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James Lackey: Tuning for Markets

Temperature and humidity of markets may make us feel better or worse about the future and our position. That is same for a racing an engine. Temp and humidity are very slight changes in the tuneup. When markets rise or fall this affects pressure, like an airplane running at 3,000 vs 10,000 ft.

The amount of fuel we apply to markets must be recalibrated so not to run too lean and blow up or too fat and not profit from our systems. An example is for a 10% rise from 80 degrees to 88 we lose only 2 horsepower.

In pressure terms a 5% change in altimeter settings is very roughly a 5% change in horsepower, huge on a big horse machine.

When markets fall, volatility rises and markets heat up. Once the rains begin to fall the pressure starts to rise anticipating the next high and fair weather. Pressure rises, the markets gain horsepower and we must compensate by re engineering our own models.

In this case we must be more efficient traders, trade less, hold more.

How can we differentiate a quick thunder boomer, vs. a perfect storm? How long will low pressure stay? What causes low pressure in markets, storms and panics? How can they be predicted?

Steve Ellison comments:
Actually, since 80 degrees Fahrenheit is 539 degrees above absolute zero, and 88 degrees Fahrenheit is 547 degrees above absolute zero, the increase from 80 to 88 is more like 1.5%, much more in line with the engine tuner calculator's results.  As for the weather, having lived in the West for 20 years, it seems to me there is some persistence in weather patterns, i.e., we seldom get only a single drought year, but usually a run of them, and ditto for the wet years--but this must be counted.