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Sherlock Holmes Does Homework
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Sherlock Holmes Does Homework

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Sherlock Holmes Does Homework

It was a sultry morning on Baker Street. However, Holmes was already up, a huge pile of papers to his left and a similar pile to his right in which he was engrossed, reading them with fervor as if they were penny dreadfuls. The glint in his eyes, and the absence of the coffee kettle on the stove - without breakfast as was usual when he was on a case – reaffirmed my doubts, if I had any left, that he was hot on a case.

The yellow fog hung thick over London, and the whole street had disappeared under its ravenous clutches.

I had moved into the old quarters for a few weeks, as my wife had gone for a family reunion, and my Paddington practice had been dwindling for a few months. I thus had been leading the life of a recluse, and also the word had been brought to me that Holmes had been lately overly reverting to his old ways, which was none other than the deplorable habit of self-abuse with the seven-percent solution.

It was thus that I found myself staying with Holmes again, in the same old Baker Street rooms which had been privy to so many reminiscences when I was a more permanent resident. I had spent the night before with Colonel Moran at the club, and had more than a successful night at bridge and was in a jovial mood. Holmes had returned late the night before, even later than me, and I had retired and not heard him coming back. Yet here he was, up and bright as bushy tailed squirrel on this Thursday morning of the ill-fated day that would be remembered as the 13th of November, 1890.

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Quick Summary
Quick Summary Post

As a Sherlock Holmes afficionado and a price action trader, I fantasized this over and over:

What if the great detective Sherlock Holmes would have traded using price action?

Would logical reasoning and the Science of Deduction lead him to riches?

How would he find clues to enter and exit?

Would he manage risk in his endeavors?

Couldn't we all learn from his methods, if such records existed?

This account then, is my attempt to fictionalize a legendary figure and cast him into the shoes of private equity fund manager trading using price action, and chronicling his steps and approach one play at a time to serve as a guide to me first and others if possible!


References:

Sherlock Holmes - A Complete Chronology

Life and Times of Mr. Sherlock Holmes, John H. Watson, M.D., Sir Arthur Conan Doyle

A Basic Timeline of 221B

Sherlock Holmes, Wikipedia Link






Links of secondary importance:

Nathan Mayer Rothschild, Wikipedia Link

Baring Crisis


Last edited by iqgod; February 18th, 2013 at 06:18 AM.
 
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Sherlock Holmes Does Homework ... continued...


“Come. Come, Watson. I see that your gambling habit has done you no good this morning. If Colonel Moran and Professor Moriarty had not been on your right side yesterday, you would not have looked so happy today. ” Holmes cut into my reverie incisively.

At this point I was too shocked for words, but more than that I was sorely hurt, for I was sure he had been prying into my diary that I had absent-mindedly left upon the mantelpiece before retiring last night, and I was flush with anger - he had no more right on my private affairs than I on his, and he had crossed an unwritten line.

Holmes chuckled at my expression.

“No, I haven’t stooped so low as to secretly read private diaries. I was a witness to your actions in person.”
He assumed a graver expression.

“You should know better than walking into a tank of piranhas with your hard earned money.”, Holmes said wryly.

I will not go into how he described yesterday’s night in the club, where, as chance would have been, he had been present disguised so as to not draw any attention while waiting for eavesdropping on Professor Moriarty, when he saw me walking in with Moriarty and Moran, and my aghast expression when he described them as ‘the two most evil men in London’. However in the next few lines it became clear how I had ended up at my seat as I did as a mere coincidence, and that I was supposed to have been seated one position to the left, and how the cards had already been shuffled, and how Moriarty the expert player and Moran who was just passing as a partner had set me up to lose badly. Except for that coincidental stroke of luck where I got into the other chair.

Now that I did think of it, I did remember a waiter rushing to our table, how his clumsy actions had resulted in the china and me clattering to the floor and how he propped me up apologetically and how he had helped me into the other chair – that waiter with twinkling eyes had been none other than my good Holmes!

However, before I could say anything in the word of thanks, Holmes had returned his attention back to his papers, and nothing save a revolver aimed at his temple could force his attention away.

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Sherlock Holmes Does Homework ... continued...

As was my habit I picked up the newspaper and sank down to study it while waiting for Mrs. Hudson’s breakfast to arrive. The headline caught my eye:

BARINGS BANK FACES BANKRUPTCY: Insolvency To Result from Poor investments in Argentina

Mrs. Hudson announced herself with the pleasantries of breakfast. Holmes, uncharacteristic of manner, joined me by my side and sat down to devouring the English goodness with great aplomb.

