I came across this article that was written in 2004 by Sol Palha & Dr. Janice Dorn and felt it appropriategiven all the government manipulation intervention that has gone on in 2008. This has been a rather sore spot for me when breaking news is released on Sunday night regarding a new bailout that causes the markets to move in a big way up and down. It makes it really difficult to carry positions overnight, let alone over the weekend. This revelation about the free markets never being free can be a good thing, because the quicker you come to terms with this new knowledge and face the fact that the markets really aren’t free, the faster you can adopt a new mind-frame by accepting what is, and discover methods to profit from it.
If you have A+B+X=Z, A represents the public, B the manipulators and Z the outcome. Since we have always had manipulators in the market, in a very warped way, we could argue that the market is a not really manipulated. If something was always manipulated and you know that, then you are entering into an arena that has a consistency to it. We have never really had free markets in the true sense of the word. Since the above equation has always been constant, we can effectively state that manipulation is part of the market and if we make that assumption, we have to embrace the fact that the markets are really pretty stable and in an absurd way fair. I decided to add a little X factor.
I think it’s safe to realize that there is always an invisible hand moving each stock, commodity, or index. It’s our job as traders to look for nuances and patterns that these hands leave in their trail. In fact, the hardest part is not figuring out whether an instrument is bullish or bearish as is it not being shaken out of that instrument once you make your initial position.
Another interesting concept is that without fail, we get what we want when we least need it.Perhaps it is our desperate desire to get it that blinds us and causes us to make mistakes that we might not have made, if we were just a bit more relaxed and objective about the whole thing. It is very closely tied to the “programmed desire to lose syndrome.”
I’ve often thought that if I wasn’t so concerned about losing money then I’d be a much more profitable investor. Manytimes in the past I’ve entered a position and gotten shaken because that position went against me initially only to watch it do exactly what my analysis told me it was going to do. That’s one of the reasons given the extreme volatility that I’ve preached keeping your position sizes small and the number of positions you enter limited to enable you to withstand the daily ups and downs. If you’re over leveraged a 200 point drop at the open can be very painful, whereas if you have appropriately allocated your money it doesn’t feel so bad and you can hold on during the big moves.
Another strange thought is how would we recognize a free market, if we have never ever had one? If we never had darkness, we would never really understand the concept of day and night, would we?
Think also about the fact that if it were not for market manipulation, we might have crashed and burned completely; and in a meltdown, the good and the bad all get creamed (that includes those so-called, lovely gold shares).
Whoever would have thought of free markets as being a handicap? Let’s face it, if the markets were truly free then all of those banks would have failed, as would have the automakers, insurers, and the airlines. I’m not even so sure I’m naive to believe that the markets were ever truly free. Manipulation/intervention has always been present whether we like or admit it from the dawn of organized government. What I am concerned with from a trader’s perspective, is how can I use this knowledge to profit from it?
