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three components of trading


three main components three principal components

primary components

Three primary components, inextricably linked together. One can't operate without the other. It's necessary to understand each one.

Overture's search statistics for January 2006 found 98% of searches were for "tools" in a ratio of 821,000 to 1,000. Thats 820 to 1. Indicating an overwhelming focus on the tools segment. With just 2% on the other two segments. Not surprising, considering almost all "trading" sites offer solutions and tools only. Verifiable statistics. As always, dont take out word for it, check it out for yourself.

This site examines, in detail, the internals of all three segments.

While you can buy a saw and a hammer, doesn't mean you can build a house. It seems most people, spend their time, searching for the best "tools", but overlook learning how to build a house. End up waiting for the tools to do it for them. Wondering why they finish up with a house in the middle of nowhere, in a swamp full of crocodiles.

First, learn how to build the house, select the best materials, choose the best site. Do that and the tools will pick themselves.

Anything worth doing, is worth doing well. If you must do it, do it right.
Skilled tradesmen know their tools. Skilled tradesmen never blame their tools.

In case you don't know about saws, think about this selection. Each one does a different job
bandsaw, circular saw, handsaw, crosscut, ripsaw, hacksaw, keyholesaw, jigsaw, tenon, chainsaw, bowsaw, copingsaw .. etc.

sub-components

Each primary component has intermediate components.
Each intermediate component has sub-components.


no-one can be taught how to trade

Many organisations offer to teach you "how to trade". It's an impossibility. You can't teach someone how to play football, or tennis, or to be an athlete. Only techniques and skills (ie the components) that make up the game, can be taught. Not all will have the natural talent to become top athletes. Excellence is achieved by learning, then combining and applying the component techniques and skills that have been taught. The student must do that themselves. By practice. And Coaching. The components are practiced and perfected. Repetitive drills. The best adidas T-shirt with 3 stripes, or Nike running shoes, do not create a top class athlete.

Any doubts about the validity of this should be dispelled by an 8 page article by Daniel Coyle of the New York Times Sports Magazine on how they make super-athletes

Blind shaolin Master tells Grasshopper-Caine "When you can take this pebble from my hand it will be time for you to leave". Only then will I have taught you all I know.

Can you teach a novice how to practice medicine. No. They must first become a doctor.
Can you teach a novice how to be a doctor. No. They must first be taught the many components that comprise medicine.
They must then be examined on their knowledge of each component and achieve a level of competence.
They must then demonstrate a level of proficiency in each component.
Some may then choose to specialise in one particular area, or group of components.
How good the novice will become, will be determined by their determination and natural ability.

An example. Try teaching the meaning of the equation e=mc² without first defining and teaching what energy and mass and light and speed and the mathematical square are. Einstein's connection between energy and mass is expressed in the equation e=mc². Where e represents energy, m represents mass, and c² is a very large number, the square of the speed of light.

related topic - the miyagi solution  the ways of the master, who teaches Daniel how to paint, sand and wax.

Non-accredited universities now offer mail-order Ph.D's, Masters degrees, and Bachelors degrees in the field of your choice. For a fee. No work required.


which tool

Because of the variable nature of each trading day, no two days are the same. The task is deciding which tool - or combination of tools - to select for the day. In the tools department the main options are software and wetware. Software, by its nature, is a fixed set of instructions that is unable to adapt to changing conditions. The challenge for software developers is to produce a master program that can determine which set of software tools are appropriate for the unfolding conditions. Which takes the requirements into the realms of adaptive neural systems, as discussed in section 6.


hardware v software v wetware

Hardware is fixed in the short term.
Software is a fixed set of instructions.
Wetware is the most adaptive tool available.
source - Greg Iles - Dark Matter - 2003
"The human brain is slow in terms of computing speed. But it is massively parallel. For processing, it is capable of making 100 trillion calculations simultaneously. Together with the equivalent of twelve hundred terrabytes of memory".

Computers are sequential. The power of a single computer is determined by speed of the CPU. Maximum performance is achieved while running one application. With multi-threading, additional applications can be run. The performance of second, and subsequent applications are achieved by reducing the resources allocated to the first application. True parallel performance is obtained by the use of "dual" processors. The brain is equivalent to 1 million low speed "dual processor" computers.


wetware in action

The daily diary of Deisel, one of australia's largest private traders is an example of these principles being applied. Close examination will find emphasis is placed each morning on the action of overseas markets, how local participants will respond, their anticipated behaviour, and probable activities of the market-makers. Little attention, if any, is given to tools. In the brief time it has been available, it has demonstrated an accuracy that speaks for itself.



to begin your journey

learn about the inter-relationships between the following four market segments.
learn about arbitraging. What. Who. How. Why. When.
learn about the 4 segments from the perspective of writers of the derivatives.
when you have learnt that fully you will begin to understand.
we are advised cfd's are responsible for driving 40% of activity in the physical stock market.

four components of the puzzle


market structure

  instruments
 		service providers
 		participants
shares
options
warrants
treasuries
currencies - cash
currencies - forex
currencies - futures
futures-metals
futures-commodities
futures-indices
futures-interest rate
cfd's



 		stock exchanges
futures exchanges
option exchanges
market-makers association market makers
stock brokers
futures brokers
educators
seminar presenters
lemming association lemming chasers






banks
brokers
institutions
market makers
hedge funds
fund managers
superannuation funds
arbitragers
lemmings
private investors
professional traders
serious traders
day traders
amateur traders
novice traders



the parts of the puzzle

First published March 2006
Last updated July 2006