The 1st type of income is the household income, or we may call also nano-economics. Imagine an agricultural family making its income by cultivating the land and selling seeds and fruits etc. This financial risk is quite big, as climate changes or family changes may completely alter it.
The 2nd type of income is that created by an enterprise or micro-economic unit. E.g. being an employee in such an enterprise or even being a shareholder deriving income from the dividends. The risk is here less, as an enterprise has many more individuals than a family, and there is professional strategic management. Still there is considerable risk, e.g. loosing the job etc.
The 3rd type of income is being a state employee. Here the relevant organisation is the Domestic Economy itself, and in particular the public economics, therefore a macro-economic unit. The risk is even less, as state employees are almost never fired, and the public economics are rarely endangered, except perhaps at global financial crises.
The 4th type of income is an income that depends on the global economy as a whole. And this is for example a trading income from the global financial markets, or an internet income from e-commerce of downloadable products. It is the most safe compared to all previous. Not even global economic crises do not endanger it. Usually at global economic crises that the volatility is higher such a trading income is even higher acting as an insurance to all other incomes. Therefore the safest and most magnificent income is the 4th type income, directly from the global markets. It certainly requires the new global high intelligence of sovereign individuals:Responsible freedom of self-determination and becoming truly self-confident and free to unconditionally be responsible for one's self, without being coerced to accept some higher authority.
It is no surprise therefore that the 4th type of income as it is so magnificent and safer, when obtained by trading or similar e-commerce, is so much more difficult than the other 3 types of income.
(To see how the irresponsible private interests of the central banks create the over-debt economy see the link below
http://overdebtmonetarysystem.blogspot.com/2012/04/1-how-current-monetary-system-creates.html)
Some more thoughts and values about alternative economic systems
The 2nd type of income is that created by an enterprise or micro-economic unit. E.g. being an employee in such an enterprise or even being a shareholder deriving income from the dividends. The risk is here less, as an enterprise has many more individuals than a family, and there is professional strategic management. Still there is considerable risk, e.g. loosing the job etc.
The 3rd type of income is being a state employee. Here the relevant organisation is the Domestic Economy itself, and in particular the public economics, therefore a macro-economic unit. The risk is even less, as state employees are almost never fired, and the public economics are rarely endangered, except perhaps at global financial crises.
The 4th type of income is an income that depends on the global economy as a whole. And this is for example a trading income from the global financial markets, or an internet income from e-commerce of downloadable products. It is the most safe compared to all previous. Not even global economic crises do not endanger it. Usually at global economic crises that the volatility is higher such a trading income is even higher acting as an insurance to all other incomes. Therefore the safest and most magnificent income is the 4th type income, directly from the global markets. It certainly requires the new global high intelligence of sovereign individuals:Responsible freedom of self-determination and becoming truly self-confident and free to unconditionally be responsible for one's self, without being coerced to accept some higher authority.
It is no surprise therefore that the 4th type of income as it is so magnificent and safer, when obtained by trading or similar e-commerce, is so much more difficult than the other 3 types of income.
(To see how the irresponsible private interests of the central banks create the over-debt economy see the link below
http://overdebtmonetarysystem.blogspot.com/2012/04/1-how-current-monetary-system-creates.html)
Some more thoughts and values about alternative economic systems
(see also
http://liberating-values.blogspot.gr/2012/07/1-meaning-of-liberating-vaues.html )
In short:
Economics may become a very insidious influence in the experience of our life. For a minority may become also a very positive experience.
There is positive will and negative will in the societies. Progressive (benevolent) economics and regressive (malevolent) economics. Regressive (malevolent) economics may become a financial weapon of mass economic destruction.
Here are some forms that money interplay is experienced in our life
Money experienced as
We live in an over-debt crisis, therefore discovering the proper values in economics may become very important.
Let us start again from three significant values for the individual and the society that we have stated before for other spheres of life, and think what they entail for the economy too:
The individual is to
1) Have responsible freedom of self-determination
2) Become truly self-confident and free to be responsible as much as possible for the self, without being coerced to accept some higher institutional authority, or allow private groups to degrade the quality of public and private life.
Maybe a new economy is emerging which starts at the level of households (bottom-up change), that can be aggregated in to unconceivable hitherto social power, with ways similar to the aggregation of creative e-products, that is emerging in the internet.
