Trading Chaos In Today’s Market

by Justine Williams-Lara and Marcus Lara

Trading the volatility of today’s markets has created a huge learning experience and a new way to navigate profitably through constant change. A holistic approach to trading may give you the edge you are looking for.

Is this the trading opportunity of a lifetime or the end of the American way? Trading Chaos, Bill Williams’ first book, theorizes that trading the volatility of today’s markets has created both a huge learning experience and a new way to navigate profitably through constant change. The entire global financial system is built on the presence of chaos in the markets. When there is stability in the world there is no change in price, no fear of war, we do not fret about the future, everyone has enough to eat, and people do not kill one another. However, in the world presented by the news media, there is massive political unrest, terrorism, boycotts, price controls, farm subsidies, lack of food, dwindling water supplies and energy sources, and the constant threat of war, all creating the feeling of unease about the future. Besides natural disasters, such fears and worries are what create most of the price fluctuations in the financial markets as well as the massive increase in volatility that has risen over the past several years.

When Bill Williams, my father, founded the Profitunity Trading Group in 1984, independent traders had to call their brokers to place an order, printed statements were mailed out monthly, and there were only a few charting systems and even fewer trading systems. The most information a trader could get was the price data, as you could not get statistics like volume, nor could you go look at a company’s income statement online. Further, a floor trader could go on vacation for a week and soybeans might have only moved a nickel, if that, during his absence.

Here we are 25 years later, with hundreds of charting systems to choose from along with thousands of trading systems. In the offices of most banks, hedge funds, and insurance companies, computer programmers are creating complex algorithms so they can trade against other computer programs, creating previously unheard-of amounts of daily share volume. Our technology has brought hundreds of millions of new traders into the markets, and it will continue to do so with further advancements in real-time data and charting systems.

Understand the markets
Even with all of this technology, traders need to understand that the market is still based on human behavior and our perceptions about what is happening. While one person sees the buying opportunity of a lifetime, another sees the meltdown of the global financial system. Thus, it is primarily our perception that creates the value of any given object. The car you are driving is valuable to you because of the meaning you have attached to it. Whether you bought it yourself, or it was a gift from your grandmother, you are the one who determines its worth. The value is based on a multitude of factors — where you were born, what kind of home you lived in, what your first job was, who you married, and so on. The value of an object is whatever we think it is. Otherwise, we would just drive any old car and not go along with society’s ideas about what kind of car we should drive. While the differences in our individual perception can be subtle, they tell us why the markets are full of discrepancies in what we individually perceive to be valuable.

...Continued in the February issue of Technical Analysis of Stocks & Commodities

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