Gary Edwin Anderson - The Janus Factor: Trend Followers Guide to Market Dialectics

Contents

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Copyright 2012 by Gary Edwin Anderson. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data :

Anderson, Gary Edwin, 1942

The Janus factor : trend followers guide to market dialectics / Gary Edwin Anderson.

p. cm.

Includes index.

ISBN 978-1-118-08707-7 (cloth); ISBN 978-1-118-23600-0 (ebk);

ISBN 978-1-118-26169-9 (ebk); ISBN 978-1-118-22348-2 (ebk)

1. Speculation. 2. Investment analysis. 3. Investments. I. Title.

HG6015.A526 1012

332.64dc23

2012030690

For

Carol Anne

The Janus Factor

Janus: Early Roman god of gates and portals, suggesting the two sides of a door. Represented by two opposing faces, Janus symbolizes the two-sided nature of things.

Introduction

In this Discourse I do not undertake to say all that is known, or may be said of it, but I undertake to acquaint the Reader with many things that are not usually known to every Angler; and I shall leave gleanings and observations enough to be made out of the experience of all that love and practise this recreation, to which I shall encourage them. For Angling may be said to be so like the Mathematicks, that it can never be fully learnt; at least not so fully, but that there will still be more new experiments left for the trial of other men that succeed us. But I think all that love this game may here learn something that may be worth their money, if they be not poor and needy men: and in case they be, I then wish them to forbear to buy it; for I write not to get money, but for pleasure, and this Discourse boasts of no more, for I hate to promise much, and deceive the Reader .

Izaak Walton, The Compleat Angler , 1653

This book embraces both theory and craft. In the first five chapters, I present a systematic view of the market, not as a battle between buyers and sellers, or even between bulls and bears, but as a struggle for dominance by traders holding to radically opposed paradigms. A new measure of risk is offered, and on that theoretical foundation I build a method.

Craft confronts a real world of noisy data and thorny reality, so in the remaining six chapters I apply these methods to the historical record. In the final three I detail strategic indicators, which readers may use to guide day-to-day trading decisions.

Some of what I demonstrate is, so far as I know, taught nowhere else. The main ideas presented in this book are simple but crucial for anyone who wishes to trade successfully in all market environments.

Acknowledgments

Writing a book, I have come to learn, is a lonely pursuit, but a number of friends and colleagues cheered me along and some have contributed to the books content and finish.

First among those is my wife, Carol Anne. Her trust and support made it impossible for me to disappoint her. My friend and former business partner, Jack Loe, not only encouraged me, but his practical insights are sprinkled throughout the book.

There are others I wish to thank as well. Toni Turner is a successful author of books on trading, and from the beginning her natural optimism repeatedly refreshed me and my determination. I wish to thank Dr. Timothy Masters for his edits of technical issues, which have spared me from numerous small embarrassments. Nelson Freeburg lent his keen eye and broad knowledge of quantitative systems. David Aronson has been a friend of the project.

Finally, I wish to acknowledge those whose words and work I have borrowed freely.

To steal ideas from one person is plagiarism. To steal from many is research.

Wilson Mizner , 1938

Every autobiography is the fragment of a theory .

Leigh Gilmore, The Limits of Autobiography

The young meteorologist started his computer run and walked down the hall for a cup of coffee. When he returned, the direction of both his life and his science had radically shifted. Ed Lorenz was experimenting with models of the weather on an early desk-sized computer. His research project called for him to input variables for atmospheric conditions and then let the computer grind out future weather patterns according to well-established algorithms based on meteorological laws. On this occasion, he decided to repeat an earlier computation in order to examine longer-term output in more detail. Normally, the computer ran these calculations from beginning to end in one take, but to save time Lorenz decided to start nearer to the point of his interest rather than to redo the entire run. As initial conditions he typed in a line of numbers printed midway during an earlier computation, started the program, and left the room. His coffee break lasted about an hour.