In short:
Economics may become a very insidious influence in the experience of our life. For a minority may become also a very positive experience.
There is positive will and negative will in the societies. Progressive (benevolent) economics and regressive (malevolent) economics. Regressive (malevolent) economics may become a financial weapon of mass economic destruction.
Here are some forms that money interplay is experienced in our life
Money experienced as
1) As share in the goods of the planet
2) As means of transactions
3) As a totalitarianism in the human feelings, where everything is compared with everything and measured with the total order of money.
4) As measure of human working activity
5) As raw material to organize business and group activity, or operational power (capital)
6) As constraint of debt in activities, or friction in production activities.
7) Conversely when in abundance, as measure of freedom in personal activities
8) As technology of exercising power of a minority of humans over the majority of humans
9) As a technique to create inequalities in the living standards and social power.
10) As means of persuasion
11) As macroscopic "temperature" of social activities
12) As means to regulate fair agreements, deals, etc
13) As embodied value of precious metals in the coins.
14) As difference of prices of same goods between different nations with different currencies.
15) As only the liquid part of the economic value of fixed assets, like real estate etc In other words in a society, money is only the smaller part of the total economic value or wealth, both for the individual or the public sector.
16) As a measure of how much a social entity (an individual or group of individuals) contribute to the civilizations versus how much the civilization contributes to the entity.
17) Lack of money is deprivation of freedom from the need and a high monetary wealth in society from an individual or group of individuals can be an indirect way of deprivation of the freedom from the need of other people that do not have this wealth , and cannot access goods and services of the civilization.
2) As means of transactions
3) As a totalitarianism in the human feelings, where everything is compared with everything and measured with the total order of money.
4) As measure of human working activity
5) As raw material to organize business and group activity, or operational power (capital)
6) As constraint of debt in activities, or friction in production activities.
7) Conversely when in abundance, as measure of freedom in personal activities
8) As technology of exercising power of a minority of humans over the majority of humans
9) As a technique to create inequalities in the living standards and social power.
10) As means of persuasion
11) As macroscopic "temperature" of social activities
12) As means to regulate fair agreements, deals, etc
13) As embodied value of precious metals in the coins.
14) As difference of prices of same goods between different nations with different currencies.
15) As only the liquid part of the economic value of fixed assets, like real estate etc In other words in a society, money is only the smaller part of the total economic value or wealth, both for the individual or the public sector.
16) As a measure of how much a social entity (an individual or group of individuals) contribute to the civilizations versus how much the civilization contributes to the entity.
17) Lack of money is deprivation of freedom from the need and a high monetary wealth in society from an individual or group of individuals can be an indirect way of deprivation of the freedom from the need of other people that do not have this wealth , and cannot access goods and services of the civilization.
18) As a privilege to issue and own it, by a minority who then controls the majority by lending it to them (current banking model of money).
19) Money creates a monarchy in the world of subjective emotional values of experiences, as it forces the comparison of any two valued experiences. On the contrary in pure subjective emotional evaluations not any two experiences are comparable.
People used to believe that economic transactions and actions exist in the realm of win-lose or lose-win. The more they are educated, we realize the truth that economic transactions and actions are to exist, mainly microscopically in the realm of win-lose, lose-win, and mainly macroscopically in the realm of lose-lose, win-win.
We live in an over-debt crisis, therefore discovering the proper values in economics may become very important.
Let us start again from three significant values for the individual and the society that we have stated before for other spheres of life, and think what they entail for the economy too:
The individual is to
1) Have responsible freedom of self-determination
2) Become truly self-confident and free to be responsible as much as possible for the self, without being coerced to accept some higher institutional authority, or allow private groups to degrade the quality of public and private life.
3)The critical and important decisions about the road that the individual and the civilizations is headed in economics, technology and power, cannot be taken outside the individual, transparent social developments, and outside transparent democratic politics, in a secrete way, by private groups , enterprises and power secrete state-based groups (e.g. terrorist groups, and some times "anti-terrorist" groups, central banks etc) , more powerful than the governments and democracy.
Regressive (malevolent) economics may become a weapon of mass social destruction, through an artificial financial Darwinism. .
