# Preface

The intention behind the material in this book is somewhat different to what one would find in a textbook or instructional material related to the markets, trading, or most things, for that matter. If you have ever had the experience of just knowing what someone else was about to do or say, be it your lover, your friend, even some apparent stranger to you, then you will already have an idea of what we are attempting to accomplish here. It is that so called connection between yourself and another entity, where you exist in a state of flow with one another, and things just happen, almost always, positive enjoyable things. That is, until, some event happens to spoil the fun: you receive an urgent message; your partner runs into a past lover who caused them trauma; or your lease is about to end next week and you still don't have a new place to live. Whatever it may be, something happens, positive or negative, in you or around you, that takes your attention away from the deep connection with the person you are with. Managing all of that well: your knowledge of the markets; your knowledge of yourself; and your ability to remain in the present to what's in front of you. In essence, this book wants to serve as a foundation on the human operating system, as much as it is about the markets. We must move toward mastery of both, as they relate to each other, in order to thrive with excellence and fulfill our potential.

The first goal of this content is to help you believe that this connection exists with you and the market, and that once you tap into it, once you begin to listen to the market, seek nothing from it, connect with it, you will continue to just "know" what comes next, and not just in one market, but in all markets that are liquid, and do so over and over again. The second goal is to provide you with an adequate platform of information in order to harness that connection. It will partly be superficial, you won't need to know all of it, and the most crucial pieces will involve creating a structure around the movement of the market through space and time, because, after all, that is all a market is, the measurement and observation of a value evolving across space and time. The third and final goal, and without which all the rest will be for nothing, is to develop a framework within and around yourself, to allow that connection to be maintained for extended periods. For your equanimity, focus and strength to be so elastic and self-determined, that whatever may be happening around you, however extreme or mundane, you keep that flow and just continue to know what to anticipate next, instead of projecting onto the market what you desire or fear to happen next. In essence, a deeply rooted connection within yourself.

The content is, as of this publication, entirely mine from a little over a decades worth of intense open-minded personal devotion to the art and science of trading liquid global markets. I would love for this to turn into a collaborative work, ambitiously, if John Arnold were to write a chapter on Natural Gas, Paul Jones a chapter on discipline, Henry Laufer a chapter on patterns, and whoever else has devoted themselves to mastery in an area related to the markets. The knowledge I share has come from reading countless books and white papers in a tiny studio apartment far away from the world of high finance, from working at the offices of a ruthless world class hedge fund and trading at a family-driven short term proprietary firm, and from experiences such as fasting on the shores of a Mediterranean island and meditating in the deep forest of a snowy Alpine winter. All of it, with the intention to understand and see the markets and trading (and life) from holistic eyes. From the eyes of the establishment, the eyes of someone deeply outside of it, and much in between. To explore is to learn with a fresh mind, it can be harsher, equally painful and exhilarating, and take a long time. To rely upon the established authority for knowledge can bring riches quickly, as long as you yourself are aligned with that knowledge and in the middle of the trend of the expression of that knowledge. Life and the markets are moving and changing structurally quite fast these days, and I don't believe I can offer you any sort of authority on what to know or do. Thus, this content is designed to act as an emergent foundation from which you can grow by means of your own exploration. Good luck and Enjoy.


# What is a Market?


# A Brief History


# Reminiscences: The 1920s/30s


# Market Wizards: The 1970s/80s


# Humans and Markets


# Computers and Markets


# Products


# Options

Butterflies

Condors


# Commodities


# Energy


# Metals

It would be better were someone else more well-versed with Metals fundamentals write this section


# Agriculture

It would be better were someone else more well-versed with Agriculture fundamentals write this section


# Crypto


# Currencies


# Equities


# Valuation

Valuation is intrinsically remarkably simple. The people choose to make it complex, because that is how the system makes a living: cover things up with complexity; keep people away; and give the "experts" on TV and Twitter things to talk about. 


# Fixed Income


# Information

It is a common recommendation for people involved in systems of chance to delve into at least a basic study of game theory. I do not see the utility of this for trading liquid markets. Markets are founded upon patterns, reward & risk, and the interaction of the individual with the market. There is no decision-maker on the system-side. Understanding information theory, introduced by Claude Shannon in the 1940s, does appear to be of utility.


