Our philosophy at MTL is simple. Knowledge is power.
This cliché is often phrased, but few people understand its true meaning like speculators do. Traders are a special class of speculator, one part businessman, another part gambler. We are one of the few classes of people in the world that truly put our money where our convictions lie.
Anyone who has left from work poorer than they came knows what I am talking about.
In order to make it in this world of speculation, we need to be right a lot more often than we are wrong. Furthermore, we have to be willing to acknowledge when we are wrong, or risk losing everything we can lose. Whereas most people are adverse to risk, we embrace it every day. To quote the tag-line from Floored, "For some people, risking everything is nothing".
The only edge over the market that we can rely on day in and day out is our knowledge of the markets. Some people call it luck, but the lucky know better. We also make the distinction that information does not always convey knowledge, nor the wisdom to utilize it to one’s advantage.
This cliché is often phrased, but few people understand its true meaning like speculators do. Traders are a special class of speculator, one part businessman, another part gambler. We are one of the few classes of people in the world that truly put our money where our convictions lie.
Anyone who has left from work poorer than they came knows what I am talking about.
In order to make it in this world of speculation, we need to be right a lot more often than we are wrong. Furthermore, we have to be willing to acknowledge when we are wrong, or risk losing everything we can lose. Whereas most people are adverse to risk, we embrace it every day. To quote the tag-line from Floored, "For some people, risking everything is nothing".
The only edge over the market that we can rely on day in and day out is our knowledge of the markets. Some people call it luck, but the lucky know better. We also make the distinction that information does not always convey knowledge, nor the wisdom to utilize it to one’s advantage.
With that in mind, our goal at MTL is provide the provide the public with hard, facts-based analysis of the markets. We hope that you will find it useful and thought provoking. For legal reasons, we do not provide advise on trading and investment decisions. The content on this site is for you to do as you please, but be advised that any decisions you make, whether or not you were influenced to do so, are solely your own. For more information regarding that, please read the disclosure statement at the bottom of the page.
We are living in an age of unprecedented information egalitarianism. The advent of the internet made sure of that.
Advances in information technology have also resulted in an era of financial egalitarianism. The advent of electronic markets have lifted most of the barriers-to-entry of what was once a tightly-guarded inner-circle. The costs of playing the market have plummeted, markets that were once the domain of an elite class of insiders are now open to virtually anyone and everyone with internet-access and a few dollars to spare, and there is a wealth of good information and research available to anyone who desires it.
With these advances, however, comes a whole new array of challenges to investors.
For starters, a more level playing field has attracted more participants. While more participation means greater market efficiency, this also means greater competition and fewer opportunities to spot arbitrage. Furthermore, most kinds of derivatives markets are truly zero-sum games, meaning that your gain is someone else’s loss, and vice versa.
Adding to this challenge is the reality that, while the playing field is on average more level, some players possess extreme advantages over the bulk of the other participants. Some participants, most notably big-money players, are able to exploit discrepancies in the market micro-structure, like “flash trades”, an extreme form of HFT (high-frequency trading) that utilizes server collocation to perform information arbitrage within milliseconds. Other participants are quantitatively more adept, and are able to program and utilize computer algorithms to make trading and investment decisions. It this all seems a bit overwhelming, it really is not. As complex and arcane as “black-box” trading programs might seem, at the end of the day, they basically can only get you in and get you out when you want. They do not have the market figured out.
As we had mentioned, information now flows freely, but the knowledge to wield it is elusive. Therefore, the greatest challenges lie in learning how to filter out the relevant from the irrelevant, and in understanding how to utilize multitude of resources that are available to your advantage. Without focus and perspective, information overload would be inevitable.
Let it be said, that almost nothing is irrelevant. Rather, relevancy depends on time horizon. The best example is the relation of earnings and to equity prices. Conventional wisdom says that earnings are the main fundamental factor in equities. However, others may tell you that earnings are irrelevant. Both are correct because earnings reflect equity prices now, but are not good indicators of future growth or decline. One might argue, in this case, that economic factors such as interest rates, employment, and etcetera, will yield a better estimate of where the stock market is headed. They could also add that earnings are based on asset-liability models, which are unreliable and do not represent true replacement value (i.e., fair market value). So again, almost no data is irrelevant, but you have make the decision about what is most relevant for your time-horizon in order to maximize your decision making efficacy and efficiency.
This is easier said than done. We, at MTL, do not claim to understand the markets in their entirety. We do not understand all of the factors that affect the markets, nor do we know how to predict their nature or their frequency. As limited as we are, we are continuously striving to better our knowledge of the markets. We are sharing this with you because we hope to foster free thought and discussion, and in turn that you might share your thoughts with us.
