A Few Words on Markets, Predictability & Our

Approach- By Nishant Arora

Every now and then, I get some or the other market enthusiast inquiring about exotic market
methods which are prevalent in some circles. In fact, it won't be an exaggeration if I call these
methods a Cult.

Being a person of "logic", one must contemplate everything and go ahead only if it makes
preliminary sense.

So today, if I put two statements before you:

1. Market is like a definitive clockwork based on mathematics and is 100% predictable in time
and price, if one understands the calculation.

2. Market is a function of demand and supply created by human beings of varying sentiments,
perceptions, capital and emotions and thus can't be predicted but based on demand and supply
understanding, one can find "probable edges".

Which one of these two sounds logical to you?

Well, I can't answer for any of you. But I will go with the second.

When you go with the first, you tend to start with the premise of finding that holy grail and
then traverse between things like Gann cycles, angles, Elliott, astrology, astronomy and what
not. Well, you all must have seen people who give adventurously "wide-shot" calls like saying
market is going to 1 Lac or market is going to 5k. It may get them some audience but is it
tradable?

Then there is an extension of this breed of holy grail finders. They think that one specific
indicator will give them 100% predictability. There is a thin line of difference between these
two breeds. While the cult followers believe that market is 100% predictable like a clockwork,
and they gravitate towards concepts like Gann, Elliott and Astrology/Astronomy, the second
type of holy grail enthusiasts believe that even if market is not 100% predictable, our indicator
is 100% accurate. History has seen many such men, in both the categories. The first category is
of those who think that market is predictable. And the second category is of those who think
that their indicator is accurate. Every wave of market brings many such cults to the shore. But
when the tide changes, they are nowhere. When their theory works, they become media
darling till it doesn't.

While Elliott and Gann belonged to the first category as they assumed market to be a clockwork
which can be PREDICTED and both displayed their intent of gravitating towards astrology in
their advanced texts. There were others like Edson Gould, who developed "Speed-Lines" or J.M.
Hurst, who came up with "Market Cycles" and said that time is everything not price, just like
what Gann believed. Then there was Joseph Granville who thought that it's neither time nor
price but volume and he believed that volumes are the key to PREDICT markets, and he
developed "On Balance Volume (OBV)". But the basic premise of all these things remain same,
that MARKET IS PREDICTABLE.

Now for example, when you go into the domain of Time Cycles, you get into studies like
principles of Summation, Harmonicity, Synchronicity, Proportionality, Variation and Nominality.
You also get into concepts like Amplitude, Period & Phase. Can you even believe it? So, basically
it assumes that market is run by Physics, which is contrary to our understanding that market is
run by sentiments.
The problem is that over many years, so many "specialists" of different subjects tried dissecting
the market as per their knowledge of "their" subject. A physicist tries dissecting it using
principles of physics, an astrologer tries dissecting it using principles of astrology, an astronomy
enthusiast tries dissecting it using principles of astronomy, a mathematician tries dissecting it
using principles of mathematics using polynomial equations, trigonometry standard deviation
(Bands), an acoustic engineer tries to dissect markets using Vibrational Study so on. Wait till we
have someone who says that it is basically the Chemistry which runs markets. But overall, it is
like watching market through a "lens".

Now, try to think about why it happened. It happened because the basic idea held by all these
theorists has been that MARKET IS LIKE A CLOCKWORK & IS PREDICTABLE. So, most of these
theorists believed that if you figure out some calculations, you will be able to predict the
market not just in price but in time. So, it all starts from the belief that markets are like a fixed
machinery and is predictable. Once they start with this belief then they use their subject
knowledge of be it physics or astronomy or astrology or mathematics to dissect the market.

