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There is No Reward Without Risk


The goal is not to eliminate risk, but to attempt to control it.



-Employ a multi-tiered top-down approach using Point & Figure methodology as a contextual basis with DeMark indicators overlapped for specific timing decisions.
-Combine technicals with fundamentals.
-Seek to identify contrarian themes for longer-term positioning while searching for positive risk/reward setups for near-term trading.

Key themes:

-Secular bear market remains intact.
-Cycles are ever-changing, and just as investors and traders grow accustomed to one cycle, the market flips the script and moves into a new one.
-The "wisdom of crowds" is nothing more than the revelation of the lowest common denominator, an embracement of mediocrity.
-Consensus is disastrous.

Outlook for the financial markets:

-There have not been any quantifiable stock market "panics" since 2003. Diminished volatility will end, however, just as investors and traders are growing fully accustomed to the present environment.

-The markets will not like the inevitable unwind of real estate-based speculative excesses, but opportunity may present itself as money flows from real estate assets back into equities and bonds. This may dampen market declines to some degree, but will not forestall a resumption of the secular bear market.

Thoughts on controlling risk and staying in the game:

-The worst thing one can do is bet on the favorite to show, capping the upside while remaining open to unlimited loss. By definition, there cannot be reward without risk. Ultimately, the goal is not to eliminate risk (an impossibility anyway) but to attempt to control it.

Outside reading:

-A Wild Sheep Chase by Haruki Murakami
-The Education of a Speculator by Victor Niederhoffer
-Secrets of Professional Turf Betting by Robert Bacon
-Conjectures and Refutations: the Growth of Scientific Knowledge by Karl Popper
-Crowds and Power by Elias Canetti

If I could give one piece of advice to attendees...

"We can, if we so choose, wander aimlessly over the continent of the arbitrary." - Haruki Murakami

The elimination of the arbitrary is critical for a trader who wishes to succeed over time. Decision-making must be grounded in a methodology that does not fall back on seat-of-the-pants guesswork.

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No positions in stocks mentioned.

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