No sooner than he had finished the doorbell rang again and Mrs. Hudson announced Baron Nathan Rothschild. Instantly recognizable from his photographs which were all over the news those days, the persona of the Austrian Baron, the Member of Parliament and the partner to the London branch of the family bank NM Rothschild and Sons, entered the rooms which, as I have described in my accounts earlier, had been no stranger to the rich and the famous.

“I have been studying the case since yesterday evening, ever since I received your telegram. Be seated my Lord” Holmes said quietly.

“It’s all over the newspapers today! I fear the worst! It will lead to the collapse of all banking institutions! Oh, the disgrace! That Baron Edward Barings should take such imprudent risks! I have been up all night, meeting with William Lidderdale, governor of Bank of England and all other major London bankers and we are almost on the brink of a decision to create a fund to guarantee Barings debts to avert the inevitable depression that will surely result!”

“And you want to place me as the manager of this fund, and prevent this from becoming the economic catastrophe of this century.” murmured Holmes, and the words were dreamlike in their tone.

Thus it was that the contracts were signed in my presence, and I became witness to Sherlock Holmes, the private consulting detective retire from consulting in the public eye and turn into a manager of the gigantic sum entrusted to him by “Natty” Rothschild, and Holmes was destined to direct the trading and equity management thereof for which he would be required to take up a seat in the London Stock Exchange for the next foreseeable future.

This series of pages from my diary, then, are about the Great Holmes Hiatus, from May 1891 to April 1894, when Holmes had disappeared from the public’s eye and taken up the position of a Private Equity Fund Manager, to save London’s banking system from the inevitable collapse that would have otherwise resulted and which would have discredited the entire banking establishment and Victoria Regina.

Holmes was as incisive as ever in the stock market, and though he was tight-lipped about the giant fortune he had amassed in the stock and derivatives market, it was my conjecture that this was the biggest single-handed transfer of money that had flowed into one man’s coffers in the whole history of the Empire, which contained the snowballing of the nineteenth century’s most famous sovereign debt crisis.

These accounts, some taken directly from his Diary of Trade, sharing some of his deep insights into the elusive nature of price action, some detailing of how he pitted his wits bar by bar against some of the best in England, and together they humbly hope to acquaint the general public with the workings of a Master.

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Watson is methodical but succumbs to his gambling habit

"Ah, Watson I see that you've been studying the charts of the Ye Olde Golde Company." Holmes said to me one morning.

"Ah, yes! I ran into my good old friend Dr.Brooks who is an eye surgeon at the hospital yesterday. He taught me a couple of things that I have tried to lay out on this chart." I said.


The Modern Day GC (Gold Futures, CME) - in that period it was Chart of the Ye Olde Golde Company, much much before the Bretton Woods agreement.

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Holmes took one look. I was sure he would say was proud of me.

"A good day's work Dr.Watson. However surely you are missing the point in this case?" he said.

"I have missed nothing!" I said angrily, pointing to my perfect entries and near perfect exits marked clearly on the chart. "If I had traded for the first half of this year which is mistakenly marked as '07 here I would surely have been able to retire to a comfy country life!" I retorted.

"Never miss the Elementary, my dear Watson." Holmes chuckled. "In this case you have missed the most important points of all - marking the points where you would have been proved wrong."

He continued: "Remember. Never guess. You do not know if an entry will be a winner or a loser. It is a fool's game to predict that. A shocking habit, guesswork. Always have all deductions based on facts - if facts imply that you are wrong there is no point hanging on to your delusions!"

I had calmed down and I got him. I promised him to update the chart that evening and present him with the newly marked points of where I would have been wrong i.e. stop losses - I had heard of them in the City as they were the new talk of the town and promised a sure road to riches.

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Watson moves up a step

"So here it is Holmes, my chart with all the er.. stop-losses." I said.

I faltered while saying this, and Holmes noticed. I winced.

Actually, Holmes, did you not say that I must never act till proven wrong. Why should I think that the market will prove me wrong at this point." The truth was that I never wanted to lose money if a stop loss was hit and then wince while the market went 'my' way to the correct target I had marked earlier.

In fact though it made perfect sense to preserve my capital it was a somewhat reluctant part of me that would force ,yself out of positions. But Holmes was the master of technique and I would follow his advice.

Watson's chart now marked with stop losses:

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Holmes sensed my deep discomfort.

