Levels of Enlightenment for market trading:
* At Level of Enlightenment Zero, you buy or sell at current price based on what other people tell you.
* At Level of Enlightenment One, you draw lines, triangles and dinosaurs over the charts, look for trends and patterns, in an attempt to predict future prices from the set of past prices.
* At Level of Enlightenment Two, you realize that the market does not give a damn for the past price history. Any trends are due to the trading community's perception of external events. When the external conditions change (e.g. when the traded item is banned in Mongolia, or featured in a TV serial), the trends immediately change in ways and amounts that are very hard to predict. The best one can say is that the price P(now + t), in log scale, is P(now) plus a random variable with zero mean whose variance increases linearly with t, irrespective of its past history.
* At Level of Enlightenment Three you know more complicated formulas that use past prices to give predicitions for future prices that are significantly tighter than those of the Level Two model above. But I haven't got to that Level yet.
I suspect that there is a maximum Level of Enlightenment N-1, after which one's understanding of markets goes back to Level Zero.
* At Level of Enlightenment Zero, you buy or sell at current price based on what other people tell you.
* At Level of Enlightenment One, you draw lines, triangles and dinosaurs over the charts, look for trends and patterns, in an attempt to predict future prices from the set of past prices.
* At Level of Enlightenment Two, you realize that the market does not give a damn for the past price history. Any trends are due to the trading community's perception of external events. When the external conditions change (e.g. when the traded item is banned in Mongolia, or featured in a TV serial), the trends immediately change in ways and amounts that are very hard to predict. The best one can say is that the price P(now + t), in log scale, is P(now) plus a random variable with zero mean whose variance increases linearly with t, irrespective of its past history.
* At Level of Enlightenment Three you know more complicated formulas that use past prices to give predicitions for future prices that are significantly tighter than those of the Level Two model above. But I haven't got to that Level yet.
I suspect that there is a maximum Level of Enlightenment N-1, after which one's understanding of markets goes back to Level Zero.
* At Level of Enlightenment N you HODL. Don't worry you'll get there