Usually I pride myself in doing a lot of research for scientific evidence before forming conclusions. However, as the saying goes, "Rationality has an older sister; her name is Intuition."
I must admit that I haven't been trading this month, and it is because of my intuition. I don't take a trade based on intuition, but I do stop myself from taking trades if my intuition tells me otherwise.
Which is Better? Rational Analysis or Intuition?
The scientists overemphasizes the importance of Rationality and Scientific Evidence, while most people tend to go with Intuition, without looking for scientific evidence. Neither is correct.
The correct thing to do is to conduct scientific research, and rationally analyze the issues. Then, Intuition will synthesize the various factors into a holistic picture, and voila, foresight happens.
There are times when waiting for scientific evidence will be too late. What is the point of realizing today that this is a Bear Market? We want to be able to foresee such an event long before it happened, i.e. say, 1.5 years ago.
But at that time, when I was screaming bloody murder, some people thought I was an alarmist, a pessimist, or worse, a neurotic. Today, there is blood on the streets, and it is a very sad thing.
It's the same as the Poseidon adventure where most people stayed in the Ballroom and drowned, while a few decided to climb up.
BUT, the few adventurers could easily have made a wrong turn and drowned as well. That is the reality of life.
I remember the time when I first wrote the email that said, "This is the last train to London, get out of the stock market now." That was in July or August 2007.
But back then, there were no scientific evidence to back up the argument. Even the consumer spending statistics were still holding up, and the talk then was that the Sub-Prime issue would be resolved, and the crisis will be contained.
So, with hindsight, we know that Rational Analysis is useless for events that are about to happen, because Rational Analysis is based on scientific evidence of events that have happened.
So then, if if Intuition is not based on scientific evidence, what is it based on?
The correct answer is that Intuition must always be supported by Rational Analysis. Intuition that is not supported by Rational Analysis is a wild guess; a wild gamble, no more.
Systems Thinking (Cause & Effect) Modeling as the Mother of Intuition
But, the Scientific Evidence and Rational Analysis is not a direct evidence, for no direct evidence will exist as things have not happened, or is not reported to have happened yet.
In this case, we can only use a Systems Thinking Model of the World, which is actually, a Cause & Effect Model based on identifying the Key Driving Forces, and understanding their relationships and potential range of outcomes, and how they impact each other.
Why is this Important?
I have invested time to explain the relationship between Rationality & Intuition because most people tend to act on their own intuition, but hardly ever trusts another person's Intuition. Human Behavior is such that trusting a person's Rational Analysis with all the supporting scientific evidence is already hard enough, what more, for another to trust a person's intuition.
Also, very few people know how to train and develop good intuition, and thus, can't differentiate or evaluate good intuition from bad intuition.
These are the types of things which I feel should be taught in schools and universities, because the knowledge here is the key to uncommon wisdom, but alas, this will not be the case, for a long, long time. Try convincing any professor to accept Intuition as an Equal Subject to Rational Analysis, and you have a big challenge on your hands.
Anyway, my experience is such that Intuition is very important, especially Good Intuition developed from Systems Modeling as informed by Scientific Evidence and Rational Analysis.
Ok, now that I've got the issue of Rationality & Intuition out of the way, let's get down to serious business of making money.
Market Anomalies I Don't Understand
Supported by Rational Analysis, my Intuition identifies the following Market Anomalies (Inconsistencies): -
The US Dollar strengthening momentum seems to have abated somewhat, i.e. it is now see-sawing in more or less a sideways motion, with a slight strengthening bias, when it should be weakening.
Why?
The Price movements as depicted on the Technical Charts is not telling me the same story as my Intuition. Why?
I don't know. But, from many years of good experience, I trust my intuition, which is why I stay away from the markets. I haven't lost a single cent, but neither have I made any. But considering the world lost a few trillion US dollars in this month alone, I think I can live with my not making any money, and having lost none.
But defensive play does not buy the milk powder. So, what are we to do?
The Potential Winning Market Strategy - The Loonie?
My Intuition has been right more often than wrong in pointing me to the winning market strategy. If my Intuition is correct, Oil must strengthen once more, and the US$ should weaken at the same time.
From a forex perspective, one of the purest Oil play is the Canadian Dollar / Yen (CADJPY) Forex trade. For years, when the Oil Price was climbing rapidly, the Loonie (Canadian Dollar) strengthened against the Yen. However, when Oil Price fell, so did the Loonie against the Yen.
If the strengthening of the Oil Price may precipitate the weakening of the US$, then we need to also watch the USDCAD (US Canadian Dollar) Forex Rate.
Thus, my intuition points me toward the strengthening of the Canadian Dollar against both the US$ and the Yen.
Again, I reiterate that this is based on Intuition, not Technical Analysis nor Rational Analysis, so we need to wait for the Technicals to provide the right confirmational signals before trades are taken.
