Reflections on critiquing the writing of others

Giving feedback about the paper is a way to show who you are and how much you care about the author.

Suppose, in your opinion,  the author has made a glaring error in logic or has not supported the thesis, or mischaracterized an opposing view, and because you are concerned about hurting their feelings, you don’t say anything.

How are you helping them? By letting their paper out into the world?

If you were right about the paper, and didn’t tell them, shame on you.

If you were wrong about the paper, that should emerge in the continued dialogue between professionals and now you have a chance to sharpen your own tool. You miss that chance if you don’t CRITIQUE THE PAPER, NOT THE PERSON.

If you comment on the paper without regard for the human who offered their vulnerability, their knowledge, their insights, THEMSELVES to you, try remembering to walk a mile in their shoes and ask yourself, before sending, have I been fair? have I been constructive? What is the tone of voice I used?

If you would say things anonymously about the paper in a double blind, but not to their face, that says more about you than about the paper you are critiquing.

Envision the paper as it leaves their hand and lands on a community table of knowledge for consideration. Focus on the paper on the table, not the person who offered it. The paper is not the person; restrict yourself to examining what has been offered. Don’t assume you know anything about their feelings or how they might take it. They have offered a piece of academic writing. Your duty is to evaluate it academically, while remembering there is a person on the other end, eventually.

The author has given us all a gift. Respect the gift by giving it your best critique: with support, with care, with your best work.  Respect the author for their gift and vulnerability. The critiques we offer are more important than anything we are likely to write on our own, and we will do a lot more of them than our own writing.

If you are an author, recognize the boundary between your Self and your paper. Be clear about what you are asking for when you offer it for review. If you want self-esteem more than honesty, you’ll get both, but not as you might want it.

Management games for deep insight

Peter Checkland’s Soft Systems Methodology (SSM) describes the use of models to help us frame questions to ask of the world, and which help us become explicit about our world views, assumptions, frames of reference, theories of cause and effect, values, and desired outcomes.

Checkland, P. (2006) Learning for action: A short definitive account of soft systems methodology and its use for practitioners, teachers and students.  Chichester, England, Oxford Press

 We’ve developed a deceptively simple Force Mgt practical exercise in the form of a card game. The complete rule set is simple; takes 5 min to scan and understand. 

Rapid rule summary:

1. Students buy forces (5 cards) from a production table (a limited deck) and in each of 5 rounds,  deploy them into 5 regions to compete for Victory Points

2. Win:  first one to 51 victory points OR most points after 5 rounds

3. Game: lasts up to 5 rounds

4. Each round has 5 hands , each hand is worth Victory Points (VP)

5. Hand 1 is worth 6 VP, hand 2 is worth 5 VP etc…

6. Player 1 buys from the red deck, player 2 from the blue deck)

7. After you buy your 5 cards, you place 1 card face down in each region (hand)

8. Once all cards are placed,  cards are flipped over and you determine results

9. If your card wins the hand you get the victory points and keep you card; if you lose the hand, you get no victory points and lose your card. If it’s a tie, you keep your card and no one gets points.

10. Each player has an identical deck to buy from.

 It turns out that the development of strategy and then fielding an appropriate force really matters, AND there are distinct choices that are meaningful, available and feasible.

If you are interested, we’d like you to review the rules, and :

• 1. Buy your first round of forces
• 2. Deploy them into the 5 regions for turn 1.
• 3. Send your “Round 1” move to long-kenneth@conus.army.mil, along with a short description of your strategy

 We are interested in examining the variety of forces and the strategy employed in round 1.  Do you, for example:

1. Buy 4 ea 10s and a Joker to kill any enemy aces and retain max budget  flexibility to see what he has remaining?

2. Buy aces early to get a lead on victory points and then protect them?

3. Buy Jacks to kill 10s while still preserving SOME budgetary flexibility?

4. How do you balance economy of force with winning victory points? (efficiency vs effectiveness)

5. Variations?

 And then tactically employing forces, do you:

1. Put aces against 6 and 5 victory point regions?

2. Put 10s against 6 and 5s to hunt aces?

3. Aim for maximum victory points each round?

4. Aim to capture 11 of the 20 available points each round? (ie bluff on 6 and 3, but try to win 5,4,2?)

 In the actual play of the game we’ll look for adaptability and learning, and how strategies change after teams have played each other a couple times etc. 