This is where I boldly differ. In fact, I don't believe in any approach which says that market is
predictable. The moment anyone says this statement, I am off the conversation. I do not
believe or think that market is a machine which has a DEFINITE FUTURE which can be
PREDICTED with accuracy. Because if I'd start to agree with this, the whole idea and concept of
demand/supply, people's emotions and perceptions and probability will die. Both WD Gann and
RN Elliott saw markets as if it is a machine of Newton whose movements can be predicted to
last degree and percentage in future. I DO NOT AGREE. Of course, I have taken the concept of
impulses and correctives from Elliott but then I am a sucker of good things. But the I follow
anything only till the point where it is still logical.

The eternal objective truth is that market is made up of people & not mechanical components.
So, there is no point using a MECHANICAL METHOD to win an EMOTIONAL GAME. I only work
with the principle that price is a function of demand & supply. And it is people who create
demand & supply based on their perception of a company's business, fundamentals, news and
other information. And future of companies and people's perceptions of them is COMPLETELY
UNCERTAIN. GANN says that everything is certain. So, if GANN method says that you can
predict future price movements with accuracy, it means that what companies will do, what
economy will do and not just that, what people will think of it, what opinions people will form
and they what actions they will take, is all predictable. You tell me, does it make sense to you?
Lots of lives are wasted on this. The reason people get in trap of these things is that MARKET IS
UNCERTAIN and people in general are not comfortable with uncertainty so they wish to seek
definiteness and predictability and such methods and teachers of such methods offer to give
them predictability. So, one has to understand that markets have been uncertain, are uncertain
and will always be uncertain because markets are dependent upon demand and supply. And
demand and supply are based upon people's actions of buy and sell. And those actions are
based upon their perception of company's business and economy. And companies, people and
economy, all three are uncertain elements. So, trying to find predictability and certainty in
stock market is a futile thing. Learn to "embrace uncertainty and focus on methods which talk
about logical understanding of markets using facts not theories.

And then there is this "Cult of Laws of Nature". Some talk about "nature stuff" that market
follows a natural cycle like human beings. And they say that market follows the "Law of
Nature".

Now, let me tell you why I don't tend to gravitate towards this thought that nature runs the
market or market follows the laws of the nature. I've a tendency to be rational, so please bear
with that. I am not denying anything, just evaluating rationally.

Also, let me assure you that I'm in no way contradicting the law of the nature. In fact, I am
voracious seeker of universal cosmic energy, a practitioner of Yoga and Chakra meditation and
a voracious reader of ancient texts. So, I'm not a typical 'modern bro/dude' who is denying
everything which is conventional.

Coming onto laws of nature, I completely agree and respect the fact that sun follows a
predictable pattern, earth revolves around it in a predictable manner, moon has predictable
and repeatable phases, day/night have set cycles and seasons have a predictable pattern. There
is no denying to that. No one can. In fact, it's such an amazing phenomenon that can only be
appreciated.

However, the problem begins when someone starts replacing sun, earth, moon, day/night and
seasons with Reliance Industries, PVR, Siemens, HDFC and DLF.
Sure, I agree that cycles of nature have its effects on individual human biology, chemistry and
psychology but that nature's cycles affect stock markets just because it's humans who are
working in stock market, is a long shot. Stock market is not made up of one human that you can
check his Kundli and tell stuff. It is made up of countless humans. Market is an intersection of
countless humans, be it traders/investors or promoters or employees of the companies in
who’s stock one is dealing with, or humans in government making policy decisions or human all
across the globe whose actions affect the world economy in general.

The idea, that since sun movements can be predicted with complete accuracy can’t be
extrapolated and extended to assuming that movement of Reliance share can be predicted. I
mean, I would still have been more tolerant if one would have said that Mukesh Ambani's life
can more or less be predicted by Astrology. But I can’t accept that Reliance stock price can be
predicted by planetary studies.

Here are my 10 reasons:

1.) Sun is an object/creation of nature but Reliance Industries is not an object of nature. It's an
artificial entity made by humans not nature.