"This is good Watson. May I take the liberty of asking you of one more favor? Good. Can you run through this chart and make a table of each trade? The resulting figure. green or red, will be the reason why you believe in placing those stops. And, that, I am sure will allow you to go about this with the easiest frame of mind."

I promised to set about it at once.

"Give a man fish and you feed him once. Teach a man to to fish and you feed him for a lifetime...." Holmes was apt to quote truisms these days and this statement certainly rang true right now.

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"So here it is Holmes, my chart with all the er.. stop-losses." I said.

I faltered while saying this, and Holmes noticed. I winced.

Actually, Holmes, did you not say that I must never act till proven wrong. Why should I think that the market will prove me wrong at this point." The truth was that I never wanted to lose money if a stop loss was hit and then wince while the market went 'my' way to the correct target I had marked earlier.

In fact though it made perfect sense to preserve my capital it was a somewhat reluctant part of me that would force ,yself out of positions. But Holmes was the master of technique and I would follow his advice.

Watson's chart now marked with stop losses:

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Holmes sensed my deep discomfort.

"This is good Watson. May I take the liberty of asking you of one more favor? Good. Can you run through this chart and make a table of each trade? The resulting figure. green or red, will be the reason why you believe in placing those stops. And, that, I am sure will allow you to go about this with the easiest frame of mind."

I promised to set about it at once.

"Give a man fish and you feed him once. Teach a man to to fish and you feed him for a lifetime...." Holmes was apt to quote truisms these days and this statement certainly rang true right now.


I like Sherlock Holmes one of my favorites books. Keep up the good work and you might have to watch out for Professor Moriarty Regards Outlander

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Featuring Professor Moriarty!


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I like Sherlock Holmes one of my favorites books. Keep up the good work and you might have to watch out for Professor Moriarty Regards Outlander

Yes, Moriarty is an old bear hand. I personally think he was on the other side of the Barings Bank collapse and will feature here soon!


Note: There are bold traders and there are old traders, but there are no old bold traders. [Edit - except the fox Moriarty]

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Holmes On Preparation for a Trading Day

How would your trading day be if you could DEDUCE everything beforehand (no matter what the market does, your analysis would flow with the market , not against it)

Welcome to the armchair world of Sherlock Holmes the world's greatest Private Equity Fund Manager.

Some examples of how to prepare for a trading day:








"You appeared to read a good deal upon her which was quite invisible to me," I remarked.

"Not invisible but unnoticed, Watson. You did not know where to look, and so you missed all that was important. I can never bring you to realize the importance of sleeves, the suggestiveness of thumb-nails, or the great issues that may hang from a boot-lace."

From "A Case of Identity"












“Do you know, Watson,” said Holmes as we sat together in the gathering darkness, “I have really some scruples as to taking you to-night. There is a distinct element of danger.”

“Can I be of assistance?”

“Your presence might be invaluable.”

“Then I shall certainly come.”

“It is very kind of you.”

“You speak of danger. You have evidently seen more in these rooms than was visible to me.”

“No, but I fancy that I may have deduced a little more. I imagine that you saw all that I did.”

“I saw nothing remarkable save the bell-rope, and what purpose that could answer I confess is more than I can imagine.”

“You saw the ventilator, too?”

“Yes, but I do not think that it is such a very unusual thing to have a small opening between two rooms. It was so small that a rat could hardly pass through.”

“I knew that we should find a ventilator before ever we came to Stoke Moran.”


“My dear Holmes!”


From "The Adventure of the Speckled Band"

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How Holmes Reads Price Action


"But you are joking. What can you gather from this old battered felt?"

"Here is my lens. You know my methods. What can you gather yourself as to the individuality of the man who has worn this article?"

"I can see nothing," said I, handing it back to my friend.

"On the contrary, Watson, you can see everything. You fail, however, to reason from what you see. You are too timid in drawing your inferences."

"Then, pray tell me what it is that you can infer from this hat?"

He picked it up and gazed at it in the peculiar introspective fashion which was characteristic of him. "It is perhaps less suggestive than it might have been," he remarked, "and yet there are a few inferences which are very distinct, and a few others which represent at least a strong balance of probability. That the man was highly intellectual is of course obvious upon the face of it, and also that he was fairly well-to-do within the last three years, although he has now fallen upon evil days. He had foresight, but has less now than formerly, pointing to a moral retrogression, which, when taken with the decline of his fortunes, seems to indicate some evil influence, probably drink, at work upon him. This may account also for the obvious fact that his wife has ceased to love him."


From "The Adventure of the Blue Carbuncle"

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