The time is between NY Close and Asian open and the market is narrowly ranging. So, you may have 2 minutes to read this essay.
A lottery shop has just opened around the corner and sells Heads and Tails only. Very simple, Heads or Tails and drawing is every evening. The odds are 1:1 - No spreads, no commission and no deduction. It cannot get any fairer than that. can it?
At the end of the day the shop owner announces the winner, which is either Heads or Tails. Each ticket is $1.00
Like every lottery shop, the owner opens the shop in the morning and customers come in and buy lottery tickets. Some buy Heads and some buy Tails.
In the first evening the shop owner counts the sold tickets. He sees 500 tickets sold, 220 Heads and 280 Tails.
The drawing being at his own discretion, he announces the Heads as winners.
So he pays $220+$220= $440 to the Head people and keeps the remaining $60.
The buyers go home and start putting the process on charts, draw moving averages and fibonaccis, and prepare for the next day.
The next day the same 500 customers line up at the shop. 220 greedy ones and 280 wounded losers.
Based on conclusions, guesses, statistics, hearsays and scientific formulas, Macro and Micro economics and fundamentals, every one of the 500 buys either Heads or Tails, again.
In the second evening, the shop owner closes the shop and counts the sold tickets. Out of 500 tickets sold, 300 are Heads and 200 are Tails.
So he, being the absolute authority to announce the drawing, announces Tails as winners. Pays $400 to the winners and pockets the remaining $100.
The third day is even more interesting. As usual the 500 customers line up, buy tickets and wait for the drawing.
The shope owner counts the sale of the 3rd day. He has 245 Heads and 255 Tails.
He calculates that if he pays out the winners (which is of course Heads!!), he will be left with $10 only.
"No way" he says. This is not worth my while. So, he announces "No Winners today", you have to buy new tickets tomorrow. (In the meanwhile the customers have got used to this and call it "Ranging day").
If on the 4th day there is still not enough money for him, he will postpone the drawing to the following day again, until there is enough to make it worth his while.
And this lottery shop keeps prospering and growing and growing.....
I don't know what the morale of the story is, but my questions is, what should we call those 500 customers?
Disclaimer: All characters appearing in this work are fictitious. Any resemblance to real persons, living or dead, trading Forex or not, is purely coincidental.
Bernard |
