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As we navigate what is now coined the “everything bubble,” it may be a good time to review some basic principles of trading and investing.

“Bubbles are never truly witnessed in advance, but only in hindsight… The ‘exit’ problem is exacerbated when everyone is in the same theater.” – Lance Roberts, Dec. 2017

Just like in the visual arts, where numerous mediums exist that mature into and/or combine with new mediums as society evolves, so do mediums of financial investment.  Only one variable never changes.  Even in a world of digitally-driven financial algorithms, automated trading platforms that dominate our wireless financial cables, and nearly extinct open outcry trading floors, humans are creating it all, thereby detailing the software or hardware’s nuances of existence, which brings us full circle to human nature that remains consistent, which is therefore inherent to old and new investment pathways.

FOMO is nothing new.  From the tulip mania to Charles Ponzi, the Dotcom bubble to a derivatives-induced Great Recession, or from HFT nanosecond executions to the everything bubble and crypto mania, the song remains the same.  Human nature, as destructive as it can be at times, somehow survives and is lucky enough to exit the other end just peachy and better prepared to take on the next challenge.  At least until a bullheaded herd forgets history and repeats it. That is the secret: how to make enough mistakes to learn, but not so many as to destroy foundations and hope, burn down bridges, or shatter a mind’s engine of ingenuity.

The following outtake is just a small sample from an article that was just released.  It’s a must-read for all who study the ever-changing flow of capital and have been forced to face a more contemporary debate about what money is.  The article is overflowing with a truth that will stand the test of time.

A Gold Guys View of Crypto, Bitcoin, and Blockchain… “Crypto-currency, as a bubble, is serving an incredibly rare and important purpose. For the first time in over a hundred years, there is now a discussion going on with average people about what money really is, and what we want it to be. It is causing people to examine our financial system in ways that people normally never would… Crypto’s ascendancy will hopefully serve as a wake up call. Perhaps, there is room in the future for a global decentralized system that is owned by the people, where transactions transit the globe at the speed of light, unshackled from the entrenched financial edifice, where gold too plays a role as an indestructible hedge for storing wealth. This may be the opportunity to bring awareness and discourse to what our money is, and what it is to become.” – Alex Stanczyk via Medium, Dec. 2017

In an unusual twist, I relate to Alex’s article in an unexpected way.  It caused me to reminisce about my younger years.  I think we all have the memories, with the exception of most millennials, of being filmed by family or friends with a Super 8 movie camera. The memories are even more relevant today as we enter the Christmas season. The most famous family movies in my world were those of my sister and I peeking down the stairway of our home at all the gifts under such a beautiful tree, and then we gleefully ran down those steps towards a father who had his floodlight on and Super 8 movie camera in-hand.  It was awesome!  Then there was the waiting for the film to be returned from processing so we can relive those special moments, again surrounded by family and friends. Those original films are sitting just a few feet from me right now.  There’s no counterparty risk.  I couldn’t help myself with that plug.

The effect of movie magic on me was so profound that at the age of 11, I began to experiment with a Rectaflex 35mm single reflex camera (SLR) that my dad hesitantly let me borrow.  Luckily for me, a priest at the elementary school I attended offered an extra credit class for anyone who had an interest in taking pictures and wanted to process and print their very own black and white pictures. I did not hesitate!  My dad even built me a darkroom in the basement.  Keeping this long story short, I ended up in NYC and earned a BFA with high honors in photography. It was “old school” stuff: the basics, nuts and bolts, darkrooms, push and pull film processing, master printing, lighting, assignments, and four years of portfolio review class.

Why do I bring photography and filmmaking into this article?  I began the transition to digital SLR well over a decade ago.  To this day, despite the advances in technology, digital images do not and never will equal the beauty of film.  If you scan up from an original negative, it will be the closest you’ll ever get to the real thing.  There are nuances in the quality of detail that will never transfer into digits.  It’s just like viewing a picture of a painting vs. experiencing the original hanging in a museum.  That is forty years of experience speaking to you. Take note of the image at the heading of this article. The quality is due to the original, not the digitization that provides you a rendition of it.  In regards to movies, Quentin Tarantino is the best within an industry fraught with immediate gratification.  He shoots his movies on 35mm film.  It requires much more work in every aspect of production. His most recent, The Hateful Eight, was shot with 70mm film and old school Panavision equipment.  If you have any appreciation for creating something from scratch, so to speak, he is the bomb.

My point?  When it comes to money, it is the same old song, too, in my humble opinion.  There’s a reason gold is still money after thousands of years, and it’s not because a banker in the 20th century said everything else is credit.  I will leave this article and hand it over to some Jesse Lauriston Livermore wisdom, one of the greatest traders who ever lived.  Heck, you can even read a short book about him for free.  It may change the way you look at money or the basics of making it in the financial casino we still find ourselves in today.  If anything, you will learn something you may not have considered before.

“The stock market is never obvious. It is designed to fool most of the people, most of the time…

 Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons…

 Use ‘Upward Trend’ and ‘Downward Trend’ when asked the direction you think the market is headed. Simply say: ‘The line of least resistance is either upward or downward at this time.’ Remember, don’t fight the tape!…

The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor…

The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental-stop, sell it immediately…

Emotional control is the most essential factor in playing the market. Never lose control of your emotions when the market moves against you. Don’t get too confident over your wins or too despondent over your losses…

All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis…

Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled…

Failure to take advantage of a serendipitous act of good luck in the stock market is often a mistake…

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.”

Plan Your Trade, Trade Your Plan

TraderStef on Twitter

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