US$ Relationship with the Yen
But how will the US$ behave with regard to the Yen? CNBC has not been focusing its attention on the consistent and persistent weakening of the US$ against the Yen in recent weeks. The US$ weakened below 100 a few weeks ago, and is now at 94.5 Yen to the Dollar, which is a very strong Yen.
As a matter of reference, the USDJPY exchange rate was around 145 Yen to the US$ in 1997, during the Asian Currency crisis.
The key question is "What will happen if the Yen breaks below 90 to the US$? Sooner or later, US consumers are going to feel the inflationary effect of a strong Yen, especially once the deflationary effect of a weakened but stable Oil price wears off.
It should be noted that the Yen is also sometimes seen as the proxy of the Chinese Renminbi, which is not freely traded on forex markets.
Righfully, the Yen should not be strengthening because the Japanese Economy is also in deep trouble. However, the answer for the strengthening of both the US$ and Yen have been noted in my previous blogs, i.e. the Unwinding of Carry Trade, where the interest rate differential between the Japanese BOJ (Bank of Japan) rate and the Federal Reserve FOMC rate is now less than 1%, when it used to be 4% to 5%.
Will the Yen continue to strengthen? I don't know. Based on observations of more than a decade, the BOJ has always worked very closely with the Federal Reserve, and any strengthening or weakening of the USDJPY has always been based on what both authorities agree upon more than anything else.
I must admit that I haven't been trading this month, and it is because of my intuition. I don't take a trade based on intuition, but I do stop myself from taking trades if my intuition tells me otherwise.
Which is Better? Rational Analysis or Intuition?
The scientists overemphasizes the importance of Rationality and Scientific Evidence, while most people tend to go with Intuition, without looking for scientific evidence. Neither is correct.
The correct thing to do is to conduct scientific research, and rationally analyze the issues. Then, Intuition will synthesize the various factors into a holistic picture, and voila, foresight happens.
There are times when waiting for scientific evidence will be too late. What is the point of realizing today that this is a Bear Market? We want to be able to foresee such an event long before it happened, i.e. say, 1.5 years ago.
But at that time, when I was screaming bloody murder, some people thought I was an alarmist, a pessimist, or worse, a neurotic. Today, there is blood on the streets, and it is a very sad thing.
It's the same as the Poseidon adventure where most people stayed in the Ballroom and drowned, while a few decided to climb up.
BUT, the few adventurers could easily have made a wrong turn and drowned as well. That is the reality of life.
I remember the time when I first wrote the email that said, "This is the last train to London, get out of the stock market now." That was in July or August 2007.
But back then, there were no scientific evidence to back up the argument. Even the consumer spending statistics were still holding up, and the talk then was that the Sub-Prime issue would be resolved, and the crisis will be contained.
So, with hindsight, we know that Rational Analysis is useless for events that are about to happen, because Rational Analysis is based on scientific evidence of events that have happened.
So then, if if Intuition is not based on scientific evidence, what is it based on?
The correct answer is that Intuition must always be supported by Rational Analysis. Intuition that is not supported by Rational Analysis is a wild guess; a wild gamble, no more.
Systems Thinking (Cause & Effect) Modeling as the Mother of Intuition
But, the Scientific Evidence and Rational Analysis is not a direct evidence, for no direct evidence will exist as things have not happened, or is not reported to have happened yet.
In this case, we can only use a Systems Thinking Model of the World, which is actually, a Cause & Effect Model based on identifying the Key Driving Forces, and understanding their relationships and potential range of outcomes, and how they impact each other.
Why is this Important?
I have invested time to explain the relationship between Rationality & Intuition because most people tend to act on their own intuition, but hardly ever trusts another person's Intuition. Human Behavior is such that trusting a person's Rational Analysis with all the supporting scientific evidence is already hard enough, what more, for another to trust a person's intuition.
Also, very few people know how to train and develop good intuition, and thus, can't differentiate or evaluate good intuition from bad intuition.
These are the types of things which I feel should be taught in schools and universities, because the knowledge here is the key to uncommon wisdom, but alas, this will not be the case, for a long, long time. Try convincing any professor to accept Intuition as an Equal Subject to Rational Analysis, and you have a big challenge on your hands.
Anyway, my experience is such that Intuition is very important, especially Good Intuition developed from Systems Modeling as informed by Scientific Evidence and Rational Analysis.
Ok, now that I've got the issue of Rationality & Intuition out of the way, let's get down to serious business of making money.
Market Anomalies I Don't Understand
Supported by Rational Analysis, my Intuition identifies the following Market Anomalies (Inconsistencies): -
- US Dollar should be weak, not at its strongest for the last few years, as it is now. Why? Because the US Government is printing money, even much more than ever.
- Oil Price should not be so low; not so fast, anyway. Crude Oil went below US$50 per barrel today.
- Gold should not be so high at US$750 per ounce, which does not seem to match with the price falls in other commodities, especially Oil.
The US Dollar strengthening momentum seems to have abated somewhat, i.e. it is now see-sawing in more or less a sideways motion, with a slight strengthening bias, when it should be weakening.
