Forecasting, Causality, the Black Swan, and Your Edge
Sentiment analysis should be the primary focus of currency analysis. [Tao of Markets]
And though we should monitor things like yield differential and economic growth and capital flows closely, we should not attempt to forecast that stuff. Let others do all the forecasting. We need only concentrate on two things:
--the consensus rational
--and potential for surprise to the consensus rationale.
“Our success or failure will rest on our ability to anticipate prevailing expectations and not real-world developments.”
—George Soros, The Alchemy of Finance
If what you are doing (your edge) works for you, then don’t let anyone tell you what you are doing is flawed.
The upshot: Avoid, or at least be very suspect, of those who hold themselves out as experts. Experts, or gurus, have no better handle on what the future will hold than you do. The difference is the experts make a lot more predictions about the future; then they selectively highlight the ones which panned out; the ones that didn’t they hope will slide down the memory hole.
Our guesses about the future have been working out well lately. Our positioning (below) was primarily based on our expectation the crowd was becoming too bearish on the dollar (sentiment)…
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