2.) Secondly, the mysterious powers of nature and universe (I completely agree that they exist)
are not aware that we have a company called Reliance on earth which is listed in stock market
and is traded. In fact, nature is not even aware that we humans have created a ZOO called
stock market. Stock market is not created by nature so how can one think of applying laws of
nature on stock market?

3.) Stock market is not an individual object which can be predicted. It is made up of
components which are further made up of components which are further made up of
components and so on. Just so many moving parts to be able to make a prediction. It is made
up of companies which are again made up of people which exist in an economy which is again
made up of people and economy is dependent upon how world works. Plus, stock market itself
is made up of people who will behave depending upon their knowledge, emotions, life
situations and risk capacity. So, predicting stock market will mean predicting all of its
components stated above. And I seriously doubt that it can be done.
4.) It is like trying to apply laws of nature on man-made things like a laptop or a pillow or even a
show, just because it is used or operated by humans. These are man-made objects and can’t
follow laws of nature. Of course, laws like gravity will apply on laptop (if you'd drop it, it will fall
and break) but you can’t say that this laptop will get switched on every day at this specific time.
No Sir, you can’t do that. It will get switched on only when its owner would decide to switch it
on. So, would you think that you'd analyze the Kundli of its owner and predict as to when will
he switch it on?

5.) Some may argue that there is no comparison of stock market with objects like Laptop, Pillow
and a shoe as they are stationary objects. Alright, I hear you. So, let me give another analogy
which will exactly fit in with the workings of stock market. Let's talk about moving traffic. It is a
perfect analogy to stock market as both are COMPLEX SYSTEMS, DYNAMIC, MOVING and
PEOPLE DRIVEN and both have a number of variables.

6.) Before I explain further, let me explain the meaning of COMPLEX SYSTEMS. A complex
system is a system which is moving and it has several individual parts which are also moving.
You would think that a Car is a Complex System. No, it is not. A car is not a Complex System
though it has several sub systems like Clutch, Gear, Piston etc. and all are moving to move the
car. A car is a system and not a complex system. The reason is that components of a car will
work in a designed manner and not as per will. The components of a car have no will of their
own. They are designed to work in a specific manner. A clutch will work as it is designed to do
and so would piston. It will not move outside its range of motion. So, how a piston will move is
completely predictable. How the engine will behave when you turn the key is completely
predictable because a car is a system and not a complex system. But moving traffic is a complex
system. You'd say if cars are not complex systems than how can moving traffic be complex
systems. The answer is the moving traffic has a component which does not have a designed
range of motion and it can move as per its will. And that component is DRIVER. That is why
moving traffic is a complex system even when a car is not. So, one can apply rules and Laws on
a car but not on traffic.

7.) Now can any market cycle proponent explain to me that how laws of nature would apply to
moving traffic just as they apply to sun, moon and so on? Can a method predict exactly as to
how moving traffic would behave in future? Because predicting a moving traffic would include
predicting all its individual components which are also moving. Moving traffic on the road
depends upon what people will do, road conditions, weather and lots of other variables. And
people will do what they will perceive in a split second. Decisions are taken by drivers based
upon their current mental state at that moment, which may or may not be their regular nature.
So, if a driver is feeling that the car in front of him is giving him side, he will overtake. If a driver
is feeling that the car behind him is honking too much, he may either give it space or irritate
him further by not giving space as per his mood and emotion at that time. If drivers would hear
siren of an ambulance, they will move to the side and give it space. How can someone predict
that an ambulance is about to come? Moreover, some driver may be drunk and would be
driving as per his condition. Some driver may be in hurry and would be driving rash. Some
driver might be learning and would be driving as per his ability. Some driver might be running
from police in a stolen car. Some driver may get a sudden heart attack which driving and his car
may go out of control. Some driver may get a sudden sneeze due to which his balance gets off.
So, the point is, that moving traffic on road is a dynamic thing. Not only it depends upon the
emotions, ability and condition of individual drivers but also how individual drivers would react
to what other drivers are doing. So is the case with stock market.