We’ve play tested it enough to know there is a rich source of insights available in the game and that it is simple to play. We’ll  play it with decks of cards in the classroom 

We prototyped the game in our Force Management elective and are satisfied that that we generate student interest and insight into broader questions of Army force management in an interesting way.

 Here are some student insights gleaned from our playtesting:

1.  Round 1 results dominate the rest of your strategic choices, so getting Round 1 is crucial.

2.  Round 1 strategies are dominated by uncertainty because you have no information about your opponent’s strategy or adaptive style yet.

3. You have to decide when you want to buy strength: early and aim for quick wins, or later after you have seen pieces of the opponents forces and strategy.

4. Forecasting your opponents moves is problematic and make this more like poker than chess or bridge.

5. Aces are like the FCS: dominating until low-cost alternatives found the weakness. It wasn’t unit Aces were developed that the 10s became meaningful, so be alert to deep flaws in complex technologies.

6. Kings are costly but dominate the field; An opponent with Kings drives you to buy Aces but make you vulnerable to 10s.

6. Jacks (J) are a low cost success strategy against 10s, but can be incrementally be defeated by other mid-weight forces.

8. The costs of transforming cards between rounds is significant but manageable and may lead to strategic advantage. Scenario: You buy Aces on the first round and are successful, opponent buys 10s to kill your aces in the second round, but you trade down to Kings which dominate, and which remain difficult to defeat in subsequent rounds.

9. Deciding where (in what regions) to selectively deploy strength

10. Tactical results can overcome strategic insights and strategic failures. Tacrtics can be game changing.

11. What if the enemy has different victory conditions? Price points? Has different rules?

12. What if new cards are introduced after the first rule set is established?

13. How much would you pay to see the opponents’ hands?

14. What if there are partial wins? Or more than 2 teams playing?

15. Simple games can be powerful learning strategies

 Conclusions: the game serves as a way to dramatize very clearly many of our force management challenges and is a useful way to create rapid, deep awareness of prime issues in this domain.

 Here are some insights from a dedicated gamer and management game modeler:

I suspect that for most people’s first play they are strongly influenced by a form of Confirmation Bias: the As are priced higher, therefore new players conduct their analysis from the assumption that As are more valuable. Depending on the goals of your concrete experience, that may be the best argument for keeping the current price structure. However, an ace of spades loses to seven cards, including four cheap ones, where a KH loses to only four cards that are both expensive and vulnerable — the KH is easily the strongest card in the deck.

I assume trade-ins are secret — in fact that for all practical purposes players are operating behind a screen during their setup phase — because knowing whether your opponent has made any trade-ins is very valuable information. You may want to specify that in the rules.

 Given the prevalence of 10s in everyone’s first turn strategies, it seems like the second-cheapest strategy is far more optimal than the cheapest — that is four tens and a jack of spades. That marginal $15 gives you a pretty good shot at a victory somewhere, and a decent chance of carrying more net capital forward.

 Here are a selection of previously submitted moves for  Round 1: (* = Joker)

Strategy 1
Region	Cards	Strategy:                  Cost:  102   Carry forward: 48
6	10h	I’m trying to kill aces while creating and deploying one, but putting it where it is unlikely to run into an ace-killer unless the other guys is trying an ace-killer strategy like mine.  I’ve got cheap on the ace I bought, which is a risk that may not be worthwhile. I’m expecting to kill an ace in either 6 or 5, win 4 outright, and lose in 3 and 2.  Expected results are thus 9.5 points to me, 10.5 points to the bad guys, I will lose approx $35 worth of cards and kill approx $70 worth.  The enemy is expected to have spent rather more than me, so I will have more cash with which to restructure in light of what I find out. Cost: 102
5	10c
4	As
3	10d
2	10s
Strategy 2
Region	Cards	Strategy:                   Cost:  150   Carry forward: 0
6	10s	10 is the ace killer on 6, then we try to overpower each successive category on the way down.  Assumes aces go to 6, which rapidly becomes a tail-chasing assumption.
5	As
4	Ks
3	Qs
2	Js
Strategy 3
Region	Cards	Strategy:                   Cost:  123   Carry forward: 27
6	Jh	Hunting the ace-killers, retaining some flexibility, winning early points
5	10h
4	Ah
3	Jc
2	*
Strategy  4
Region	Cards	Strategy:                   Cost:  150   Carry forward: 0
6	Ah	Maximum strength in every region
5	Ac
4	Qs
3	*
2	*
Strategy  5
Region	Cards	Strategy:                   Cost:  145   Carry forward: 5
6	Ah	Maximum strength in main regions, try to hunt an ace and kill 10s; accept risk in small region
5	Ac
4	10s
3	Js
2	*
Strategy  6
Region	Cards	Strategy:                   Cost:  149   Carry forward: 1
6	10s	Hunt aces and accept risk in regions 5,6, steal points with aces & J in regions 2,3,4

