When Science Fails Just Wing It

Markets and why the old indicators ain't working no more.......

Cramer reported on his TV show the other day that the old indicators were not working and he didn't understand why. My background is futures and we frequently have a breakdown in our indicators that most often straighten themselves out. But sometime in the early 90s our techniques started to fail us. This happened with the simultaneous introduction of electronic trading on a world wide scale. The volume has gone through the roof since then and the best minds are saying that the imbalance between the buyers and sellers is overwhelming the immediate liquidity of the marketplace.

What does this mean? You intend to buy a thousand shares of X at $100 but end up being filled at prices between $109 and $113. Stops mean nothing because the exchange suddenly calls "fast markets" or simply will not accept a limit order or guarantee a stop will be executed. Just imagine world wide buy stops at 100. The market will rocket with no sellers til 112 is hit. This volume simply makes it impossible to find a closing price because of the backlog of orders in all exchanges all over the world (and makes "mark to market" a fucking joke). Price discovery is almost impossible to find these days. Time is what matters, not price because price is no longer a data point. You absolutely have to know how much volume and at what price in the past trades occurred. Only a system that includes time as the major reference point means anything. And back testing should be made an illegal selling tool because it simply doesn't work.

It's a cowardly and very difficult new world......