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2016: On the widening divergence between expert opinion and cultural zeitgeist.

December 16, 2016

 

 

Two events stand out above all others when I review our trading year, events that serve to highlight an apparent divorce between collective expert consensus and the comparative obstinacy of reality. Of course, real world events do not always adhere to their officious destiny. Sometimes the serious, subdued tones of expertise transition instantaneously to cries of despair and outrage over reality changing the predicted paradigm.

 

Brexit (an abbreviation of British Exit), the decision for the United Kingdom to leave the European Union, deftly invalidated established expert opinion around the world. Economists had by and large dismissed the likelihood of the UK voting to leave, and were forced into defending their point of view even as the validity of their assessments crumbled under the weight of a divergent result. Experts were not just wrong, but were taken aback at how divorced from the true cultural zeitgeist they ended up being. As mentioned in my last blog; prediction doesn’t work like it used to. In the world of trading, and in my experience especially Forex trading; fundamentals trading is in the same category of folly as economists attempting to predict world events with out of touch paradigms and methodology.

 

As traders who thrive on volatility and algorithmically finding peaks before they properly form, surprise news is welcome news to Countinghouse. We made 7.5% on the market reacting in shock to Brexit. To be blunt, we don’t put any credence in what the news tells us will happen. That mistake would put us in the same category as those out of touch economists who are being proven wrong with what seems an exponential frequency. Expert consensus can often encourage a dogmatic echo chamber that stifles the dissenting tone of innovation.

 

This pattern repeated itself recently with the Election of Donald Trump as US President. Once again, expert opinion proved out of touch, and the market yielded 3.5% to Countinghouse due to volatility that was a directly related to traders panicking at surprising circumstances. Once more, fundamentals were utterly out of touch with actuality. Once again, Countinghouse enjoyed a higher return than normal while other traders had swing positions stopped out or price action trades reversed due to what some call market irrationality.

 

Market irrationality is simply a word. A crutch novice traders lean on when their systems were not designed to meet the needs of a modern market. Countinghouse instead capitalises on the times when expert opinion is rendered inert, which is happening with more frequency than ever.

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