Profitable ETF Trading Strategies: understanding Average True Range (ATR)

One of the most powerful measurements in the technical trader’s toolbox is Average True Range, invented by Welles Wilder, and found prominently near the top of every major charting package that can be found on the web.  Its power is what makes it so popular. 

I always recommend to traders that they use ATR for their systems if they need a decent measure of short term volatility that is sensitive enough to detect important changes in near term volatility, smooth enough to prevent whipsaws of opinion and action, and reliable enough to be useful in all types of market conditions. 

The way the indicator is calculated and displayed though makes it very easy to misinterpret by a trader or investor who is not familiar with how it works. In my opinion, the problem is so profound that it should not be displayed in the raw form on your charts because the visual display of the information is so misleading.  Even experienced traders, who look at a lot of indicators, can overlook the problem. In fact the more indicators you use, the easier it is to forget this insight about ATR. 

The problem is simply that ATR is measured in dollars and cents and so when you see the ATR line rising on a chart you are naturally led to believe volatility is increasing.  The problem is that if price is also rising, volatility may be steady or even declining, which you cannot easily tell by inspection. 

For example: an ETF priced at 20 with an ATR of 2 is much more volatile than an ETF priced at 100 with an ATR of 5. If it were the same ETF, and you watched its ATR climbing from 2 to 5 while price went from 20 to 100 you might assume that it was more  volatile as price was climbing. The opposite would be the truth of course, but your eyes could lead you to believe otherwise unless you were constantly alert. 

Here is the refinement that I recommend. Instead of using ATR in its basic form, simply divide ATR by the current price. This will give you a number which I call “ATR%”. This is interpreted to describe the percent fluctuation of the value of the asset that can be considered normal given recent price action. By recent price action I mean the last 14 trading days, in the default construction of the indicator. 

Use of the ATR% will allow you to do the following things very easily, things which cannot be done using straight ATR numbers, which represent a dollar denominated “normal” fluctuation. 

You can use a time series of a single asset to see how its volatility is truly changing over time. 

You can compare the ATR% of an asset against a set of other assets, and rank them into a scheme of relative volatility at that moment. 

You can use statistics to further classify and describe a set of assets into logical, statistical sets 

You can compare sets of volatilities against other time periods to help you with market classification. 

Average True Range is an important tool of technical analysis, but one which has serious  problems in interpretation for novice or very busy traders. Know your tools!

Profitable ETF Trading Strategies: Respect Volatility, use its power for good

At the most fundamental level, volatility is the fluctuation in the price of an asset. The greter the price swings in the shorter periods of time, the greater the volatility. Periods of great volatility are like thunderstorms. They get your attention.

Volatility is an absolute requirement for a trader to make money. Most investors look at volatility with fear and trepidation, and properly so, because wild swings in price are an indication of uncertainty about the fair value of the asset in question. This uncertainty will play havoc with your bottom line as an investor. It is a normal tradeoff consideration for investors to give up the potential of outsize gains in exchange for protection against downside volatility.

 

It is clear from scholarly studies that increases in volatility correlate strongly with declines in equity value. If you look at bear markets you see volatility everywhere, leading to tremendous gains on up days and tremendous losses on down days. This volatility  is what drives longer term investors to the sidelines and creates the window of opportunity for longer term value players to establish excellent entry points for long term holdings in beaten down companies and sectors. This eagerness to buy value at a discount is why we see buying pressure even in the midst of the worst bear markets.

 

Traders who are looking to make their loving off the buying selling of inventory need the volatility of longer term position traders and short term scalpers to move price in swings that last long enough for them to realize their gains while offering the buyers and sellers from other time frames reasons to get in and out of these positions as well.

