AFTERWORD

In the preface to this book, I stated that there is no substitute for understanding what is actually going on. This axiom can be applied to almost anything in life. However, as a truism, it is especially applicable to trading, risk management, and energy policy. This is the philosophical core of the book and a key factor to successfully investing in any market. The reason for this focus is that details are a rich source of trading opportunities. Details are not obstacles to the investment process; rather, they allow traders to pick and choose their investment opportunities.

The more complex an issue, the more opportunities exist for trading. Traders don’t have to be smarter than everyone else all the time because they don’t have to be invested in the market all the time. Traders can wait for a good opportunity before investing. Understanding details allow traders to invest only when they have a better than average chance of making money.

However, even when details are perceived as good things, they can still be intimidating. When I first approached the energy market, the sheer number of details made it difficult to understand how the market fit together. In this book, I’ve tried to subtly introduce two ways of dealing with this problem. I started the book with a high-level overview that mapped out where things would go, and then I delved into the details. In each chapter, I typically took the opposite approach—I started with a couple of specific details, and then I slowly increased their complexity.

Another major theme in this book is applying quantitative modeling to energy trading. Because there is so much going on in the energy market, the core of quantitative modeling involves eliminating and ignoring some information to concentrate on other information. This is a fairly risky process, and when models fail, it is usually due to bad initial assumptions or bad input data. The only way to prevent these types of errors is to have a large group of people paying attention to details. Obviously, the source of any data and assumptions should be noted in a model. However, the importance of understanding the real world that is being approximated by the model can’t be emphasized enough. There is no substitute for having everyone understand what a model is trying to accomplish.

I hope that this book sparks an interest in energy policy and an appreciation for the infrastructure that makes modern life possible. I know it did for me. Starting with the basics of the market and working upward from there made me rethink things that I used to take for granted.

I enjoyed writing this book, and I hope that you enjoyed reading it.

Davis W. Edwards