Efficient markets: Being vs Becoming

There is a world of difference, all you need really, in the difference between these 2 statements:  the market IS efficient and the market becomes efficient.  It’s the difference between a state of being and a state of becoming (a state of action). A market moving towards efficient price levels is a market in motion, a market that can be detected and traded.

If the market IS efficient, then there is no edge. It is already at the precise and proper price for current information.  If the market is becoming efficient, then we are in a state of action with the market and price seeking to move in the straightest line to the new proper price. And in that movement, an edge is born.

It remains to be asked then, under what conditions is there a tradeable edge for an individual in the relentless drive to the new proper price?

I think we need to find those moments and targets where the greatest emotion and the greatest extremes can be found.  Those areas have to be the place where irrationality is greatest. Irrationality is the other side of the coin from efficiency, which has the iron logic of dispassionate calculation driving it. Irrationality is a relative condition and can be found where emotions are greatest. When we have Obama as president, surely that’s a signal that we are in unusual political and economic situation, one in which new definitions of normal are sure to arise. It is in this transition state that a new efficiency will be born, and the market will move to that new level.

Pick your time frame, and look for price performance that is the most extreme for a target relative to itself , relative to its peer group and relative to the market.  Consider the following idea.  Those most extreme moments are a signal for a probable residual wave of reaction.  You will always be surprised by market moves if you are in the position. If you want a safer and more reliable movement, wait for the turning point of the move at the end of the exhaustion, the moment of pausing and hesitating when the balance of power is preparing to shift.  Will you always get it right? No, you will never get it right, or at least that is the way to approach it.  But thru a sequence of carefully measured step-wise entries, you stand to make reasonable trades in short periods of time when you have the edge.

This style of trading will never hit the homerun, but it will give you a risk-measured way of navigating chaotic markets.  This strategy always misses the first move, it is prepared for the 2d and 3d move. Sometimes herd leaders run off a cliff.  Dont be that guy.  Be the 2d mouse.

And once in a while you WILL hit a homerun. Just be surprised by it, don’t count on it.

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