Market Manifesto

We speak here about things we antic­i­pate will hap­pen, and how we watch to see if they occur or not.

Life is filled with end­ings. All about us lives start, flour­ish, and come to an end. Wher­ev­er we look we are sur­round­ed with of bits of vital ener­gy chang­ing form, and this ener­gy flow con­sti­tutes both the mat­ter and the busi­ness of the uni­verse.

On a macro scale we see begin­nings and end­ings in plants and ani­mals, in human beings and their group­ings and asso­ci­a­tions, and in the move­ment of ener­gy in forms such as water and fire, and earth and air.

On a micro lev­el we can­not eas­i­ly see but are also sur­round­ed by bits of ener­gy in the microbes and virus­es and bac­te­ria, the spores and fun­gi, the com­pounds and com­bi­na­tions of acids and pro­teins that make every­thing else work. And wher­ev­er these com­po­nents of life exist, they come togeth­er and fall apart in cease­less and repet­i­tive pat­terns. We may call them life forms, we may call them bio­log­i­cal enti­ties, we may call them some­thing else, but it is clear that even the very build­ing blocks of phys­i­cal real­i­ty have begin­nings and end­ings, and shape and form. These enti­ties start and stop, flow­ing from one form into the next, chang­ing shape and pres­ence again and again over time, with­out end.

The forces of his­to­ry are but the trac­ings of human group­ings and their inter­ac­tions. His­to­ry shows that soci­eties and their sub­groups also flow from frag­ile begin­nings into dom­i­nance and then into end­ings, as one group moves into ascen­dan­cy and oth­er group falls behind, each of the mul­ti­tudi­nous cross-cur­rents with its own rel­a­tive strength. Each end­ing con­tains with­in it the start of some­thing new. And new begin­nings do not start from a vac­u­um but from the end­ing of that which went before. That which los­es force, cre­ates oppor­tu­ni­ty and space for the new to flour­ish.

Watch­ing for the end­ing of things is as com­mon as dirt. It hap­pens every day and in every venue of life, and is in some ways the very core of life itself. We are more attune to end­ings than begin­nings.

Why is this so?

It is because end­ings are ubiq­ui­tous, and easy to see. It is because the char­ac­ter­is­tics of the old are known and the char­ac­ter­is­tics of the new may be unfa­mil­iar. It is because new begin­nings are often hard­er to iden­ti­fy in the same time­ly man­ner with which we can wit­ness the decline of the old. It is because the old pre­cedes the new in time.

Watch­ing for new begin­nings is def­i­nite­ly hard­er than watch­ing for the end of some­thing known.

The frag­ile new ener­gy of an emerg­ing ener­gy field is more dif­fi­cult to wit­ness and thus to mon­i­tor than the end of some­thing known and def­i­nite. The end of the old may leave us with a vac­u­um that will be filled by one of sev­er­al com­pet­ing new ener­gy forces, the strongest of which is not yet appar­ent.

Note that events can seem very dif­fer­ent when we look over our shoul­der at past his­to­ry, and when we see the end of some­thing old and the rise of some­thing new. In hind­sight, the change between the old and the new is eas­i­ly rec­og­nized and ana­lyzed. The con­fu­sions inher­ent in the chaot­ic strug­gle for a new idea to acquire dom­i­nance fade away once the new idea has won the field.

But in trad­ing and in life we must live in the present, and make deci­sions in real time, and iden­ti­fy things as they hap­pen and not after the fact. After the fact is the realm of aca­d­e­mics, and his­to­ri­ans, and arm­chair quar­ter­backs. It is the world of com­men­ta­tors and kib­itzers and sec­ond-guessers. It is the world of con­tem­pla­tive wis­dom, and schol­ar­ly achieve­ment, but also a place of refuge for the fear­ful, the lazy, the inept, and the cow­ard­ly.

So in what way are we inter­est­ed in seek­ing evi­dence of end­ings in order to alert us to the pres­ence of the new? Well, we make metaphor­i­cal argu­ments here that cast light on our prac­ti­cal trad­ing, and are not seek­ing vapor-locked truth. We hold that there is much that can be learned from the way the ends of things and the begin­nings of things are mon­i­tored in oth­er fields – espe­cial­ly in fields that also deal with deci­sion-mak­ing in real time.

In many dis­ci­plines it makes more sense to mon­i­tor the end­ing of the old with the idea in mind that this end­ing gives us ear­ly warn­ing of the new.

Cer­tain­ly that is true in fields like trad­ing, where we are inter­est­ed in activ­i­ty on the edge, on the mar­gin, in the evolv­ing present, in the real time of now. But where else might it make a dif­fer­ence if we look first to the old in order to deter­mine the like­li­hood of the new occur­ring?

In the real world we look to men and women of action to find com­pa­ra­ble analo­gies. We would study gen­er­als and mil­i­tary offi­cers who must make deci­sions of con­se­quence under con­di­tions of inad­e­quate infor­ma­tion in evolv­ing sit­u­a­tions. We look to those busi­ness­men who make high-stakes deci­sions about strat­e­gy based on a vision of that which has not yet occurred. We look at med­ical clin­i­cians who must treat the patient today, not wait until the diag­no­sis can be made based on the cer­tain­ty of autop­sy. We look at sci­en­tif­ic researchers who live on the edge of evolv­ing knowl­edge, spurred on by ques­tions the old order can­not answer, dri­ven for­ward by their thirst for the new.