 

Because swing traders do not need fundamental beliefs in their positions they are able to operate successfully in swing trades during bear markets, and providing that they can manage their risk in the periods of higher volatility, should be eager to trade on the most violent of das in the market.  For a swing trader the greater the intraday volatility, the easier it is to see opportunities and frame favorable trades in terms of reward to risk. 

Like electricity, volatility can be your best friend or your worst nightmare. As a trader you must learn to use the power of volatility responsibly and effectively.  Stay grounded and respect the power for your own good. 

Profitable ETF Trading Strategies: Good traders know and exploit their edge

As an individual trader, you must be absolutely clear about where your edge is in the market place so that you can ensure your trading strategies are designed to put you into positions where your edge can make the difference against the average market return. 

Let’s be clear too: your edge must give you a reliable means of achieving better than average market returns or you are much better off simply buying and holding lowest cost broad market index exchange traded funds. To do otherwise would be a waste of your time and get you a lower than easily achievable returns on your capital. 

When I consider institutional traders, I see their advantages in computing power, depth of fundamental research, administrative trading cost efficiency  and legitimate inside information, I quickly conclude that there is no way I can find an edge by trading in direct competition with these organizations on a fundamental basis. 

This means I am going to steer clear of situations where my edge would consist of having a better understanding of the fundamental business model and market opportunities of individual firms. The fact that so many businesses go out of business due to misjudgments of market conditions when led by  experts who have a made a career out of narrowly focusing on that line of business suggests to me that I can not hope to have an edge in fundamental analysis. 

I also know that I am not capable of scalping better or market making better than brokerage houses who are fighting for fractions of pennies on large volumes in time periods measures in fractions of seconds. So I will stay out of that trading environment as well. 

I know that I need enough opportunities to allow my statistical edge in trading to manifest, and so I cannot afford to have overly long holding periods and wait for the ship to come in. I believe I need to be like Walmart and trade in quality merchandise that everyone wants, take my decent profits quickly and cycle through inventory efficiently. I want to be the swing middle man helping the market achieve orderly distribution. 

This leads me to look for my edges in the swing trade time periods of 1-5 days, and looking to lock in profits and/establish  no-lose positions as early as possible on the entry day, and only hold overnight when I have clear indications that the extra overnight risk is justifiable. 

Know your edge and stay within your area of competitiveness.  

Profitable ETF Trading Strategies: Stalking your way to success

One of the more neglected topics in trading systems development is the concept of stalking. Traders, particularly early in their career will tend to spend  lot of time, if not ll of their time, focusing on the entry, reasoning that if they can get that part right they will have some control over the market’s inevitable follow thru, which must go according to plan, because of the predictive power of their perfect entry technique. 

If, as a trader, you are able to survive this philosophical approach to the market, based on certainty, control and predictability, you will move along to other aspects of a complete trading system, like the exits, position sizing, trade management of open positions, portfolio heat, overnight rick management, re-entry and matching system performance to specific market conditions. 

These are non-trivial issues in the development of an effective system. Stalking the trade however has to do with the period before the trade is engaged, and offers you opportunities to leverage what may be your greatest edge as an individual trader, if you have discipline and patience to do it properly. 

I believe that stalking is intimately and directly connected to your deep understanding of the edge your trading system has. The better you understand your system and your edge, and the market conditions that favor its use, the better position you will be in to stalk effectively. 

Think of a pride of hungry lions on the hunt. Their stalking consists of knowing their market (their prey) and where they will inevitably congregate in large numbers (watering holes and  grazing lands which represent their trading opportunities). Effective stalking consists of taking advantage of their natural strengths in the market conditions that favor their methods. 

Liosn will sniff the air at a hint of a suggestion of the possibility of their prey. They will scan widely and contuously and begin fllowing the scent until they can vector in on their target and begin their hunt in earnest. Their stalking gets them reliably into the right position to begin the hunt.  That’s what your stalking must do for you.

Your stalking should include some early warning signs that let you know the market and trade conditions that favr your system are starting to emerge from the market mosaic. You can start posturing yourself for action early enough to conduct trade framing and execution rehearsals, and contingency planning, so that if the favorable conditions continue to develop you will be able to take the trade in stride, with full preparation and risk management in hand. 

