The Quest for Trading Truth

trading truths

 

Behind it all is surely an idea so simple, so beautiful, that when we grasp it — in a decade, a century, or a millennium — we will all say to each other, how could it have been otherwise? How could we have been so stupid?

John Archibald Wheeler, Annals of the New York
Academy of Sciences
(1986)

The renowned physicist David Deutsch uses this quote to start his book, The Beginning of Infinity.

In the book he argues that behind all progress lies a single human activity: The quest for good explanations.

Good explanations are those sparks of understanding that occur through trial and error, reasoning and testing. The result is you suddenly know more about why things behave as they do.

Each generation seeks to build upon this knowledge and, if the search for better explanations continues, improve upon it.

From the Greek philosophers of 400 BC, past the 17th Century Enlightenment, the industrial revolution and into today’s modern world of scientific thought.

This task is never-ending.

Just when you think Isaac Newton has it all worked out, along comes Albert Einstein and up-ends the whole deal. Even the concept of the very question that was being asked in the first place!

And each human discovery — even when ultimately proven wrong or incomplete — builds upon our collective understanding.

This quest for good explanations is the reason we know what is happening inside a star, billions of kilometres away, without ever having been there.

It’s amazing when you think about it…

Humanity evolves as much through reason as it does by natural selection.

In the quote at the start John Archibald Wheeler was talking about the reality of the universe.

This was a man who coined the terms ‘black hole’ and ‘wormhole’. A man who worked with the great Albert Einstein in his search for a Grand Unified Theory of physics.

A genius who knew that good answers, when found, were more often than not, really simple.

Take Einstein’s famous equation, E = mc2.

A simple equation any high school physics student can understand. But this ‘simple’ discovery changed the way we understood the reality of the universe.

And it’s not just in science that the search for good explanations is key.

Take the 18th Century Scottish economist Adam Smith.

His simple insight was that men, left alone to pursue their own self-interest, in a framework of competition, would result in societies where there would be more to go around for everyone.

He called this ‘the invisible hand’ of the markets.

The last three centuries of global trade and economic growth have proven the wisdom of his explanation.

And indeed, it made quite the stir at the time it was proposed. A collective ‘aha’ moment in society.

This ‘truth’ was always there. Smith didn’t invent it. It just needed someone to discover it.

Which brings me to trading… 

The one simple trading truth

To trade successfully you just need to realise a simple truth. Something that describes simply and eloquently what is happening beneath the surface of your chosen market.

Trading sounds hard to a lot of people.

Professionals devise complicated algorithms, computerised models with thousands of inputs, or they work on charts with different indicators feeding into a complex buying or selling processes.

Here’s the truth though.

Markets are actually not hard to understand.

Prices only move up or down for one simple reason.

It’s this…

There are more buyers than sellers, or more sellers than buyers.

I know it sounds too simple. But it’s the only thing you really need to worry about.

Which brings me to the world of cryptocurrencies. A place where this truth is going to be especially significant over the next few years.

Soon a bunch of large buyers are coming into crypto. The world largest futures exchange — the CME — is set to launch a bitcoin futures product on 18 December. Its competitors are doing the same.

This is huge. It opens up the crypto doors to a new wave of professional money.

I think it presents a once in a life time chance to get in on a select few cryptos that these very big funds are then going to try to get into.

A tsunami of cash is coming…

These companies will be researching hard. And they will only invest in cryptos that pass their strict criteria.

They’re not going to get distracted by the novelty coins and the scam coins.

They will diversify and invest broadly, especially at the start. Then as things progress they will look to concentrate their capital in the eventual winners.

This will create volatility and opportunity for smart investors.

I recently spoke to the CEO of a large crypto fund management company. He said his company has a 17-point checklist before they will even consider an investment.

Remember, these funds are often run under ‘fiduciary obligations’. That means the fund managers have to not only invest but also show why they invested in a specific way, and in specific cryptos.

And not only that…

There will be many games played. False rises, false signals, rumours, forum lies…

Why?

Because the big funds need liquidity to invest into. In other words, they need to create sellers!

When the money at stake is this big, expect the dirtiest tactics to be in play. It’s like a game of espionage and counterespionage. Who can you trust?

Only one thing…

At the end it boils down to one simple truth. Are there more buyers, or sellers?

Find the cryptos the big funds want to buy into — the cryptos where buying power will be largest — and you could stand to benefit in a big way in 2018.

Happy hunting!

Ryan Dinse,
Editor, Money Morning

Ryan Dinse

Ryan Dinse

Ryan Dinse is an editor at Money Morning. With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

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