Mapping the Territory

[DbPhoenix 42]

Mapping the Territory

 

Charts are a visual record of price movement. If one isn't interested in price movement, one may not find much of value in them. As a map, however, they are about as close to the "territory" of price movement as you're going to get, one degree of separation, if you will.

 

But then we begin to fiddle with it: time bars, volume bars, tic bars, range bars, equivolume bars, candles, lines, histograms, etc, etc. Then we lay on the Fib and the Gann and the Wolfe and the Pivot Points. Plus all the infinite number of indicators with all their variations. Eventually price is nearly lost, and we can't even determine the trend, much less where we are in it. This is analogous to travelling someplace and drawing a map of that place, then moving on to some other place, checking off that particular task, believing that it's "done", relying on the map one has drawn for far too long. Revisiting that place after a number of years, one finds that the territory has changed dramatically, that landmarks and signposts are no longer there, that one's map bears little relation to what is, only to what was.

 

In the market, the transaction and the agreed-upon price is the "territory" and everything begins there. If we massage it, or ignore it entirely, we become disconnected with what the market is doing. In order to know what to do at the time that one needs to do it, one has to be connected with what is happening in front of him, not on a fanciful representation of it. He has to walk the territory, not just trace a route on a map, a route that may not even exist in the present.

Call it fantasy, prejudice, opinion, judgment, or what you will, when the high abstraction collides with bare facts, it is the facts that have to give way if your value system places such a high premium on rightness that your tender ego cannot suffer the slightest setback. Many men cannot afford to take monetary losses in the market, not because of the money itself so much as because of their oversensitive, poorly-trained selves. The humiliation would be unbearable.

 

The only way that occurs to such men to prevent such painful situations is to strive to be always or nearly always right. If by study and extreme care they could avoid making mistakes, they would not be exposed to the hard necessity of having to take humiliating losses over and over again. And so? And so, too often, rather than settle for a relatively minor loss, our friend will stand firmly on the deck of his first judgment, and will go down with the ship. The history of Wall Street, and of LaSalle Street, too, is studded with the stories of men who refused to be wrong and who ended up ruined, with only the tattered shreds of their false pride left to them for consolation.

 

How to avoid such unnecessary tragedies? Be always right? You know that isn’t possible. Keep away from the speculative market entirely? That is one answer, but it’s rather like burning down the barn to get rid of the rats.

 

There are other answers, and they are simple. They are standing there, right at hand, like elephants in the front hall, if we can only see them. In the first place, there is no rule that we can’t change our minds. It’s not necessarily wrong or a mistake to believe that Fruehauf stock will go up from $24 to $60. What is wrong is sticking to the opinion after the evidence clearly shows that the conditions have changed. The rational approach is to be ready at all times to consider new evidence, and to revise the map accordingly.

 

In the second place, it need not hurt so much to have to change one’s mind. Unless we are so wedded to absolute standards that we cannot entertain anything that will conflict with what we decided in the first place, we can alter the map to any degree we want, or completely reverse our position. If we have a good method of evaluation, in which we have confidence on the basis of observed and verified results, we will not have to think of these changes of opinion as defeats. They are simply part of the process of keeping our maps up to date. If we plan to travel to Boston over Route 20 and there is construction underway on a five-mile section of the route, we don’t try to blast our way through. We take the detour. We go by the territory as it now is, not by the old map. And if the road is blocked entirely and no detour possible, we don’t shoot ourselves, or run our car over a cliff; we simply turn around and go back home and try again tomorrow. (John Magee,

General Semantics of Wall Street

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