Depending on the nature of your system and your edge, your stalking may take a different form, but it will always incorporate an early earning system, preparation planning and rehearsals if you want to achieve best results. 

Patience and discipline are the essential qualities of mind that you will need to exploit your deep understanding of your edge.

Profitable ETF Trading Strategies: Experiencing the Zero-State

For me, achieving the zero-state is a necessary precondition for trading at my peak. In other essays I have described it as a place where adjective pairs of mental states cancel each other out, leaving only a moment of pure being.

It is the space between the words that we know, a moment and a place of freedom, where all notes may be struck, the moment precisely before the next action occurs.

For a horn player, it is the moment where he has gathered his breath and is prepared to initiate the note, the pure balance point between inhale and exhale.

For a diver it is the moment of motionless serenity between ascent and descent.

Imagine a Cartesian coordinate semantic grid system with adjective pairs arrayed about the origin, with each word having its precisely paired antonym and where the midpoint of the ray that connects them is bisected at the origin. That spot in the semantic meaning gris is where I seek to trade from in order to have my trading takes its purest expression in both action and no-action.

When I trade from this moment, this place, my results generate neither joy nor sadness, and simply are what they are. This allows me to enter the next trade with no emotional charge.

It is also keenly important to my style of trading where I am looking for the hesitation point in a channel trade or in a breakout, where price remains poised between fear and greed, where bulls and bears are in timeless balance and the next leg of the move will begin just as the last leg ends.

When I am able to stalk the price to that moment of harmony, that zero-state where momentum transitions I am able to refine my entry to very tight level levels and find initial capital preservation stops that are absurdly close, which enable me to minimize open risk and move to “no lose” trade conditions very quickly.

 When I know that barring an interruption of connectivity or market discontinuity I will never do worse than break even,  this is an immensely freeing psychological state to be in as a professional trader and yet it’s value for me is in the spiritual nourishment and satisfaction I experience having a brush with Truth and Perfection in a small way for a fleeting moment in my life.

In judo we speak of a moment in a throw where you and your partner are equally sure that the other judo player is throwing you with exactly the same force and skill as you are throwing them. In that moment the throws stop, time slows, and you are suspended in a moment of pure being.

What I like about trading is that as I approach the zero state my equity curve smoothes and my trading practice is rewarded

Profitable ETF Trading Strategies: 8 attributes of quality research

There are plenty of snake oil salesmen in the financial advisory business, but there are by far many more conscientious professionals prepared to act as good fiduciaries for you. At the same time there are many people willing to take on full responsibility for the design and implementation of some or all of their own investment program. 

This article describes the characteristics of quality financial research, to help you identify the difference between quality and snake oil, using the standards of scholarly research to inform our decision-making. 

What distinguishes quality research in any field from pure opinion has everything to do with rigor, the design of experiments, and a respect for the difficulties in pursuit of the truth. 

If you can see the following qualities in the research of someone who proposes to provide you advice or financial services then you can have more confidence in achieving your financial goals. 

Quality research should be: systematic, controlled, empirical, amoral, public and a critical examination of the world, informed by theory, and framed in a hypothesis. 

Here are some brief insights to get you started down the path of critical thinking: 

1. Systematic: the research program should be unhurried, thorough, comprehensive and organized. There should be evidence of an attention to detail and a commitment to completing the testing no matter the time or complications in performing the work. 

2. Controlled: care should be given to establish the difference between correlation and causation; in the identification of cause and effect and in identifying dependent and independent variables. 

3. Empirical: we want to see evidence from the real world, that is replicable, verifiable’ in the case of back-testing we want to ensure that only the information available at the time is used in hypothetical decision-making in order to be truly realistic. 

4. Amoral: we want facts and conclusions to succeed or fall on their own merits, and in pursuit of truth; not simply to support a biased opinion. 

5. Public: we want to see all the details of the research and they should be independently verifiable; we don’t want to see black boxes or special testing circumstances unavailable for inspection. 

6. Critical examination: real scientists are concerned about overstating their claims and are in search of evidence to disprove their hypothesis, rather than looking for reasons to agree with their suppositions. A scientist is concerned about finding the hidden flaws in their own reasoning and hypothesis, because of the implications of their conclusions. 

