SevenSentinels.com

The Matrix, the Market and Andy Kaufman

"Market is designed to fool most of the people most of the time" - J.L. Livermore

"If you believe there's nothing up his sleeve, then nothing is cool" - R.E.M.

------------------------------------------------------------

If you haven't seen the Matrix film series, I highly recommend it, because I believe it can be viewed as a powerful metaphor for the market. Lest I leave any doubt in this article, my point is that the market is the Matrix, symbolically speaking. And the Matrix is the most elaborate deception ever conceived. Only those who see beyond this deception will truly be free to profit from market trading.

The market operates on two levels. Level one is what seems true, very much like the Matrix, which is believed by the many. Level two is what is true, and this level is recognized by the few - and those few have become true masters of the market.

I have punctuated this piece with continual quotations from "The Matrix" series for sake of illustration.

MORPHEUS: "I AM TRYING TO FREE YOUR MIND NEO. BUT I CAN ONLY SHOW YOU THE DOOR. YOU ARE THE ONE THAT HAS TO WALK THROUGH IT...

Successful trading requires forgetting everything you thought you knew, and everything that seems logical - and appreciating the market for its purity and simplicity. Making that extraordinary leap of faith is not easy;  in fact it's not even possible for some, precisely because it is so unnatural. The market is not what it appears; and it has but one purpose, and that purpose is to deceive us. And its efficiency of purpose is a wonder to behold!

MORPHEUS: "THE MATRIX IS A SYSTEM, NEO. THAT SYSTEM IS OUR ENEMY.

When, very early on in my career, a successful veteran trader who had become my mentor stated over lunch one day that 'there has been more misinformation written about the stock market in the last 50 years, than about any other subject on this planet', I listened intently. 'Because it's such a popular subject, and half of what's written is wrong?' I asked. 'No', he replied, 'because 99.9% of what is written is based on superstition and myth.'

MORPHEUS: WHAT IS THE MATRIX? CONTROL. THE MATRIX IS A COMPUTER GENERATED DREAMWORLD BUILT TO KEEP US UNDER CONTROL.

Your job is look beyond this deception, and to FIND the 0.1% that is truth - those diamonds in the coalfield - and hang on to those gems for dear life.

MORPHEUS: "YOU ARE HERE BECAUSE YOU KNOW SOMETHING. WHAT YOU KNOW, YOU CAN'T EXPLAIN. YOU FELT IT YOUR ENTIRE LIFE. THERE IS SOMETHING WRONG WITH THE WORLD. YOU DON'T KNOW WHAT IT IS, BUT IT'S THERE, LIKE A SPLINTER IN YOUR MIND, DRIVING YOU MAD. IT'S THIS FEELING THAT HAS BROUGHT YOU TO ME. DO YOU KNOW WHAT I AM TALKING ABOUT?"

Could the old man be right, I pondered? How can this be? How could any serious investor base decisions on superstition? Why would people invest real dollars based on myth? Then the answers began to come. It is because they want to believe! Houdini made a career of giving people what they wanted - an illusion that they could believe!

MORPHEUS: "IF THE VIRTUAL REALITY APPARATUS, AS YOU CALLED IT, WAS WIRED TO ALL OF YOUR SENSES AND CONTROLLED THEM COMPLETELY, WOULD YOU BE ABLE TO TELL THE DIFFERENCE BETWEEN THE VIRTUAL WORLD AND THE REAL WORLD?"

NEO: "YOU MIGHT NOT. NO."

And Houdini was not alone. P.T. Barnum mastered the art of deception, and of course, illusion WAS Andy Kaufman - he succeeded in making people actually believe that they were seeing things that are far beyond most people's wildest imagination. Like the market AND the Matrix, he mastered manipulation of mass perception and belief. I am absolutely certain that each would deeply appreciate the film "The Matrix". And I am also certain that each had the instincts to become brilliant traders.

MORPHEUS: "ALL THEY NEEDED TO CONTROL THIS MIND WAS SOMETHING TO OCCUPY OUR MIND. AND THEY BUILT A PRISON OUT OF OUR PAST; WIRED IT TO OUR BRAIN AND TURNED US INTO SLAVES."

Much later in my life, Michael Stipe of R.E.M. wrote a song about this concept - Man on the Moon - using Andy Kaufman as his example. The words hit home with me in a major way - as I'm a huge fan of the 20th Century's greatest hoaxer who was so successful, incidentally, that to this day, many remained convinced that he had faked his own death - and they await his return! Think of it. Illusion so "real" that it became immortal! 

NEO: "THIS ISN'T REAL?"

Houdini, Barnum and Kaufman knew instinctively that people want to believe that which promises them money, fame, health, sex, mystery, love, excitement, immortality - you name it. Whether what they get is fact or fantasy is completely immaterial. What they seek is served up to them, and they are grateful.

CYPHER: {MARVELING AT THE SENSORY WORLD AND POINTING TO A MORSEL OF STEAK}: YOU KNOW, I KNOW THIS STEAK DOES NOT EXIST. I KNOW THAT WHEN I PUT IT IN MY MOUTH, THE MATRIX IS TELLING MY BRAIN THAT IT IS JUICY AND DELICIOUS. AFTER NINE YEARS, DO YOU KNOW WHAT I HAVE REALIZED? THAT IGNORANCE IS BLISS.

And so it is with most traders. They remain blissful in their world of illusion, oblivious to the fact that they are looking to charlatans for guidance, or depending on "indicators" and "systems" that bear no correlation whatsoever to trading success. Or worse yet, they believe what the market seems to be telling them, still blissfully unaware of the market's central purpose - deception. Real stock market success, I ultimately learned, comes only by following an unnatural path, not unlike what Neo learned from Morpheus. We must learn that 'what looks like it should work, doesn't'. What seems logical isn't. In short we must start by unlearning everything we thought we knew - because like the Matrix, or an Andy Kaufman performance, it is all illusion. If you believe, you are just begging for others to take your trading capital- or as Stipe says "nothing is cool".

MORPHEUS: "THE MATRIX IS A SYSTEM, NEO. THAT SYSTEM IS OUR ENEMY.  

Our ways are not the market's ways. What is real is unnatural. It took thousands of hours of pouring over the works, biographies and interviews with many of the greatest traders, to fully begin to absorb that truth. My overwhelming desire has been to discover what really makes money.

MORPHEUS: "YOU HAVE TO UNDERSTAND MOST OF THESE PEOPLE ARE NOT READY TO BE UNPLUGGED AND MANY OF THEM ARE SO INERT, SO HOPELESSLY DEPENDENT ON THE SYSTEM, THAT THEY WILL FIGHT ANY CHANGE."

By IYB

IYB (Don) has been a trader and student of the market for more than four decades. He spent two decades on Wall Street as a top producing broker for Merrill Lynch, Shearson and others, and today is one of the most prolific contributers to Traders-Talk.com, a popular meeting spot for top equities and commodities traders, where he has been sharing his detailed technical analysis, unique trading tools, and general trading concepts since 2002. He is the author and creator of the highly acclaimed Seven Sentinels market indicator, among other technical tools: 

The concept of the Seven Sentinels is my own and is based on a very simple but universal truth that I've observed in nature, everywhere I look, since I was a child - the principle that external follows internal. The Seven Sentinels are internal measures of the pressure produced by prevailing money flow into or out of the markets. External price movement follows this building pressure as a very natural process, just as birth follows pregnancy, exhaling follows inhaling, a volcano follows the build up of gases below the Earths surface or a Tsunami follows a 10.0 earthquake. If you observe the one, you can trade in sync with the other. This simple truth provides perhaps the most powerful trader's edge in existence.