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Pattern Recognition and Trading Decisions

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This book is about market decisions. It offers no empty promises for
easy wealth. It aims to help people to understand the methods and termi-
nology used by the investment industry and give background on decision
techniques in general, so that they can select those that best suit their needs,
or reject them if they feel they have something better. It offers a representa-
tive span of the decision processes between understanding financial instru-
ments to managing portfolios. It does not cover other aspects, such as
selecting a broker, at any length.

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Pattern Recognition and Trading Decisions
6 (100%) 1 Hlasovalo
Many people have a perfectly natural wish to manage their own invest-
ments, and the growth of the online brokering industry has helped them to
realize that ambition. An awareness of professional decision-making tech-
niques should improve online investors’ chances of success, and it is what
this book tries to convey. This book has been written in the years following
the 1990s boom, when belief in a “new economy” and “new valuation meth-
ods” led to a disregard of sound economic principles and resulted in a
bubble from which many people suffered. The linkage between investment
banking and fund management activities meant that doubters were either
disregarded or fired for expressing views considered contrary to their orga-
nization’s overall interests. The whole situation was made worse by a media
whose members often participated in the boom and stood to benefit by
telling the public what they wanted to hear rather than unpalatable truths.
Mutual fund sales representatives needed performance to sell, which was
obtainable only if their fund managers invested in “new economy” com-
panies. Recently formed Internet companies achieved market capitaliza-
tions rivaling those of large established defense contractors. For one reason
or another, each of the participants in the boom could justify his or her indi-
vidual actions, but the net result for the average fund investor was that
sound economic expertise available to the investment industry was not
applied to the management of their money. A postbubble collapse of confi-
dence left many investors feeling that their trust had been betrayed and
their best option was to manage their own investments. The problems
investors have in managing their money well are often underappreciated,
and this book aims to make a contribution to their solution.
Participants in the markets of the late 1990s may have thought then that
profitable investing was easy, only to learn later, to their cost, that it may be
easy during a bull market but not necessarily at other times. There are books
that claim to make investing easy and other books that typically claim that
you too can be rich if you follow the guru who wrote it. With respect, the
points I make to the guru are that when financial conditions change, exploita-
tion strategies need to change with them, meaning that any single method
will not work all the time. Furthermore, investors have such a wide range
of preferences, individual circumstances, and needs that a guru’s method
is likely to be appropriate for only a subset of their population. With regard
to those who claim to make investing easy, if they could, professionals
would use their methods and perform much better than they do. I would
add that there is also a crucial step that is often glossed over. Typically,
potential investors are given the address of useful Web sites where they can

obtain the information they need to make their decisions.

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