Why?
The Price movements as depicted on the Technical Charts is not telling me the same story as my Intuition. Why?
I don't know. But, from many years of good experience, I trust my intuition, which is why I stay away from the markets. I haven't lost a single cent, but neither have I made any. But considering the world lost a few trillion US dollars in this month alone, I think I can live with my not making any money, and having lost none.
But defensive play does not buy the milk powder. So, what are we to do?
The Potential Winning Market Strategy - The Loonie?
My Intuition has been right more often than wrong in pointing me to the winning market strategy. If my Intuition is correct, Oil must strengthen once more, and the US$ should weaken at the same time.
From a forex perspective, one of the purest Oil play is the Canadian Dollar / Yen (CADJPY) Forex trade. For years, when the Oil Price was climbing rapidly, the Loonie (Canadian Dollar) strengthened against the Yen. However, when Oil Price fell, so did the Loonie against the Yen.
If the strengthening of the Oil Price may precipitate the weakening of the US$, then we need to also watch the USDCAD (US Canadian Dollar) Forex Rate.
Thus, my intuition points me toward the strengthening of the Canadian Dollar against both the US$ and the Yen.
Again, I reiterate that this is based on Intuition, not Technical Analysis nor Rational Analysis, so we need to wait for the Technicals to provide the right confirmational signals before trades are taken.
US$ Relationship with the Yen
But how will the US$ behave with regard to the Yen? CNBC has not been focusing its attention on the consistent and persistent weakening of the US$ against the Yen in recent weeks. The US$ weakened below 100 a few weeks ago, and is now at 94.5 Yen to the Dollar, which is a very strong Yen.
As a matter of reference, the USDJPY exchange rate was around 145 Yen to the US$ in 1997, during the Asian Currency crisis.
The key question is "What will happen if the Yen breaks below 90 to the US$? Sooner or later, US consumers are going to feel the inflationary effect of a strong Yen, especially once the deflationary effect of a weakened but stable Oil price wears off.
It should be noted that the Yen is also sometimes seen as the proxy of the Chinese Renminbi, which is not freely traded on forex markets.
Righfully, the Yen should not be strengthening because the Japanese Economy is also in deep trouble. However, the answer for the strengthening of both the US$ and Yen have been noted in my previous blogs, i.e. the Unwinding of Carry Trade, where the interest rate differential between the Japanese BOJ (Bank of Japan) rate and the Federal Reserve FOMC rate is now less than 1%, when it used to be 4% to 5%.
Will the Yen continue to strengthen? I don't know. Based on observations of more than a decade, the BOJ has always worked very closely with the Federal Reserve, and any strengthening or weakening of the USDJPY has always been based on what both authorities agree upon more than anything else.
So, what do the Fed and BOJ want in the future, assuming they will still be in control of the USDJPY forex market?
I think the Fed is testing the market whereby, it is encouraging US exports while deterring imports with a weaker US$ to the Yen. When it reaches a point where it starts to hurt the US consumers, or the BOJ feels that it is too painful for Japanese exporters, the Yen strength trend will reverse, again, in a managed, well behaved manner.
I think the Fed is testing the market whereby, it is encouraging US exports while deterring imports with a weaker US$ to the Yen. When it reaches a point where it starts to hurt the US consumers, or the BOJ feels that it is too painful for Japanese exporters, the Yen strength trend will reverse, again, in a managed, well behaved manner.
CONCLUSION
In conclusion, it is not possible to form a reliable opinion of the future direction of the USDJPY, which is why we will need to let the Price Charts tell us which trade to take, i.e. USDCAD or CADJPY, or both, in the future.
If my intuition is correct, and this current weakening of the Canadian Dollar is reversed, it will be the start of a new Uptrend for the Loonie. To catch the start of a new Uptrend and ride it all the way to the top is every trader's dream.
If my intuition is correct, and this current weakening of the Canadian Dollar is reversed, it will be the start of a new Uptrend for the Loonie. To catch the start of a new Uptrend and ride it all the way to the top is every trader's dream.
So, I would watch the Loonie very carefully. Hopefully, the LOONIE will make us a lot of MONEY. Haha.
I would reiterate that this market strategy is only based on my intuition, not Technicals. Wait for confirmational technical signals before taking the trade.
Please be reminded on the Liability Exclusion Clause, which is at the top of my blog page, i.e. that the final trading decision is yours, and I will not be responsible or liable for any losses you may incur from whatsoever reason. :)
Best wishes,
Ooi
© Copyright 2008 of Praesciens.Blogspot.Com.
I would reiterate that this market strategy is only based on my intuition, not Technicals. Wait for confirmational technical signals before taking the trade.
Please be reminded on the Liability Exclusion Clause, which is at the top of my blog page, i.e. that the final trading decision is yours, and I will not be responsible or liable for any losses you may incur from whatsoever reason. :)
Best wishes,
Ooi
© Copyright 2008 of Praesciens.Blogspot.Com.
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