In summary, our analytical philosophy is to arm traders and investors with knowledge to exploit available resources and make sense of the markets. While we do not formally advise clients on trading and investment decisions, we are happy to share with you the analyses and strategies that we employ and find of value.
An important piece of our philosophy is methodology.
The traditional division between analytical methods in the markets has been to partition different approaches into either of one of two schools: technical analysis and fundamental analysis.
We, at MTL, attempt to utilize both in a synergistic manner. We believe that technical factors account for the views of all market participants, while discounting all other information (expect price, time, and volume), and therefore they always reflect the fundamentals.
We make the important distinction that technical factors discount market fundamentals. In other words, all information about a given market is embedded into its price. However, this does not mean that market fundamentals can be determined from the technicals. To restate this, the primary strength of technical analysis (its ability to discount all market fundamentals into quantifiable components), is also its greatest limitation because all information is lost except time, volume, and price.
With that having been said, we believe that an understanding of market fundamentals is superior to technical analysis or any other quantitative model when it comes to anticipating market behavior. Models can wonderful things, but they are only models of the real world, not the real world itself. When market conditions change, models cease to function and diminish in their abilities to provide predictive power.
Market fundamentals, on the other hand, never cease to be relevant. The trouble is that they are not always known and sometimes impossible to accurately (never mind quantitatively) describe. While we often look to economic numbers, earnings, yields, weather, and more for indications regarding the market fundamentals, many factors elude us until after they have become known or have taken effect.
As economist John Maynard Keynes stated, “The market can stay irrational longer than you can stay solvent.” But this does not mean that the market is not adhering to the fundamentals, but rather that often times our understanding of fundamental factors is inadequate. For example, the housing market collapse in the United States
Although the markets always revert to their fundamentals, we are often unable to determine what the fundamentals are, and when and how they might come into play. For this reason, we use technical analysis and study technical indicators when and where they are able to provide insight into market sentiment and historical patterns in ways that would otherwise be impossible.
In short, we adhere to real causality. In order for something to have a real causal basis, it need be a scientific proven law, or scientifically established theory. Rather, it must be based on physicality. Why do we go through the trouble of saying this stuff? Because, to our surprise, many people actually base decisions off of emotion, superstition, mysticism, spirituality, and paranormality.
Our views entail the following:
- We do not put much credence into technical indicators that have no real causal basis. One of the more persistent myths we encounter involves cosmic patterns. Planetary and cosmic alignments do not affect the markets in any meaningful or measurable way. While cosmic events and patterns do indeed affect Earth’s gravity, rotation, atmosphere, weather, the ocean’s tide-cycle, etc…, we are not aware of any cosmic trading systems with any real causal basis.
- We do not believe that the past is always the best indicator of the future. While human history seems to have a tendency of repeating itself, this is not because it is necessarily cyclical.
- We are circumspect regarding the veracity of indicators with arcane names and those based on esoteric theories. The “Hindenburg Omen”, which was activated the week of August 16 of 2010, suggests an impending stock market crash. Supposedly it is predictive about 2/3 of the time, but is actually a lagging indicator and a self-fulfilling prophecy. It basically tells us when the stock is already weak, not when the stock market is about to be weak.
- While the technicals themselves are quantitatively determined, indicators based on technical analysis are inherently subjective. Where I might see a crown (bearish), someone else might see a head and shoulders formation (bullish or bearish). An interpretation of chart formations and technical indicators is also subject to time relevancy.
We do, however, acknowledge the ability of technical indicators to be predictive. This is especially true:
- When technicals underscore factors that are indicative of market participant sentiment and psychology.
- When indicators are based on well-established historical precedents. While we are circumspect regarding indicators based on theoretical causality, we believe that these can be predictive for reasons beyond our limited understanding of the markets.
- And because, irrespective of what you or I may think about technical analysis, decisions about the market (i.e., supply and demand) are influenced by technical analysis. A majority of volume traded (estimates range from between 30%-70%) is due to HFT, in which trading decisions are made based on algorithms, most of which look almost exclusively at technical signals.
When you’re done reading this segment, you should ask yourself, “Is their approach to the market superior to the multitude other approaches”.
The answer is actually, no. Our approach is not inherently superior. We do hope, however, that we are able to fill a niche in the world of market analysis. While there are an abundance of resources out there that specialize in one thing or another – reporting the news, technical analysis, teaching financial or economic theory, disseminating personal finance or investment advise, etcetera… – there is a surprising lack of those that attempt to synergistically connect the dots between practice & theory with those of trading & investing with those of finance & economics. In short, we do not want to compete with those other niches, but bring you a fresh perspective of markets that transcends the current orthodoxies.