7. Informed by Theory: we want the world to conform to reasonable processes; this bias helps protect us against statistical anomalies and data mining 

8. Framed in a hypothesis: we want to see how the experiment can allow the hypothesis to be disproven in a clear-cut, meaningful way. We want the ideas to be testable and falsifiable in unambiguous terms.

These ideas are strongly related to a conceptual approach to trading which establishes price levels at which we can state clearly that our idea is either working or failing, which gives us explicit criteria for entering and exiting.

Profitable ETF Trading Strategies: You don’t have to be “right” to make money

What happens when you have placed your trade and you immediately have second thoughts as you watch the market moving against you? 

It is a normal trading experience to have a position that has moved in your favor a certain distance but has begin to stall before it reached the price that you were expecting it to reach, or which you have established as a reasonable price target. 

As soon as you see the price start to reverse and move against you, you are presented with the age old problem of whether or not you should cash the partial win or remain disciplined, and true to your trading plan and let the price go where it will. 

Psychological studies have repeatedly found that we are affected emotionally about three times harder but our losses than our gains. So, to see a profitable position move against you into the red is especially painful because you have experienced the loss of profits (which you will measure from the highest high of the trade) compounded by the triple pain of a loss. 

Unfortunately all traders who have experienced this decision  have also seen what it feels like when they have taken the partial profit and then witnessed the position reverse once more and zoom upwards to new highs immediately after exiting their position.  The emotional response to missed profits hurts just as much as actual dollars lost according to psychologists. 

Because of the way our brains are wired the instances where we chose incorrectly stand out more in our memories than all the times we made the “right” decision. 

After this has happened to you a number of times, you start to second guess yourself, and you can get gun shy about any decision you make, to the point where you cannot rationally approach the subject. It is common for traders in this psychological state to look for a perfect exit rule that allows them to be “right”, to give them an insight into the “correct decision”. 

The truth is that no one has the perfect solution to this dilemma; no one can be “right” all the time. 

The good news is that you don’t have to be “right” to have an effective exit strategy. 

What you need are psychologically acceptable rules for exiting and for re-entering positions. This means they must be acceptable to you! 

By having a good re-entry plan you no longer have to worry about missing the great move that kept you in a position that was moving against you. This gives you the confidence of capturing the profit in hand before it disappears and becomes a tangible loss. 

By being effective in preserving capital and profits, and by being able to re-join a winning position you can stop worrying about being “right” all the time, and simply concentrate on making money. 

Profitable ETF Trading Strategies: 3 Tips for developing a market classification system that fits your style

In previous articles I have described why a market classification scheme is a high payoff strategy for improving your trading results. I now want to describe a few things for you to consider as you look to take advantage of your edge in market classification. 

Focus on the following issues to make sure that your research efforts can be applied to your style and objectives. Remember that you are not in search of eternal truths for all times and places, for all traders and styles. You are just trying to make a reasonable, risk-adjusted return on your invested time and money to achieve financial freedom, This will take you down different paths than those of the pure academic, and with the intent of adding value to your bottom line. 

1. Focus on your time frame for trading, especially if you are looking initially to supplement your income and have not yet made the leap to full time, professional, independent market trader for a living. You will have constraints placed on your time by the competing demands of work and family and there will be some styles that are simply not within your reach. No sense trying to develop a classification scheme for a style that will not fit you.

2. Identify interesting markets and targets for you to specialize in.  You want these to offer you the kinds of volatility you can trade yet are within your tolerance for excitement. As a trader you must trade on volatility, the fluctuation of price around the idea of “fair value”. It will be important for you in the early years to focus on markets that you find appealing and interesting and about which you will develop a feel and an expertise that will give you an edge. It is these markets where your classification scheme can be informed by both art and science. 

3. Look for a blend of art and science in your classification scheme. Find elements of the market’s behavior that may be expressed as rules, like seasonality volatility cycles, time frames that seem to repeat, typical patterns and express those quantitatively. Find those patterns and themes that seem to emerge in the course of your trading to add an element of qualitative description to your scheme.  By blending the best of both worlds you will have a market classification scheme that leverages the 2 primary domains of your cognition: art and science, qualitative and quantitative reasoning. 

Your classification scheme will help you to interpret price into useful meaning which can be placed into favorable risk-managed action.