As a learning exercise I like to create elaborate visual scenarios in my head, so as to better compartmentalize information. “Driving is like the stock market” was actually concocted while I was studying for the Canadian Securities Course at the start of my career. The idea got bounced off my old boss for his input and we toyed with the analogy for a whole day, coming up with all the ways we could correlate driving to the market. I cant remember everything that was said but it went something along these lines. For more insights from the old boss, see my post entitled “Thats Lipstick on a Pig” This and Other Insights from my Ex Boss”.
Drivers (market participants) are all trying to arrive at their various destinations (make x amount of money, save for a house or child, etc), and some drive more than others (day or professional traders) but are all in the same pool together (the road).
You can quit the road at various intervals like a highway exit, but you shouldn’t do it after you’ve missed a stop – you’ll end up on the side of the road. (In technical trading, you have windows which indicate the best times to exit a position. If you trade against your initial strategy by averaging down to recoup losses, it usually ends badly).
Some use your basic sedan vehicles (common shares), others require more sophistication like manual transmission (derivatives). Other may buy a classic sports car at auction, for it’s uniqueness and future value (warrants), while others considered more safe and practical options, like SUV or minivan vehicles (bonds, and mutual funds, respectively). Fewer people choose to pre order custom cars, with delivery at a later date (futures).
You can employee different tactics (short sell, fill-or-kill, limit orders, etc.) or may have been taught various strategies (arbitrage, swing, intraday trading, etc). There are different platforms on which you can drive, and trade. Offroad gravel roads are like “alternative trading platforms, or ATS’s”. You can drive on sand or ice, say Omega or Pure trading marketplaces, but most often you drive on the main road, or Toronto Stock Exchange.
Sometimes others crash into you (negative micro or macro news that affect the price of your stock and you can’t do anything about it). Or there is construction and you all have to wait (stock issuer halted). Some times you dont see them coming because they’re in your blindspot (dark market trading, iceberg trading), but they’re there and can affect you. Semi trucks infront of you make it difficult to pass and you have to wait (block trades), but can get around them if you have to.
You have to be cognizant of other drivers, because some drive more confidently (bullish) oppositely others are more hesitant on the road ie. (bearish). Some are plain greedy assholes (pigs). For those of you who don’t know, the origins of the terms ‘bullish’ and ‘bearish’ comes from the animals themselves. A bulls’ horns swing upwards, so to be bullish implies you are perpetually optimistic of a stock or market condition, believing it will trend upwards. A bears’ paw swipes downwards all the time, so to be bearish means you are negative and have a bad outlook on whatever it is you’re looking at.
What others do won’t typically matter, but if everyone acts the same way, markets become self fullfulling prophecies. This is when your trading is influenced by the general consensus on the street; A pile up then, it can be argued, is an example of a self fullfilling prophecy.
Sometimes you can’t see who they are because they have tinted windows (anon traders, jitney trading). You may have police problems for your indiscretions (regulatory trouble), or there could be a major problem like a bridge collapse, in which case everyone stops driving (circuit breakers). Your car can break down or you may need a tow (can give someone power of attorney or trading rights over your account).
You may encounter a storm (recession), but rest easy as all things change, both the good and the bad. Sunny days will come (bull market) in which you are no longer swimming up tide. Its best to trade in these times, but no one is stopping you from doing it in bad weather. Sometimes you car pool (investment pools), or drive in a vehicle with many passengers like a bus or train (cpcs, private placements, equity financings, etc.) but usually you are driving your own car.
Some just suck at it. Should stick to biking or walking (buy physical things like art and gold bars as investments. Its more basic but can be more satisfying). Your vehicles can vanish in the same way finanical instruments theoretically can, so walking may be best after all. There is no scientific way to drive or be in the market; its as much an art as an action. But everyone is just doing their best, so take it easy if someone agitates you. The other car shouldn’t impact your decisions or affect focus (emotional investing is detrimental to your cause).
Stock Options are akin to opportunistic lane weavers in that they are both zero-sum-games. What is a zero sum game: somebody wins somebody looses. For you to benefit, someone else will have had to loose or be disadvantaged on the opposite side, be it on the options trade or by your traffic causing lane weavers. Money doesn’t disappear – it just shifts hands, in the same way that the minutes you spared has been adversely added to those behind you. Its rooted in game theory and other examples include chess, and team sports where there is a clear winner and loser.
Im curious of two things – if people in the industry would agree with my analogy, and if those outside of it now have a better understanding based on the analogy. Whose to say. In any case, visualization is a powerful tool for truly understanding a set of ideas. It can further be used for manifestation purposes, where intense concentration can move things in your favour. Many professional athletes have confessed to visualizing how they will win, by mentally running through the physically movements they will take, over and over. If its good enough for them, it may be worth a shot for you?