Fooled by Randomness

[mhashe]

Quote from oddiduro:

Anyone read this book?

If I understand it correctly, then technical analysis is a myth that we traders have created in our own pattern seeking minds.

Comments?

Regards
Oddi

imo the random/chaotic nature of the market can be plotted like a bell curve. At either ends you have periods of high price predictibility with a vast mass of price randomness in the middle.

eg, if you watch the price ladder, at key price areas and times you will see increased agitation inside of a price boundary. Here I assume we are at the edge of chaos about to break into a brief period of order. ie the collective insanity/chaos of millions of participants is about to lead to a brief period of sanity/predictibilty. The agitation is more intense at the floor pivot, and prior days Lo and Hi. Just my 0.02, wondering what others think about this behavior.

 

[ratboy88]

Quote from syswizard:

But wait...despite the RISE of the quants, we have had a SIMULTANEOUS "event" of ultra-low VIX. Are you sure you want to correlate your stalling P&L with the quants, when IN FACT, it may be the lack of volatility in the equity markets ? Be careful here.

imho the quants are partly responsible for the lack of volatility..... they take profits so quickly they kill many moves.

 

[PoundTheRock]

Quote from syswizard:

But wait...despite the RISE of the quants, we have had a SIMULTANEOUS "event" of ultra-low VIX. Are you sure you want to correlate your stalling P&L with the quants, when IN FACT, it may be the lack of volatility in the equity markets ? Be careful here.

You are right. Younger traders just are not familiar with the low volatility markets of '94-'95. This is nothing new.

 

[KevinK]

Is it time to INVEST:eek:

just kidding

although some of my money is invested

 

[Equalizer]

Quote from syswizard:

But wait...despite the RISE of the quants, we have had a SIMULTANEOUS "event" of ultra-low VIX. Are you sure you want to correlate your stalling P&L with the quants, when IN FACT, it may be the lack of volatility in the equity markets ? Be careful here.

Correct. This might be yet another case of "Fooled by Randomness". One must be very careful in reaching such conclusions - especially when causality and correlation are at question. Just my $0.02

BTW, another point that Taleb "hammers home" is that of survivorship bias - especially with regards to the performance of funds and managers, etc...

 

[syswizard]

"Analysis of hedge fund data is complicated by three factors. The first is that not all databases retain historical data about funds that have been liquidated or have stopped reporting for other reasons3. This is important since the incidence of death among hedge funds is much higher than for traditional mutual funds. To the extent that hedge fund death is due to poor performance, the average return for hedge funds, conditioned by their survival to the end of the period of study, will have a positive survivorship bias. Brown & Goetzmann (1995) have also shown that survivorship is also likely to impact higher moments of the
distribution of returns and degree of serial correlation."

From: http://www.cmbf.mq.edu.au/MAFCpapers/paper25.pdf

 

[nitro]

Quote from oddiduro:

Anyone read this book?

If I understand it correctly, then technical analysis is a myth that we traders have created in our own pattern seeking minds.

Comments?

Regards
Oddi

It is a very good book for the layman. Well worth the read for most on ET imo.

nitro

 

[Thunderdog]

Quote from nitro:

It is a very good book for the layman. Well worth the read for most on ET imo.

nitro

Personally, I think it is a very good book without any qualifiers. It is an excellent book, period.

P.S. Isn't a layman someone that a lawyer just screwed?

 

[ratboy88]

Quote from Equalizer:

Correct. This might be yet another case of "Fooled by Randomness". One must be very careful in reaching such conclusions - especially when causality and correlation are at question. Just my $0.02

BTW, another point that Taleb "hammers home" is that of survivorship bias - especially with regards to the performance of funds and managers, etc...

sometimes i wonder if any of you guys really trade.... the quants along with the one cent increments have greatly reduced volatility... how can anyone not see this???????????????

 

[Equalizer]

Quote from ratboy88:

sometimes i wonder if any of you guys really trade.... the quants along with the one cent increments have greatly reduced volatility... how can anyone not see this???????????????

Ahh, assumptions assumptions...

So by your logic only quants are making cubic cashola, and everyone else is soon to become a Starvin' Marvin. No?

Granted, this ain't the "lets throw darts at the quotes pages of the WSJ and we'll make serious money" days of yesteryear, but there is plenty of money to be made.

It is called evolution... Nothing (well, not much anyway) is static, so what, you expect the markets to be?!

Stop focusing on the negatives, and start figuring out ways that you can shag the shagees! Seriously.

rESpekT!