sigh, This is going to take a while....
Ergodicity: time average=expectation value. (Ole Peters)
Ergodicity: time average=expectation value. (Ole Peters)
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A message to some day traders.
- Thread starter Amahrix
- Start date
If technical analysis and fundamental analysis are of no help in predicting the market movement, then how do you explain the success of people like George Soros, Jim Simons, Ken Griffin, etc...Are they very lucky?
With the exception of Ken Griffin, due to his 55% loss in 2008; Soros & Simon understand risk aka ruin and how to survive. Survive and you'll make money. They made money because they survive over the long term not because of TECHNICAL AND FUNDAMENTAL ANALYSIS.
In order to succeed, you must first survive - Warren Buffett
sigh, This is going to take a while....
Ergodicity: time average=expectation value. (Ole Peters)
I’ll tell you what non-ergodicity is; when time probability and ensemble probability diverge from each other. (Like for naked tail option sellers).
With the exception of Ken Griffin, due to his 55% loss in 2008; Soros & Simon understand risk aka ruin and how to survive. Survive and you'll make money. They made money because they survive over the long term not because of TECHNICAL AND FUNDAMENTAL ANALYSIS.
In order to succeed, you must first survive - Warren Buffett
If they understand risk, then they have a methodology to do that. Survival is a tactic, not an imaginary proposition. We don't know their method. But TA could very well be part of it - or all of it. We don't know.
The question still is - how do the 10% achieve success?
In order to succeed, you must first survive. - Warren Buffett
If they understand risk, then they have a methodology to do that. Survival is a tactic, not an imaginary proposition. We don't know their method. But TA could very well be part of it - or all of it. We don't know.
All you need to know is that they do not take a chance of ruin because they know, with time, they eventually will be ruined if they do, unlike tail option sellers. What they do to make profit is really irrelevant. Take all the risks you want but make sure you're able to show up tomorrow.
All you need to know is that they do not take a chance of ruin because they know, with time, they eventually will be ruined if they do, unlike tail option sellers.
That doesn't make much sense. Survival is a strategy. If you're alone on a desert island and all you had to eat were coconuts, then your survival strategy was to eat coconuts. Whatever Soros et al are doing has a plan behind it. And that's a strategy.
Consider this statement: "90% of all day traders lose money". Of course, that implies that 10% do make money. Assuming the statement is true over any 10 year period, that's not random. Can we say that in the future 90% of all day traders will lose money? Probably yes based on the historical data. That's just a simple statistic. But what does it say about the markets they're trading? 10% have found an "edge". If you attribute most of the 90% failure to incompetence, then the 10% are doing something or have found something that has a probability of success. Whatever that something is, it has to be in the market data itself. Whether it's TA, order flow or an algorithm, apparently 10% can make money over the long haul.
It's unfortunate that this business is worse that the CIA - accessing real data on real traders is practically impossible - no one wants to reveal their holy grail. That said, the statistic above in all likelihood still holds. How do we account for the 10%?
“Construct a population of 10,000 fictional investment managers […]. Assume that they each have a perfectly fair game; each one has a 50% probability of making $10,000 at the end of the year, and a 50% probability of losing $10,000. Let us introduce an additional restriction; once a manager has a single bad year, he is thrown out of the sample. […]
Toss a coin; heads and the manager will make $10,000 over the year, tails and he will lose $10,000. We run it for the first year. At the end of the year, we expect 5,000 managers to be up $10,000 each, and 5,000 to be down $10,000. Now we run the game a second year. Again, we can expect 2,500 managers to be up two years in a row; another year, 1,250; a fourth one, 625; a fifth, 313.
We have now, simply in a fair game, 313 managers who made money for five years in a row. Out of pure luck.
Meanwhile if we throw one of these successful traders into the real world we would get very interesting and helpful comments on his remarkable style, his incisive mind, and the influences that helped him achieve such success. Some analysts may attribute his achievement to precise elements among his childhood experiences. His biographer will dwell on the wonderful role models provided by his parents; we would be supplied with black-and-white pictures in the middle of the book of a great mind in the making.” — Nassim Nicholas Taleb
Survival is a strategy
“My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.”
― Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
“Construct a population of 10,000 fictional investment managers […]. Assume that they each have a perfectly fair game; each one has a 50% probability of making $10,000 at the end of the year, and a 50% probability of losing $10,000. Let us introduce an additional restriction; once a manager has a single bad year, he is thrown out of the sample. […]
Toss a coin; heads and the manager will make $10,000 over the year, tails and he will lose $10,000. We run it for the first year. At the end of the year, we expect 5,000 managers to be up $10,000 each, and 5,000 to be down $10,000. Now we run the game a second year. Again, we can expect 2,500 managers to be up two years in a row; another year, 1,250; a fourth one, 625; a fifth, 313.
We have now, simply in a fair game, 313 managers who made money for five years in a row. Out of pure luck.
Meanwhile if we throw one of these successful traders into the real world we would get very interesting and helpful comments on his remarkable style, his incisive mind, and the influences that helped him achieve such success. Some analysts may attribute his achievement to precise elements among his childhood experiences. His biographer will dwell on the wonderful role models provided by his parents; we would be supplied with black-and-white pictures in the middle of the book of a great mind in the making.” — Nassim Nicholas Taleb
Wait a minute. Your initial post was about day traders, not fund managers. Although some of the scenario might apply, the 50/50 proposition you just made has no basis in fact. It's a hypothetical. And that would be a fine problem to solve if it were the question. But it isn't. Your statement was about day traders.