# Growth

This chapter leans heavily on the writing of Ray Dalio at Bridgewater about the fundamentals of economics. 


# Cycles


# Participants

The pattern rhythm of the market is happening faster or slower than is perceived by the human mind, most of the time. And the pattern rhythm of the market is non-linear and evolving without  repetition of prior data patterns that computer algorithms rely upon, most of the time. 


# Reflexivity

This chapter leans heavily on the writing of George Soros in numerous books and papers. 


# History

History is about the past. One must be mindful that rehashing the past means the information is static, and can be (and usually is) filtered. Humans detail the past through stories, typically in the form of image, video and words. Even if the story told is with perfect honesty, it represents a source of communication (information transmission) error on several notable fronts: (i) perceived and expressed through the point of view of the author/s;  (ii) closed loop of space and time within which the story takes place; and (iii) difficulty in defining and communicating qualia. There was a stream of information, some of it more consequential than others, that led into the circumstances painted in the story, and there was a stream of information that came out of the story. It is (seemingly) impossible for a human to perceive, let alone detail, this information flow into a finite storyline. The best we can settle for are approximations of what "happened", of what led to that happening, and what came after. The better the explanation, and harder it is to vary, the more reliable the story of history. 

Studying and making use of history is complex. For one, due to the necessity for a background of the consciousness (awareness of the universe) of that period itself. For instance: the world pre-1900 was one filtered through the understanding and application of Newtonian Physics. The things that were built, the decisions that we made, were done so through this understanding. They simply could not have built computer chips, for instance, because they did not have the combination of knowledge in quantum phenomena and materials science that was present in the 1940s. Another example: the world pre-Newton and the "Age of Enlightenment" in the 17th century, was one often filtered through the lens of religion, of myth. One insight we can glean from this is that the human world would have been more fallible since the explanations upon which humans relied were themselves based upon variable factors from empirical experience instead of explanations with fundamental reach into the future. Thus, two important questions to be aware of when looking at the present, in context of the past, would be: (i) what is the relevant consciousness now and then; and (ii) what else happened, before, during and after. 


# Patterns


# Classical


# Emergent


# Structure

With the increased ability to store data of market prices, analysts began to seek structure in the rhythms of market prices on charts. One of those early holistic methods was called the Elliott Wave Principle (EWP). By holistic, I mean the attempt to define continuous structure to a market, in lieu of discrete identifiable patterns amidst seeming randomness. Later on, this approach was attempted to be quantified with rigorous rules and called neoWave (NW). Whereas there would be constant subjectivity in attempting to define the structure of a market chart using EWT, NW tried to remove much of that through the use of mathematical limits and ratios. 

We will go into both of these approaches in some detail in this chapter. The intention behind doing so is not necessarily due to the utility of either approach, rather to instill a process into your mind of looking at market structure holistically (all together) and granularly (in detail). That is, maintaining a free-flowing macroscopic point of view on the market, while perpetually studying microscopic details for clues into the shifts of the macroscopic changes. Throughout the exercise, hesitate away from clear and firm labels, and toward leaving your mind to assess probabilities of possible scenarios. The over-arching philosophy will lean on my own approach to labelling structure, which is separate from the rules in EWT and NW.

**Trend and Countertrend**

Firstly, one must decide whether the current market evolution is part of a longer term trend in the same direction, or countertrend to the longer term trend. Here arrives the first, of a plethora, of such issues we will have with subjectivity. What is the "longer term" time horizon of the trend? Common practice is for people to use charts with each bar representing 1 minute, 5 minute, 15 minute, 60 minute, .... Daily, Weekly, Monthly data, and choose the next time horizon outward in this ratio of "somewhere" between 3-5. There is some value to this, not the least of which is time efficiency, however it is not the optimal approach. For the purposes of simplicity, we will use a ratio of 4:1. 

![](/files/-MKHHNcBO1XM2n7lPteT)

In the image above, we see a 240 minute bar chart, and an example of a longer term trend shift at point 0. At this point, we speculate that the "trend" is no longer down, and now becomes up. Thus, we begin to label odd numbered fractals in the upward direction and even numbered fractals downward. Below, on the next level up time horizon (a Daily), we see how this looks in the context of a more macroscopic view. 