We see directly that the above values are in plane contradiction with the alienation and even subtle tyranny that over-debt is creating to households, enterprises and states.
And the guilty institutions and procedure is immediately evident: The privilege to print money that before the 17th century belonged only to the people and the public sector, now belongs to groups of powerful private interests that are the non-revealed owners of the central monetary banks. And according to their interests, force the flow of newly printed money through sequences of lending from larger bank to smaller bank till the final end of households, enterprises and public state.
Because of the above systematic practice of the central banks, at best scenario, the average enterprise has 2/3 of its assets as liability capital and only at 1/3, they own financially their business. A clear financial (not legal) alienation. They work financially for their lenders.
In this way every central monetary bank for each state or group of states with the same currency, may become, metaphorically speaking "the Minotaur or Tyrannosaur Rex of the kingdom": a monster that consumes the childrem of the country.
On the other hand, if the privilege to print money is returned to the people and the public state, then the flow of the newly printed money can be ruled to be mainly through public investments, subsidies etc; The power of economics through its financial organisations, should not be stronger than the power of public politics. In such a normalized monetary system, the average enterprise will have liabilities less than 1/3 of its total assets. In other words financially mainly responsible and owners of their business. The above in very simple terms is the cure of the over-debt of the monetary system. In a cured from over-debt monetary system, "banking" and the re-distribution of surplus money, need not utilize fractional reserve. The dominating mode of financing in a cured from over-debt, monetary system is not lending (non-ownership) but rather investing (co-ownership). The development of new laws around the crowdfunding through the internet may facilitate the passage from lending to investing, in financing.
In this way every central monetary bank for each state or group of states with the same currency, may become, metaphorically speaking "the Minotaur or Tyrannosaur Rex of the kingdom": a monster that consumes the childrem of the country.
On the other hand, if the privilege to print money is returned to the people and the public state, then the flow of the newly printed money can be ruled to be mainly through public investments, subsidies etc; The power of economics through its financial organisations, should not be stronger than the power of public politics. In such a normalized monetary system, the average enterprise will have liabilities less than 1/3 of its total assets. In other words financially mainly responsible and owners of their business. The above in very simple terms is the cure of the over-debt of the monetary system. In a cured from over-debt monetary system, "banking" and the re-distribution of surplus money, need not utilize fractional reserve. The dominating mode of financing in a cured from over-debt, monetary system is not lending (non-ownership) but rather investing (co-ownership). The development of new laws around the crowdfunding through the internet may facilitate the passage from lending to investing, in financing.
(For the over-debt monetary system see e.g. http://overdebtmonetarysystem.blogspot.gr/2012/04/1-how-current-monetary-system-creates.html )
About the details of fractional reserve in banking see e.g. http://en.wikipedia.org/wiki/Fractional_reserve
http://www.anthroposophy.org/uploads/media/Federal_Reserve-PVOLeary.pdf
About the details of fractional reserve in banking see e.g. http://en.wikipedia.org/wiki/Fractional_reserve
http://www.anthroposophy.org/uploads/media/Federal_Reserve-PVOLeary.pdf
Instead of waiting of the major currencies (USD, Euro etc) to be democratised, and their central banks to become public (something not predicted in the foreseeable future) , a direct cure of the over-debt effect, for smaller units like municipalities and communities, is to issue their own parallel local currency, where only the local collective authority (municipality, community) and not any private sub-group, has the privilege to print it. In addition any bank-like organization will not use the fractional reserve rule, and will gain money not by lending the deposits (which is not allwed) but being paid a rate to keep the deposits. In other words such a local parallel currency is free from the over-debt pathogeny.
(see e.g. http://en.wikipedia.org/wiki/Local_currency )
(see e.g. http://en.wikipedia.org/wiki/Local_currency )
Is society over-monetised? It seems to me that it is. Is the current tendency of the civilization to de-monetise many significant goods and services in the society? It seems to me that through the development of the internet, and the voluntary offer of the cognitive surplus of millions of people in the web, there is indeed a tendency of de-monetisation.
We only have to remember the hierachy of the human needs by A. Maslow as below, and realize that the upper needs and levels are mainly de-monetsied through the web:
Free communication, free enterainment (music, films, books etc), free education, free creativity etc. The game of making money so as to spend them for over-consumption, as a means of fulfilment in life (and out-in approach) is not a panacea, and creates a childish subjectivity and a low-life idea for the values of living. I do not say that using high quality tangible goods, does not support spirituality too, but is only one side of the coin.