A busi­ness­man look­ing to start a new busi­ness wish­es to take advan­tage of some­thing new that has not yet emerged, but which holds great poten­tial in the future. How does the busi­ness begin the search for a new prod­uct or ser­vice? Many such search­es are car­ried out uncon­scious­ly, with­out self-aware­ness, but if you think about it most if not all great new busi­ness ini­tia­tives start with the recog­ni­tion of a need. Once the need is rec­og­nized then a solu­tion can be devel­oped to meet that need, and that solu­tion is what forms the basis of the new busi­ness. This is a famil­iar pat­tern, which is repeat­ed over and over and over again in our com­mer­cial soci­ety. Exam­ples of unmet needs becom­ing rec­og­nized and filled with a new prod­uct or ser­vice are on every front.

An unmet need is but a sign that the old way of doing things is not accom­mo­dat­ing the require­ments of the present, and by impli­ca­tion, the future. A “need” is a sign of the old order in stag­na­tion. It is a sign of things end­ing, of an end itself. An unmet need is a sign of old order rigid­i­ty, cal­ci­fi­ca­tion, decay, or death.

New busi­ness­es and the new prod­ucts and ser­vices that fuel this busi­ness have their ori­gins in the old order being unable to meet the needs of the poten­tial cus­tomers. Thus some­one look­ing to start a new busi­ness that is orig­i­nal as opposed to imi­ta­tive, often starts out of the weak­ness and decline and death of the old order.

Mil­i­tary advances in strat­e­gy or weapon­ry are sim­i­lar­ly devel­oped in response to a mature sys­tem of defense or aggres­sion which has stopped evolv­ing to meet each new devel­op­ment. The Mag­inot line in France was a mature defense of the east­ern bor­der of France against the intru­sion of the Ger­mans. Huge amounts of mon­ey were expend­ed between 1918 and 1930 in the con­struc­tion of the for­ti­fi­ca­tions, which con­sist­ed of a 200-mile line of over­lap­ping heavy artillery and con­crete bunkers with under­ground bar­racks and ammo stor­age facil­i­ties and secure com­mu­ni­ca­tions. It was designed to hold off hordes of infantry advanc­ing across the coun­try­side, and it was per­fect­ly designed for that task. Had the ene­my done as expect­ed, the Ger­mans would have been slaugh­tered into mince­meat, France would not have fall­en, Hitler might have con­quered Rus­sia, and the world would be a dif­fer­ent place today.

Of course the unex­pect­ed hap­pened. The Ger­mans rec­og­nized the sta­t­ic line as invul­ner­a­ble to slow advance but vul­ner­a­ble to the rapid mech­a­nized blitzkrieg they employed. Assess­ing the sit­u­a­tion they cor­rect­ly iden­ti­fied the end­ing of an era and this recog­ni­tion spurred them on to the devel­op­ment of the new. The new would not have been cre­at­ed had not the old revealed its signs of cal­ci­fi­ca­tion, rigid­i­ty, stag­na­tion, and impend­ing death.

When events pro­ceed in the flur­ry of new ener­gy, when new ideas and new inven­tions pile upon each oth­er as fast as can be, each top­ping the oth­er only to be topped in turn, then we are not see­ing the end of some­thing, we are see­ing a trend run in full flower. Today’s com­put­er indus­try and the dig­i­tal rev­o­lu­tion would be an excel­lent exam­ple. But when we see stag­na­tion, the accept­ed norm as invi­o­late truth, when we see the young in years become the old in spir­it, when we see needs arise and not be met or attempt­ed to be met as soon as they appear, but rest unmet amid a grow­ing pool of frus­tra­tion and dis­sat­is­fac­tion that may not even rec­og­nize the need itself – then we are see­ing the death of the old order. Then it is time to height­en our aware­ness of the new. Things may well change in a hur­ry, as the new order is like­ly to burst upon the scene.

As traders we are con­stant­ly mon­i­tor­ing the old and the new, and con­stant­ly assess­ing strength, and momen­tum, and activ­i­ty. We mon­i­tor these through abstract chart pat­terns and math­e­mat­i­cal rela­tion­ships that repeat them­selves in ways that we can take advan­tage of for our per­son­al finan­cial gain.

But we should keep in mind that these abstract pat­terns rep­re­sent activ­i­ty in the real world. In our charts we can see the dra­ma of crowd psy­chol­o­gy. We can see the old way of think­ing break down and the new ideas come to the fore and be test­ed. We can see youth over­come age, we see the agile out­run the klutzy, and we see the fresh replace the stale.

When we trade con­ges­tion entrance for exam­ple, we are antic­i­pat­ing the end of some­thing, and also watch­ing for the start of some­thing new, as the mar­ket stops and turns and moves into con­ges­tion. But by the time the turn does in fact occur, it is too late for opti­mal trade place­ment (for the aggres­sive trad­er any­way). So in order to make the trade we focus on the char­ac­ter­is­tics of that which is end­ing, so we can see when it changes, and take action at the ear­li­est pos­si­ble moment.

Our exam­ples draw from sci­ence, and busi­ness, and the his­to­ry of war and peo­ples. One would think that these analo­gies of the new and the old, and how we watch for the new by first watch­ing for the demise of the old, would apply only to very long time frames.

That is not the case. Time is rel­a­tive in trad­ing, not absolute. An idea may orig­i­nate, emerge, flour­ish, grow stale, cal­ci­fy, and die in a mat­ter of hours, or even min­utes. A sim­i­lar pat­tern may exist in days, and then again in weeks, or months, or years. The recog­ni­tion that pat­terns reap­pear in dif­fer­ent time frames is one of the great advan­tages of our method­ol­o­gy.

But always, we find ben­e­fit in look­ing for the end of the old, and the begin­ning of the new. And often we find the lat­ter by first iden­ti­fy­ing the for­mer.