x Abu Dhabi, UAESaturday 22 July 2017

A disheartening idiot's guide to market economics

Mr Misic teaches what he calls a simple strategy for successfully trading in any asset class.

So let's start with the upside. Steve Misic is impressed. And, before we go any farther, I'm going to pause and savour that for a little while.

What's that? Steve who? Shows what you know. And, indeed, until this week, what I knew. Mr Misic is what I'm pretending to be - a trader, though in his case in the real world, with years of experience in everything from equities and futures to forex and options. A former assistant head trader for a leading hedge fund, he is one of 60 US-based instructors who now share their experience with the thousands of international students at the Online Trading Academy, which, since 2005, has had a branch in Dubai's Knowledge Village.

He was also in town this week, on his fourth trip of the year, to run one of the academy's intensive seven-day professional trader courses, and I collared him in a blatant attempt to get some free tips. This course, focused on stock trading but designed to equip anyone with about US$5,000 (Dh18,365) to spare with the tools they need to tackle trading in any asset class, is pitched at beginners, who learn the essential basics: how to develop a trading plan, find trades by technical analysis and trend-tracking and, crucially, manage risk to prevent losing money, "the professional trader's rule number one". By day three, students are trading live - "planning their trade, then trading their plan", as the academy likes to say - and, best of all, they are trading with the academy's money.

However, cautions Mr Misic, though many students do go on to make a living at their home terminals, don't even think about giving up your day job to trade full-time without a year or two of living money in reserve. Maybe he was being kind, but after I told Mr Misic about the whole fantasy-trading thing, and how at one point I had boosted my original stake of £15,000 (Dh87,270) to close to £16,500 (mainly by stabbing in the dark, but I left out that detail), he said: "Well, percentage-wise, that's not a bad gain."

I thank you. But, in fact, he was being kind, because then he sort of went and spoiled it by adding: "And now think what it would be if you knew what you were doing." Indeed. Mr Misic had worked out that I didn't know what I was doing within five or maybe six seconds of our conversation starting. And, after listening to him patiently explain some of the basic ins and outs of successful trading, I came away simultaneously inspired by the possibilities and depressed at just how much I have to learn.

Mr Misic teaches what he calls a simple strategy for successful trading in any asset class - whether stocks, forex or futures - that involves following the inevitable business cycle of "an expansion, a peak, a contraction and then a trough", and striking - buying or selling - at the correct moment. "So up, sideways, down and sideways again is pretty much the pattern," he says. "And the market has the same pattern; they call it accumulation, mark up, distribution and mark down."

I'm writing this stuff down, mouthing the words, but secretly glad I'm not going to be tested on it later. And then comes a quiet revelation. I guess we all know the way it is - that the world is comprised, essentially, of suckers and suckees - but hearing it spelled out for the first time by Mr Misic, as he gives me his idiot's guide to market economics, is a little disheartening. "Institutions like to accumulate large positions of assets in anticipation of higher prices and, after the higher prices are reached, they usually distribute to the public, who like to buy at the top of the market."

By "like", I think he means "know no better than". Sometimes it's hard to know when financial types are being funny. And then, he says: "The market collapses, the only people that have money are the institutions and then the whole thing starts over again. "Every generation," he adds, "goes through it; you either figure it out or you're a part of it for ever." Depressing. I have wasted my life as a wage slave. So how to figure it out and cross over to the smart side?

For Mr Misic, it's all about the weekly charts: study these carefully and patterns will start to emerge - patterns that can be exploited by the nimble-footed day trader. And don't waste your time reading too much. "For example, look at the gold market right now. It's at all-time highs and going higher. What to do? There's all these people that are long on gold telling you, 'Oh, it's a buy', and everybody who's short telling you, 'Oh, it's going to collapse'."

What you need, he says, is not contradictory advice, but a strategy - based on a sound understanding of demand and supply. "So if you want to buy gold, say, you either buy when it makes a new high or you buy when there's a pullback to some kind of demand zone below current price. Prices don't always go straight up, they often fall back a little before resuming the uptrend." A dim bulb lights up. This was a strategy I'd stumbled on myself, a few columns back!

But a little knowledge is, of course, a dangerous thing, and now I am in a quandary. Do I plunge in deeper, deploying Fibonacci retracement lines (whatever they are) in an attempt to second guess the market? Or do I just stumble on, continuing to act on instinct (a word, incidentally, that makes Mr Misic draw breath, politely, but sharply)? Well, a bit of both, I guess. After all, there's no real money at stake - and if there was, I can't help thinking that handing over $5,000 or so to Mr Misic and his colleagues would be my first and best investment.

Meanwhile, back to stabbing in the dark in the unreal world, whereby this week I have made a grand total of £9.82. Whoop-de-doop. Not quite enough for two Big Mac meals.

jgornall@thenational.ae