Edward O. Thorp on charting

Daal said:
What about Paul Tudor Jones? He says never own anything that is bellow the 200MA. That's because he believes that price conveys useful information to make trading decisions, which is pretty much what 'price action traders' do
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PTD used a lot more than the 200 Day MA. That was just a filter...and it worked better when the whole world couldn't find it within 0.02 seconds using stockcharts.com. "Trader Vic" popularized it in his books, and the backtests for the 200-day MA were pretty good up until the 90s...at least for a long-term market-timing system to use for IRAs, 401Ks, etc.

As for Thorp, his views of charting and trend-following are quite different.

Here he is on general TA/charting (from Hedge Fund Wizards):

We got off on a tangent. I had asked you about how you made the transition from casino games to markets.

After my successful casino games—I also developed a system for beating Wheel of Fortune—I got to thinking about games in general and thought, The biggest game in the world is Wall Street. Why don’t I look at and learn about that?

I knew almost nothing about the market. In 1964, I decided to spend the summer learning about the stock market. I read everything from Barron’s to books such as the Random Character of Stock Prices. After a summer of reading, I had a lot of thoughts about what to do and what to analyze.

Were any books particularly helpful?

Most of them were helpful in the negative. For example, Technical Analysis by Edwards and McGee was very helpful in the negative.
What do you mean by “helpful in the negative?”

I didn’t believe it. The book convinced me that technical analysis was a road not to go down. In that sense, it saved me a lot of time.But one could come up with a rational explanation of why chart analysis might work—namely that the charts reflect the net impact of all the fundamentals and the psychology of all the market participants.

You can’t prove a negative. I can’t prove it doesn’t work. All I can say is that I did not see enough substance there to pursue it. I didn’t want to take time to try things unless I thought they were pretty good.
______________________...
On trend following:
https://abnormalreturns.com/2012/06...ng-an-excerpt-from-hedge-fund-market-wizards/

Do you have thoughts on futures trend-following as a strategy?

I believe there are versions of it that have a Sharpe ratio of about 1.0 or more, but that is risky enough so that it is hard to stay in a business because you can get shaken out.

I take it then that you believe there are trends inherent in the markets.

Yes. Ten years ago, I wouldn’t have believed it. But a few years ago, I spent a fair amount of time looking at the strategy. My conclusion was that it works, but that it was risky enough so that it was hard to stay with it.

Did you ever use trend-following as a strategy?

I did.

When did you trade futures?

We began the research project in 2006, and launched the trading program in late 2007. It was promising, and we were thinking of bringing it up in large-scale with institutional money. But in early 2010 my wife was diagnosed with brain cancer, and my heart wasn’t in it. Life is too short. I didn’t want to launch another major activity, so we gradually wound the program down.

So the program had worked well while you’re using it.

Reasonably well. It wasn’t as compelling as the Princeton Newport strategies or statistical arbitrage, but it would have been a good product, and it seemed to be better than most of the other trend-following programs out there that were managing a lot of money.

What kind of Sharpe ratio was your program running?

It was a little better than 1.0 annualized.
 
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But remember, Thorp is just a guy who had an actual track record of 227 out of 230 winning months, with the worst monthly loss under 1 percent. That's after finding an edge in a bunch of casino games that both academia and the casinos thought could never be beaten.

Certainly he can't compare to ET's mythical price action superheroes.
 
J.P. said:
And you likely never will, as they are astute enough to ply their trade and STFU.
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agree, there's got to be a self-selection bias here; perfect transparency does not exist.

lots of respect for Thorp, who's a pioneer in so many ways, but i don't think we should take every statement he (or anyone else) makes as the objective, be all end all truth.

in fact, the trail of groundbreaking experiences he shares in his autobiography precisely demonstrates the rewards of independent thinking (ie. trying out things yourself).

on page 58 of his book, he writes how he asked Richard Feynman, the Nobel laureate, if there was "any way" to beat roulette. Feynman says no. And instead of taking that as an indisputable fact and turning away from the challenge, Thorp writes that he "was relieved and encouraged," at the prospect of being a pioneer. And he actually goes on to beat roulette.
 
You guys are full of it, here is the proof

upload_2017-2-21_19-40-32.png


But of course, this being ET, the idiots will keep arguing the earth is flat till the cows come home. When presented with evidence against it, they will just use some creativity to come up with some BS crap to avoid admitting defeat. So go ahead, use your creativity to BS your way out of this one

What Thorp is saying is that TA didnt work for him, the biggest lesson from Schwager series is that Market Wizards found a method that works for them. For Thorp TA doesn't work, for other traders it works just fine.

I say this even though I'm mostly a fundamental guy
 
Daal said:
You guys are full of it, here is the proof

View attachment 171027

But of course, this being ET, the idiots will keep arguing the earth is flat till the cows come home. When presented with evidence against it, they will just use some creativity to come up with some BS crap to avoid admitting defeat. So go ahead, use your creativity to BS your way out of this one

What Thorp is saying is that TA didnt work for him, the biggest lesson from Schwager series is that Market Wizards found a method that works for them. For Thorp TA doesn't work, for other traders it works just fine.

I say this even though I'm mostly a fundamental guy
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Thanks for pointing that out, Daal. But how have PTJ's returns been over the last several years?

surf
 
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