PoC Point of Control

PoC - known as point of control is an area refered to as ‘fair value’ since most market activity is spent at that point or price. It is the widest part of the distribution. It references the first standard deviation in the normal distribution bell cruve, where 68% of market activity for that time period took place at that given price.

Legacy Takeaway Analysis of the Point of Control

• First standard deviation and it is the widest part of the profile
• Suggests an area that is considered ‘fair value’
• Since 64% of market activity is typically defined in this area it offers the most volume & liquidity
• Offers objective references areas of support and resistance

Glimpses Through a Story of Markets at Work & Influences of Fair Value

Observing the ranch hands trading in used guns and cars and my father trading in land, equipment, and crops taught me to take advantage of situations rather than letting them take advantage of me. At harvest time, my father was not speculating for big gains. He wanted a fair price for his crop to make a normal profit for this work and his capital investment. If the price at harvest time was fair, he sold. If he felt the price was not fair, he held and stored the grain.

When buying, my father wanted a fair price as well. I recmember going with my father shopping to buy all the groceries for the camp. He knew the price of everything, and he always bought sale items. If the price was too high he would not buy; he would substitute or go without. He had a list of what he thought would substitute or go without. He had a list of what he thought each item should cost, and he would check off the list when he got to the counter to make sure they did not make any mistakes in adding up the bill.

When my father had the option of buying some used farm equipment, he behaved just as the ranch workers did when they were buying a used car. If the car was undervalued, they would buy it; if it was overvalued, they would not. At the cattle sales, my father would say, “You can make a lot of money just being a sharp buyer. But if you overpay, there’s no way to get it back.” I learned that if you pay more than fair value for something, time is against you; but if you underpay, time is on your side. This became the underpinning of my approach to trading commodities.

My father had one rule in buying property: 6 monthes or a year after you buy the property, your neighbor should be willing to pay what you paid for it. That was his measurement of value. He was an optimistic man, but one imprinted by the experience of the Depression. Although he went out of his way to avoid debt, he could see that in the postwar world values were changing, making it necessary to use debt judiciously. He knew, the focus of the ranch should not be on daily operations, but on land acqusitions. Soe he would never borrow to finance daily operations, but he would use credit to buy land.

In buying property, my father had different time frames, different needs, and different motives, depending on the situation. He once planned to buy a ranch with his brothers at an auction. It was a sealed-bid auction, at which everybody had the right to raise the bid 10 percent. On our way to the auction, he told me that the other people there would have more money than he did and that he would have to scare them out of the auction if he hoped to get the land. To do so, he bid a lot higher than what people thought the land was worth so there would not be any after auction rebids.

When the bid was announced, a hush fell over the crowd. Many of the farmers in the area told my father that they would sell him their land at that price. No one else tried to raise the bid, and my father accomplished his goal. A good broker or trader does the same thing. Many times, they use a higher-than-normal price to attract traders, realizing that in the short term they were overpaying, but later that price would be a good one.