![](/files/-MKHKAOKCE8h_8ATAM9v)

According to the EWP and NW, fractals in the direction of the longer term trend always contain 5 components, and (most) fractals going countertrend contain 3 components (although there are exceptions containing 5 components in a "triangle"-like structure in EWP and up 9 components in similar structures in NW). The primary rule for the 5 component trending patterns is that the end of 3 is higher than the high of 1, and the end of 4 is also higher than the high of 1 (except in so-called "ending wedge" structures where it can end in the space of 2, but not below it, and which we are told conclude a longer term trend). 

![](/files/-MKKw7mRS8v-R9Hk_0k5)

**Proportion** 

Instead of focusing on labelling fractals correctly according to a static set of rules, we aim to shift our focus toward looking at the structure through proportion and, later on, logic. Within proportion, there are several elements. 

Firstly, the fractals will (generally) tend toward a symmetry or likeness in their time and distance. This does not mean that each up move will be equal in time and/or price to each down move. In fact, that will rarely will be the case. Yet, there will be repeatable similarity. 

![](/files/-MKLNlEgQjGJcmXgE_0R)

In the first segment (between the first two vertical lines in grey), the market is finding it easier to move down then up. Once the segment concludes, the market moves rapidly to the upside. And then in the third segment, the pressure repeats to the downside, until the fourth vertical line, when again, longer term trend resumes its impetus and the market again moves rapidly to the upside. These segments may be equally spaced out, as in this case, or they may alternate \[(time of first segment) = x1, (time of second segment) = x2, (time of third segment) = x3, (time of fourth segment) = x1, (time of fifth segment) = x2,.....], or they may have a different proportion from 1:1. 

In an expanding market, we may anticipate the space & time taken by subsequent fractals to progressively rise, often with proportion between the space travelled by the trend fractal and the time of the countertrend fractal. In a contracting market, the reverse would make sense, or it would be a seemingly random mixture. I have found that in contracting markets, proportion tends to be consistently respected often in a linear manner. In expanding markets, the evolution becomes more non-linear because of the dispersion of entropy into or out of the market. However, do not become complacent with an observation of mine; the idea is to investigate the markets within this foundational principle (of expansion and contraction, and proportion), and develop insight through your point of view. I promise you that you will begin to observe a harmony to the seeming chaos, and the explanation for this is that liquid markets are a natural phenomena (as distinct from illiquid markets which can be easily manipulated by single/group entities and thus tend more toward artificial phenomena). 

![](/files/-MKLR506614Mt3LmbX5L)

 

Logic


# Measurement


# Space and Time


# Uncertainty


# Entropy


# You, Me, Market


# Prepare


# Playbook


# Detachment & Compassion

Fully experiencing simultaneously, yet, as entirely separate structures. This is the place one aims to arrive when it comes to interacting with liquid markets. It may seem a paradox at first: to be fully experiencing an event together with another entity, while being a separate entity myself.

Much of this information relayed here has been detailed across millenia in the Buddhist lineage dealing with the "right" manner in which to interact with existence, with our daily lives and the people and structures within them. It emerges from the perspective that reality has two components, a non-dualistic and a dualistic reality. Non-dualistic reality is absolute space, within which it is said "I am you, you are me, I am the tree, the tree is me". Dualistic reality is relativistic space, within which everything exists relative to another object; in order words, "there is a plate on the table, I like the plate". All of life is in the imagination of the mind, all understanding in the explanation created in the mind. Moreover, we do not come by knowledge through our senses, and indeed it comes from the reasoning faculty of our minds. Objective knowledge in the dualistic world (the one we experience as life), thus, becomes unattainable. We are left with a stream of experiences, the labels knowledge has come to put on them (such as, on a simple level, good and bad, like and dislike, black and white), our short term emotional responses to those labels, as well as our longer term feelings toward the experiences. If one does come to believe in this view of reality, they come to cultivate a penetrative awareness of what is happening and discerning what it means, separate, from the internal dualistic labels. Rejecting nothing, asserting nothing, yet accepting everything. Moving the point of view upon the markets and trading, we can appreciate how useful this state of mind is to the practitioner. Constantly living in a state of clear perception, and conducting internal criticism and self-persuasion of hard-to-vary explanations concerning what "this" reality is, and "that" reality is, without the attachment to it. The attachment, and the labels that permit it, are what keep one from the perpetual evolution in this manner. 

