The Zero Sum Game

“The Zero Sum Game”: What you must understand in order to make money in the long run
"I don't play the game by a certain set of rules; I look for changes in the rules of the game.“ — George Soros

How to win without relying on luck

Dispelling the myth of predictability
Let’s take 3 cases:
The Fundamental trader
The Technical momentum/trend trader (indicators)
The Technical value trader (head/shoulders pattern)
We can deal with randomness by putting it into context. Consider:
Fundamentals
Sentiment
Order flow

The zero sum game: illustrated
FX: Zero Sum Game
Stock Market: Net Wealth Game
Consumer
Central Bank
Investment Bank
Pension Fund
Product
Resources
Company
Company 2
Labor
Institutional Investors
Company 1
Investors

Rules of the game
Rule #1: The process of price discovery is chaotic and thus unpredictable.
Rule #2: The market’s job is to confuse the most participants
Rule #3: No wealth is created or destroyed—only transferred.
Rule #4: People don’t trade the market. They trade their opinions of the market
Rule #5: The profitable players in the market are a minority (by definition). The way they win is by knowing the hand (position) of the majority

Thinking in the present
Value vs. Momentum
Value buyers look into the future, and momentum buyers look at what just happened in the past: Unfortunately both are using the past to predict the future
Hint: Think in between the two, and that is the present.
Let someone else catch falling knives
The “secret” formula:
IMBALANCE + SENTIMENT CHANGE = PROFIT

Thinking in the present
IMBALANCE + SENTIMENT CHANGE = PROFIT
An imbalance happens when the market as a whole starts to reach a consensus
A sentiment change can be realized when price starts responding to events and technical levels differently (also when media focuses on something else)
A profit is realized by letting someone else discover where the bottom is, catching the meat of the move, and limiting risk while also accounting for randomness

Example

Please send your questions to me!kris@thegestaltshift.com
www.thegestaltshift.com
Thinking outside the box to profit from forex

The Zero Sum Game

by Kris Matthews on Jul 28, 2009

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The Zero Sum Game — Presentation Transcript