is difficult to break.

High performing traders don’t want to reinforce bad habits. I know this from working with many elite high performing traders and portfolio managers. The best traders learn to do more of what works and less of what doesn’t. That’s how they become great and remain great.

The place to start is by tracking all your trades and categorizing them into these types.
Extracted  article from

Quote for the day

“In the present generation Jesse Livermore's operations are the most spectacular, but he is not by any means always right. Like all other traders, big or little, he makes serious mistakes at times. He has personally described to me his methods in detail. They provide for mistakes, accidents, errors in judgement and those unexpected happenings which every big or little operator must allow for.” - Richard D. Wyckoff