8.) Markets are exactly same as moving traffic. One, it consists of several people who have
individual mindsets, wills and emotions. And two, it's not just about individual people but also
about what others are doing and how will they react to what everyone is doing. It is a true
complex system & complex systems do not follow laws of nature and can't be predicted using
definite studies.

9.) My planetary conditions (Kundali and Panchaang) might tell you how my life will turn out.
But, in NO WAY can it tell you when I’m going to sneeze next. No matter how deep you study
my Kundli, they won't tell you that today I will be writing this post here. What I mean to say is
that my planetary study may give you a big picture of my life but not my everyday actions &
everyday events of my life. Even if I assume that planetary movements can predict whether I'm
going to go long a stock or short but how will my planetary movements predict that Rakesh
Jhunjhunwala will suddenly sell a block & stock price will plummet & market structure will
change & thus I will change my strategy? How will planetary movements predict that US FED
would increase rates & suddenly markets would give a knee-jerk? Let's say, planets say that
price of HPCL will go up. Suddenly we get some unfavorable news from OPEC or let's say a big
fraud is discovered in HPCL or let's say a big hand in the stock decides to sell because he has
found some other stock. How would planets predict all that? There can be many such
scenarios. So, the point is that laws of nature may anticipate the life of an individual but in no
way, it can predict what others will do & what I will do in reaction to that.
10.) Laws of nature, astrology or astronomy my anticipate an individual person's life just as we
can predict the motion of individual components of a car because individuals are designed by
nature and car is designed by us. So, whatever is designed can be predicted to some degree.
But in no way can laws of nature predict moving traffic or stock market because they are
complex systems have no designed range of motion and run by free will.

So, bottom-line is that stock market is not a system but a complex system containing further
complex systems and in no way it can be constrained in a formula or a law or a theory. It can't
be constrained even by Mathematics as even Mathematics is full of paradoxes. There is nothing
called Perfect Mathematics. Stock market will always be uncertain and if success is to be
achieved, a trader would have to accept uncertainty and study components of the system to
get an edge of probability.

Now, if someone has read it diligently, he would have got the gist and anyone who has a
thinking mind and logical bent would understand what I'm saying here.

So, I don't follow either camp:

Neither that which believes that markets are clockwork and can be predicted with laws of
physics or nature.

Nor that which believes that certain mathematical indicator will predict everything.

That is why, after years of deep study, observation & Practice, I came up with the most
objective approach, that of Market Structure Across Timeframes, which neither believes that
markets can be predicted nor it gives any mathematical definition of markets. It doesn't not
aim at IMPOSING anything onto markets by thinking that "Time is the key" or "Volume is the
key" or "Momentum is the key" or "Cycles are the key" or "A specific pattern is the key" and so
on. All it does is that it MERGES with the flow of the market and see it AS IT IS without
imposing any formula onto it. So, what we try to do is that first we choose TA as our medium
because we are not interested in interpreting the countless variables such as company, it's
fundamentals, it's management, their intentions, their policies, it's employee mindset, it's
numbers, it's products, their reception in the market, its competitors, their products,
government policies, economy, world events, world markets and so on. We don't want to play
that game. We want to track the end result of those who are playing that game and that is
price chart. so, that is why we use TA as our tool. But then within TA, we don't gravitate
towards PREDICTIVE METHODOLOGY but rather a FLOWING METHODOLOGY where we
become ONE with the markets rather than telling it what it should do by imposing our theories.
That is why I tend to say sometimes that Market Structure is neither a theory nor a
methodology, it is the soul of the market, without any expectations, biases or preconceived
notions. It is the most objective way to perceive markets, not predict. And when we merge our
understanding of market structure with timeframe understanding, we get the recipe of high
probability trades along with risk management and therefore success.

I hope this is the last time I speak about why use TA and why use market structure.