LLLL.com market "timing"

[filter]

:hi:

I posted this in the LLLL.com sales report thread - now thinking it may be an interesting topic for some more random discussion here so as not too clutter up that busy thread too much more!

http://www.namepros.com/2319742-post251.html

I expect (just guessing of course) that prices will tend to move in something akin to a "three steps forward, two steps back" pattern ... If that's the case (in a very approximate sense) then selling a few on the "third step forward" while buying more on the "second step back" would be a nice trick to learn.

But it's probably delusional to expect a reliably predictable trading pattern to persist for long (in theory, the peaks and valleys will be smoothed over as people start selling rather than buying that much sooner before the peak in anticipation of the "two steps down" phase and likewise buying on the dips to the point where there aren't dips to buy on anymore). So buy and hold strategy makes good sense vs. trying to successfully "time" any apparent rhythm in this fast-moving market ...

Now to respond a bit to my own post ... :hehe:

The "unlikely for stable pattern to persist since it will be predictably traded into non-existance" is just one (old but solid) school of thought. It is based in part on the assumption that financial markets are shaped primarily by the aggregation of many individual decisions based on rational calculations. In reality there are many other factors in play in most markets at any given time - and the basic assumption that groups of individuals will tend to make purely rational calculated economic decisions is questionable to say the least. (Google "behavioral economics" for more on that angle ...)

Given that in some markets (such as commodities trading and foreign exchange) so-called "technical analysis" often trumps "fundamental" (bottom-line "earnings-ratio" and dividends type analysis - ie more along the lines of traffic and PPC revenue in domainers' universe) ... seems like the LLLL.com might be one of those types of markets where "technical" analysis of price movements might be usefully applied - or at least would be an interesting exercise. :imho:

Anyone care to share more ideas along these lines ?

 

[npcomplete]

Market timing is difficult in most markets. For example, in stocks and other financial instruments, the typical price pattern is saw-tooth: Long ramps up in price followed by quick declines.

Other things to consider are the usual difficulties in detecting a known pattern. For example, the famous "head and shoulders" pattern in markets are best identified after a change in the second derivative on the third "hump" in the proposed head and shoulders pattern, and even then it is hard to tell whether this is a real inflection prior to a market correction, or just a temporary slow down that will be followed by other price increases (digesting the market moves before moving on).

I don't know if I agree on the statement that technical trading trumps fundamentals. In the markets I look at the charts for timing and hints of future market moves, and then if I see something interesting I look at fundamentals to confirm a buy/sell. In the recent markets we saw this when the DOW was around 14000 a few months ago. The charts didn't look that strong, and the market fundamentals looked worse, so I moved to cash. Also, all the market analysts were screaming DOW 15000 as we were hitting 14000, and getting all glassy eyed. We see some of this glassy eyed speculation in some domain extensions and categories... which is a warning sign. As they say in the markets "trees don't grow to the sky".

Marc

 

[accent]

There is a fundamental (!) difference from the stock / bond market - Domains are individual, both in that each is different (although there are rough categories), and more importantly for this discussion, each sale/buy is different. You may, in todays LLLL.com market sell a lower grade name for two or three times as much if you are willing to put a little time and effort into it. And as someone mentioned in another thread, you incur a substantial penalty for selling a large number of domains at the same time.

Small investors can use these conditions to their advantage by buying low and selling high, but I don't think larger investors could move in and out easily enough to be worth while.

 

[filter]

Excellent points - thanks for sharing your insight! I think this is fascinating stuff, and the LLLL.com market may be a great laboratory in which to study some of these ideas.

Market timing is difficult in most markets. For example, in stocks and other financial instruments, the typical price pattern is saw-tooth: Long ramps up in price followed by quick declines.

From a behavioral economics perspective, "Fear > Greed"
so prices usually move much faster when going downhill than when going up.