Let us focus again on the value : Truly self-confident and free to be responsible as much as possible for the self, without being coerced to accept some higher institutional authority, or allow private groups to degrade the quality of public and private life.
It is immediate that the individual experiences this value easier if he seeks to make his living as an entrepreneur, and create his own wealth, rather than as a public state or private company employee. By utilizing his (her) 1) Assessed creative options , 2) Persistent activities 3) His passion to realize for himself and the society the non-money content of his business he (she) is going avavoidably to succeed.
Each individual of this planet , as birth right, from his (her) childhood till old age and death, without even being obliged to work is entitled to have the basic and minimum money for
1) Food
2) Cloths
3) basic transportation
4) Health care
5) Access to education
He is also entitled to have shelter.
Nevertheless, as long as he (she) is healthy, he (she) has also the responsibility to participate in voluntary social work (at a maximum of 50% of any free part of his normal 8-ours working time. In other words if he (she) is working 8-hours in his own business , there is no obligation for voluntary work. But if he chooses not to work at all, then his has to offer at maximum 4 hours voluntary work. The minimum depending on the community needs).
For any more of household or enterprise wealth, he must become an employee or do business to acquire it.
This means that even the basic first two levels of the A. Maslow hierarchy are de-monetised. (in the sense that the they are offered essentially for free to each individual)
The present state of the working for the industrial-military complex creates a terrible waste of human work , energy and time, for "consumer goods" of highly questionable real value in human life. We live in a, in vain over-active system. By re-engineering the production and the work, the resources of the planet, and the existing technology are more than enough to provide this "de-monetisation" of even the first two levels of the A. Maslow Hierarchy of human needs.
Buying human labour is not so much different from buying human beings (slavery). Although buying tangible objects, or even financial services with money seems natural, buying with money human labour is not natural. Human labour is an intangible service , that should not be pressed to correspond and be measured with money. Even in an economy where you cannot buy human labour , the process of capitalization is possible, as a strong motivation (through the operational social power of the capital). Other incentives can be used for labour like
co-ownership through shares etc.
co-ownership through shares etc.
For objections to buy human labor with money, see e.g. the articles and books of Rudolf Steiner
Maybe a new economy is emerging which starts at the level of households (bottom-up change), that can be aggregated in to unconceivable hitherto social power, with ways similar to the aggregation of creative e-products, that is emerging in the internet.
E.g. The properties of households, can be divided in to strictly private, and publicly sharable. In this way, each person may have access to practically abundant property, and utility.
Money also can be substituted or paralleled with electronic voting (each person has the right of a maximum number of votes per year) and so the rights of social operational power (hitherto capital) can be conducted through accumulated number of received votes.
(see also e.g. The sacred economics by C. Eisestein
http://www.realitysandwich.com/homepage_sacred_economics )
Are the current factors of wealth distribution based on
a) Operational negotiation power
b) Highly unequal distribution of natural resources
the best for a fair, happier and prosperous society?
Should we not always reconsider the issue of fair and best distribution of the wealth based on principles like
a) Equivalent rights of basic needs of individuals and groups.
b) Fairly assessed contribution through work, talents, expertise and other private resources to the collective good.
c) Universal equal rights and obligations of humanity on the critical global natural resources of the planet (like drinkable water, sea, forests , basic animal diversity etc) .
d) Universal equal rights and obligations of humanity on the critical global artificial resources of the planet (like currency issuing, critical technology etc).
http://www.realitysandwich.com/homepage_sacred_economics )
Are the current factors of wealth distribution based on
a) Operational negotiation power
b) Highly unequal distribution of natural resources
the best for a fair, happier and prosperous society?
Should we not always reconsider the issue of fair and best distribution of the wealth based on principles like
a) Equivalent rights of basic needs of individuals and groups.
b) Fairly assessed contribution through work, talents, expertise and other private resources to the collective good.
c) Universal equal rights and obligations of humanity on the critical global natural resources of the planet (like drinkable water, sea, forests , basic animal diversity etc) .
d) Universal equal rights and obligations of humanity on the critical global artificial resources of the planet (like currency issuing, critical technology etc).
?
Some more details and remarks:
Some more details and remarks:
Wealth creation involves a very importnat transition phase for the individual:
It may start as the desire of a physical persom to create household wealth, through some kinfd of business, but as the business grow, usually they cannot be stopped (as it contains issues of emploees, sociaties demand etc), so it creates a surplus (and social) wealth from the point of view of the household , which is usually re-invested to grow the business and the enterprise. The transition from the household wealth creation to the surplus wealth creation is also a transition from mainly private interest to mainly social service interest and contribution . It is not in to the inner goals of all types individuals to make or to want to make, this transition.
There is here a nice parable based on the universal law of attraction.
One day a professor of sociology, lecturing in a class from engineers and mathematician, put his hand in the glass of water in front of him, and threw the water from his fingers on the surface of the board. Many smaller or larger drops of water where shaped.
He turned to the engineers and mathematician and said:
----Most of you would think ,through a way of mental habit, that the statistical distribution of size the water drops on the surface can be described with a normal or gauss distribution.
(Remark: A normal statistical distribution has a symmetric hill-like shape with the majority of the cases accumulated at the maximum which its centre (top of the hill). For this shape see e.g.
This would mean that the sizes of the water drops would be of course different but the majority would have an average size, neither the smallest neither the largest.)
----You would be wrong! The professor continued. You may call it divine intervention though nature's laws, or you may call it what ever, but the true statistical distribution for the sizes of the water drops is that of Pareto's
(Remark: For the shape of the Pareto distribution see e.g. http://en.wikipedia.org/wiki/Pareto_distribution , And for the biography of the Economist Pareto
---- This means, continued the professor, that the grand majority of the number of the water drops are the smaller ones, but that the grand majority of the volume of the water is concentrated on a small minority of larger water drops. Actually the 20/80 rule of Pareto holds: More than 80% of the water is concentrated in less than 20% of the water drops.
----- Vilfredo Pareto discovered this law while measuring the wealth distribution in the society:
More than 80% of the social wealth is concentrated in less than 20% of the citizens.
(Remark: There are more similar statements like
1)“More than 80% of the total power in the planet is consumed by less than 20% of the countries”
2)“More than 80% of the problems in a company are created by less than 20% of the employees”
3) “More than 80% of the internet pages in the web are concentrated in less than 20% of the sites”
4) “More than 80% of the population in the palnet is concentrated in less than 20% of the cities”
5) “More than 80% of the stellar mass in the galaxy is concentrated in less than 20% of the stars”
This effects seems to be the result of the universal law of attraction and laws of evolution. )
----- So does this mean that such a distribution of the economic wealth and resources in societies is fair? Asked one from the classroom.
------ I did not say that, answered the professor. I only pointed out to you that the distribution of the wealth in society is under the same distribution as of other physical phenomena under the universal laws of evolution and attraction.
----- Personally , continued the professor, I believe it has nothing to do with fairness, but rather it has to do with lack of regulation, lack of evolution, coexistence of the little evolved with the more evolved, and lack of conscious human social design intervention. The jungle is full of monstrous violence and killing each other for food, and this might be considered a fact. But e.g. inside a herd of the same species, like in a population of horses or in a population of ants, there is not killing and direct violence, and such violence would be considere unfair. And this should be so with the human society. By decreasing economic inqualities, we eliminate violence, lack of trust, mental diseases and many other social diseases. The more we deviate from the distribution of Power and Pareto, toward a more uniform and equal distribution, the more the society has developed and is happier.
See e.g. how economic inequality harms the society in the video
http://www.ted.com/talks/lang/en/richard_wilkinson.html
There are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of top minority of those who determine the markets.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT.
VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.
1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts.
2) The statistical models of time series are more robust , when they apply to the entity MARKET as a whole and are better as non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks.
3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price.
4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression, cluster analysis , goal programming e.t.c., are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory.
5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it.
6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of top minority of those who determine the markets.
In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT.
VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.
1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts.
2) The statistical models of time series are more robust , when they apply to the entity MARKET as a whole and are better as non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks.
3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price.
4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression, cluster analysis , goal programming e.t.c., are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory.
5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it.
6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.
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