Let's take a look at a few examples, both without a position in the market, and then with one. 

Living in this space of emptiness, from which one observes life, fully immersed in it, and observes the thoughts and visceral reactions to life, that occur in the mind, without associating as one or the other.


# Flow

{% file src="/files/-MK\_MIL0B5\_wvmraF8nQ" %}


# Projection & Imagination

The mind is a thinking vehicle. Its evolutionary utility is for problem solving through explanation. When one trades, they deal with two simultaneous universes: the universe of the market; and the universe of their interaction with the market. Within those two universes, the imagination component of the mind will "chase" whatever projection of the world you give it, and the awareness component of the mind will "perceive" whatever you are capable of experiencing in each of the two worlds. A well cultivated awareness is able to lucidly perceive reality (and your interaction with reality) with consistency and minimal interruption. A well cultivated imagination is able to rapidly understand the connections within the past as well as perceive plausible scenarios of the future. These two components of the mind must be kept separate. I would like to emphasise how crucial this is, by repeating it. The awareness and imagination components of your mind within the trading experience must be kept separate. 

Projection is layering the world envisioned by the imagination onto the awareness of reality and of the interaction with reality (herein, the interaction). This is uniquely different from envisioning scenarios of reality and the interaction independently. In the former, the mind will begin to see both with the projection layer on top, and pursuant to the intensity of the layer, it may entirely cloud the "real" reality. In the latter, the mind will proceed to lucidly perceive both reality and the interaction, while being "prepared" for change as well as how to direct it. This is foundationally an extension of what was discussed in the chapter on Detachment & Compassion. In the former awareness and imagination are attached and the world is at risk to become muddled. In the latter, they are detached, and we are at liberty to remain compassionate to both reality and the interaction. These are seemingly highly abstract concepts, however the imagination deals only in abstractions, so we are more than capable to work with them. And crucially, practice at this - maintaining the independence between awareness of reality and the interaction, and the projections of the imagination - starts with being aware of it. 

**Emotions**

Emotions are the intensity of the projected imagination. 

**Visceral Reactions**

Visceral reactions are separate from emotions, though often incorrectly intermixed. Visceral reactions are a pattern recognition functionality of the subliminal component in the brain stored in the body. They are almost invariably accurate, once one adjusts to their signal and what they are attempting to "communicate". 

Blindly trusting visceral reactions in a binary manner, though having utility, can also be misleading. One's subliminal mind itself has particular tendencies; let's call them software. An example in common trading parlance is when the greed reaction is triggered internally, the saying goes that one must become aware at that critical moment and often resolve to at least critically analyse the market separate from the "human nature" program running to become overconfident and overaggressive. However, there may be a plethora of other "human nature" programs running that are specifically unique to you. If you have the program embedded in your system to "protect your trend, at the expect of all else" you would be unlikely to appreciate the diverse universe in "all else", even if that meant coming to understand a new innovation that would likely shift the broader systemic trend (and impact your ability to keep your own positive trend going). 

**More on Subliminal Programs**

Coming to know the subliminal programs running in your brain is of great utility to you. Say your current mood, the current program running, is "complacency". This can be highly useful to you, in certain interaction with reality. You may be positioned in one direction that the market continues to move in. Every time you conduct some analysis that partially skews your perspective to close the position, you decide to hold on, and it is the right choice. This continues, until, eventually you become complacent because the market just keeps going up and your persistent analysis giving you reasons for why that will end, continues to be outweighed by the market continuing to go up. The complacency becomes useful to you, since you let the position run and stay with the trend. However, understanding the program of complacency informs us that it is only a subcomponent that is useful - lightness.  

**Balance between Imagination and Reality**

Internal winds. chakra. posture. breath. yoga. 


# Fallibility


# Knightian Risk


# The Trend


# Observation


# Evaluate