First Principles in Trading

Elon Musk is probably the boldest entrepreneur in the modern world. He was the founder of PayPal and now runs three companies: Tesla Motors (electric cars), SpaceX (space exploration and tourism), and Solar City (solar energy).

“First principles is kind of a physics way of looking at the world. You boil things down to the most fundamental truths and say, “What are we sure is true?” … and then reason up from there.” According to James Clear, Elon Musk attributed First Principles as one of the core philosophies guiding him during his bold entrepreneurial ventures, in the interview with Keven Rose.

“I think it is important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. [When reasoning by analogy] we are doing this because it’s like something else that was done or it is like what other people are doing — slight iterations on a theme.

Somebody could say, “Battery packs are really expensive and that’s just the way they will always be… Historically, it has cost $600 per kilowatt hour. It’s not going to be much better than that in the future.”

With first principles, you say, “What are the material constituents of the batteries? What is the stock market value of the material constituents?”

It’s got cobalt, nickel, aluminum, carbon, some polymers for separation and a seal can. Break that down on a material basis and say, “If we bought that on the London Metal Exchange what would each of those things cost?”

It’s like $80 per kilowatt hour. So clearly you just need to think of clever ways to take those materials and combine them into the shape of a battery cell and you can have batteries that are much, much cheaper than anyone realizes.”—Elon Musk

Likewise, in trading someone could say, “Trading or investing is really hard, there is so much information out there and I don’t have the edge that professionals have.”

With first principles, you say, “With the new technology, as an individual trader or an investor, I can get the market data just as fast and accurate as professionals can get, if I can find the best trading software, which reveal the fundamental principles of the markets and give me trading signals with high probability, I can do just as good as the professionals and save the higher commissions.”

So the key is to find the right trading software which can provide edge in trading. In our opinion the AbleTrend algorithm is based on what may be the most important discovery ever made about trading: Early recognition of the market trend-coupled with the ability to set optimal stops -can result in greater profit for the traders.

The main difference from other trading software is that AbleTrend projects the market directions by looking only at what the market is saying about itself, never considering anything arbitrary. It reveals the most fundamental principle of the market. It’s focusing on two things: first, Early recognition of the market trend, and 2^nd, the ability to set optimal stops.

AbleTrend is not just a theory, but rather a decision-making trading software that provides color coded, specific buy/sell signals as well as intelligent stops.

For your convenience we have established a “Trade Setups and Outcomes” section to practice on. There you will find many trade setups in various markets for both day trading and swing trading. Markets are ever-changing but AbleTrend rules remain the same. Practice the rules again and again just as a basketball player practices dribbling again and again, until you know how to apply these rules to real-time trading.   Ready? Here are some Trade Setups and Outcomes with AbleTrend indicators applied.

With Warm Regards

Grace Wang

AbleSys Corp.

Gracezh@ablesys.com