11/27/17
Creativity
I wanted to come up with a perspective into economic cycles that is defined by a concept which is an outsider to regular economic concepts. You could think of it as outside forces that affect, or even dictate economic trends. There should be an advantage somewhere in identifying a meta-economic concept, since I keep observing that outsider perspectives tend to be more objective and valuable. I also expected this perspective to be more qualitative than quantitative, and maybe not very much quantitative at all.
My best idea so far is the concept of creativity, and its role in economic cycles could be summed up as follows:
- Creativity is defined as the creation of innovative concepts and/or products
- Creativity is at the essence of wealth injections into financial markets
- Bearish cycles are characterized by creative droughts
- Bullish cycles are characterized by creative prosperity
Seen like this, market behavior makes sense. Creation increases valuation and the new wealth injected into the market is distributed among investors, according to their positions, and this sparks a bullish cycle.
As creative prosperity decreases (can even be due to macroeconomic factors) so does bullish momentum, and eventually the trend reverses. In a bearish cycle creativity under-performs and isn't able to continue propping up the prices and valuation; this creates a market environment that more closely approaches a zero-sum game since not enough value is being added all around, and profitability becomes exclusive to the minority that is able to thrive on speculation. Baseline price (or value) is no longer kept up or kept rising, and investors are left fighting for scraps on the way to the bottom.
This is as good as my "theory" gets. I'm no expert on economics -not even close- and I'm not about to begin seriously studying it any time soon. Still though, I can't help but think about these themes.
Bare-bones simplicity
The lingering thought: "Direct analysis of bare-bones/naked elements with a minimal interference of artificial constructs should yield less fragile/more reliable conclusions"
I've made the choice to only do price action charting for my Technical Analysis. Absolutely zero indicators, merely applying tools and techniques to raw OHLC data presented on a price vs. time chart.
This choice of bare-bones simplicity is slowly creeping into more and more aspects of my life, and I'm not at all opposed to it. I believe it's for the best, it should keep me more objective.
Social choice interference
Slowly I'm coming to the realization of just how detrimental following others is, while blinded by emotion and irrational thinking, simply having faith in that they are correct because they are not you. When put like that, it's painfully obvious that you should not do that.
I've made the mistake of uncritically considering second opinions when trading, and I've made this mistake more times than I care to admit. It is in the essence of trading that everyone (EVERYONE) is competition, and that it is in everyone's interest that everyone else is wrong, makes mistakes and loses. Saying the word "everyone" four times drives the point home, so I'm keeping that.
We are all speculating, so when others opine don't consider their thoughts to be any more valuable than yours or any others'. Be critical of every opinion and always expect the worse so you can avoid it. You win by not losing. And I believe that the best heuristic for dealing with others' opinions is to synthesize them into a whole that is labeled "Market sentiment".
Be wary of extreme sentiments, just as you're wary of extreme prices.