Other things to consider are the usual difficulties in detecting a known pattern. For example, the famous "head and shoulders" pattern in markets are best identified after a change in the second derivative on the third "hump" in the proposed head and shoulders pattern, and even then it is hard to tell whether this is a real inflection prior to a market correction, or just a temporary slow down that will be followed by other price increases (digesting the market moves before moving on).

Also have to be extremely wary of the complimentary problem of finding "patterns" to fit whatever hypothesis is convenient at the moment. (And by the time enough data exists to support whatever degree of statistical significance, the market opportunity may have already come and gone.)

Not to mention the issues of reflexivity and stationarity - it's difficult to get a good bead on a constantly moving target, especially when your own actions may influence the market's movement.

I don't know if I agree on the statement that technical trading trumps fundamentals. In the markets I look at the charts for timing and hints of future market moves, and then if I see something interesting I look at fundamentals to confirm a buy/sell.

The mantra of the market "technicians" is that all the information from fundamental analysis is likely to be already reflected by price movements (whether that information is publicly available or not). However true that may or may not be, certainly makes sense that the fundamentals are the foundation for the long haul.

In the recent markets we saw this when the DOW was around 14000 a few months ago. The charts didn't look that strong, and the market fundamentals looked worse, so I moved to cash. Also, all the market analysts were screaming DOW 15000 as we were hitting 14000, and getting all glassy eyed. We see some of this glassy eyed speculation in some domain extensions and categories... which is a warning sign.

Market analysts usually == paid shils

(unless you are the one who is paying them to give you the straight dope rather than the BS they peddle for public consumption - hopefully you'll get what you paid for sometimes ...)

As they say in the markets "trees don't grow to the sky".

Yeah, and money doesn't grow on trees!

So if every "reg-fee" LLLL.com is expected to double in value with each passing month ... then would work out to a multiple of 4096 at the end of a year. Hard to see that happening - ie, about $30,000 per domain for each and every XWQZ.com etc (on top of the $10,000,000 for the handful or so of special cases such as PORN.com etc) = about 14 Billion dollars with nothing better to do ... So obviously there's going to come a point, probably sooner rather than later, where expectations of "doubling your investment in a month" meet with disappointment - and speculators will then be looking to move their capital into whatever the next hot thing is, and they will be quick to either take profits or cut their losses without a second thought ... :imho:

 

[npcomplete]

filter,
I think we are in agreement on the market dynamics here. As for accentnepal's comments, I would say that even though each domain is different, in aggregate there is enough information for classic market psychology to take place... and for the tools used in evaluating the effects of market psychology on the market to be somewhat valid. We have seen this in both the extensions and in the categories. For example, I am .mobi neutral. I own a few, but overall neutral. The one thing I have noticed though is that the recent sales have stimulated a .mobi rush. Maybe it is a bubble, maybe it is real, only time will tell, but there does appear to be some mass psychology operating in this area.

The one thing that is fairly constant throughout all markets is the role of mass psychology in determining market movements. When it comes time to sell then everybody heads for the door at once. You are right about fear being a primary factor in major market moves, and domains are not immune to psychology and statistics.

It would be funny if some of the major technical trading books are republished with a domain market spin.

Marc

 

[filter]

I think we are in agreement on the market dynamics here.

well, I know enough to know I don't know very much at all - but that may be more useful to know than most will ever realize!

It would be funny if some of the major technical trading books are republished with a domain market spin.

would be very apt. There is also so much wonderfully wacky stuff in the "technical" analysis realm (and IMO downright delusional yet maybe still useful, ie Gann astrology) - it seems like would be a good fit for many domainers ...

I think that the current LLLL market may be the first time this type of "analysis" (if you will) can begin to be applied - given the possibly large-enough yet still very finite quantity and more easily quantifiable qualities of relative letter frequencies (etc, etc) ... LLL and CCC may have paved the way but the sample size was I think much too small to get a good handle on mass market dynamics ...

But I really am just talking out my ass about most of this stuff !!! :hehe: