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Something that I am asked a lot is how do I picture the market...
What is the compass that I follow?
Because it’s all well and good having beliefs about what will happen, but if you can’t visualise them easily, then what’s the point?
What is the compass that I follow?
Because it’s all well and good having beliefs about what will happen, but if you can’t visualise them easily, then what’s the point?
I like to call it ‘front loading’ and ‘backloading’ themes.
Market themes come in waves of duration and relevance.
In my head, I like to visualise an engine’s pistons.
Market themes come in waves of duration and relevance.
In my head, I like to visualise an engine’s pistons.
Pistons move up and down to power a vehicle.
Market themes do the same.
As one theme moves up in relevance, it displaces another.
Another way to think of this is overlapping bell curves.
Excuse the drawing that looks like it was done by a 2 year old...
Market themes do the same.
As one theme moves up in relevance, it displaces another.
Another way to think of this is overlapping bell curves.
Excuse the drawing that looks like it was done by a 2 year old...
But this is sort of what I picture.
Yellow is one theme, red another and blue something else.
Along the x axis would be duration and the y, impact (volatility perhaps?).
I try to envisage what would happen to a market under certain conditions.
Yellow is one theme, red another and blue something else.
Along the x axis would be duration and the y, impact (volatility perhaps?).
I try to envisage what would happen to a market under certain conditions.
Themes can have different severities whether they are met in isolation, come together, or follow/precede another specific theme.
Again, apologies.
But here is also a way to think and organise market themes.
Blue is a long duration theme bubbling away, yellow a high impact..
Again, apologies.
But here is also a way to think and organise market themes.
Blue is a long duration theme bubbling away, yellow a high impact..
But short duration, and purple is mid-high impact with a longer duration.
Note in this case that as blue started to tick up, something sparked off yellow which then sparked off purple.
This is simply a mental model to keep track of ‘if’ ‘or’ ‘and’ type thinking.
Note in this case that as blue started to tick up, something sparked off yellow which then sparked off purple.
This is simply a mental model to keep track of ‘if’ ‘or’ ‘and’ type thinking.
Naturally you then focus more concisely on each market but I find that to recall themes easily, this is how I picture them in my head.
I am always asking whether x is relevant, if it is, why is it relevant, what could this relevancy lead to, & what is best & worst case scenario?
I am always asking whether x is relevant, if it is, why is it relevant, what could this relevancy lead to, & what is best & worst case scenario?
This type of thinking certainly enables me to manage a trade well.
But I’m shite at execution - couldn’t pick a level that well if I could see it in the future.
Having a view of how the ebb and flow of a market changes according to potential duration and severity of themes...
But I’m shite at execution - couldn’t pick a level that well if I could see it in the future.
Having a view of how the ebb and flow of a market changes according to potential duration and severity of themes...
Is one of my strong points.
I wrote this to Macrodesiacs when speaking about this exact topic back in April.
Concerning yourself about what is bubbling under the surface and its relevance is vital when looking at markets from a macro perspective.
http://Macrodesiac.com
I wrote this to Macrodesiacs when speaking about this exact topic back in April.
Concerning yourself about what is bubbling under the surface and its relevance is vital when looking at markets from a macro perspective.
http://Macrodesiac.com
