Fooled by Taleb

J

jem

I think we need a book titled fooled by Nasim Taleb's book.... Fooled by Randomness.

So many people attribute success to randomness now... I reminds me of how ever thing was Ironic for a few years after the Isn't it Ironic song.

So many people like to compare trading to coin flips.
I just saw someone else compare trading to black jack.

Is Warren Buffett lucky? how many trades has he made?

How about Andy Murray.
The wimbledon final has a binary outcome just like a coin flip.
How can you distinguish winning a Wimbledon finals from a coin flip?


At what point can you say a trader is successful.

For instance I knew a trader who once made a few hundred percent a year trading about 20 days a day.

He traded a few million shares a month and made money almost every month for five years. Yet... one of the most respected posters here said it could have been luck.

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At what point or what metrics does a trader have to hit to prove non randomness.

I always thought that if his expectancy is positive when looking back on his trades and he has a steady equity curve and a lot of trades... you have a real trader.

there is however a caveat...

selling premium produces a great equity curve until you blow up.... so I think a person does need to show a lot of losses til you can effectively evaluate the methodology.
 
All types of trading except guaranteed arbitrage have an element of randomness and luck involved.

Its not possible to say with complete certainty how much luck is involved in any traders results and how much is skill.

Lets take some one who does a neiderhoffer strategy and sells OTM puts. Now lets say this trader is better than neiderhoffer and manages to get out before every major market correction, thereby not blowing up like other traders who use this strategy.

Has this trader just been lucky or is he skilled. Is he a blow up waiting to happen or will he always have the super skill and discipline to not blow up?
 
From a pure logician's standpoint, you can't with certainty from a track record deduce that a given trader is skilled, no matter how stellar that track record is (for the reason given by the previous poster ... there's always the chance that it was down to chance).

But if it's any consolation, nor can you with certainty deduce that a given trader is not skilled based on their track record ...
 
It could be skill or system that fits a particular environment. Your "system" or trading methodology performs well because it fits the characteristic of that trading regime. When the regime changes, the edge is lost, unless you can adapt to the trading environment of the new regime. Bill Gross did talk about this recently in an investment outlook called "A Man in the Mirror."
http://www.pimco.com/EN/Insights/Pages/A-Man-In-The-Mirror.aspx

Think about Jesse Livermore. He was worth $100 million during the 1929 crash, yet lost virtually all of it in the 1930 to 1932 whipsaw environment when his increasing position with the trend trading failed. Then 1932 to 1940 he couldn't regain his rhythm because of the very low trading volumes, which wouldn't allow him to take positions on breakouts because of the high bid/ask spreads.
 
Quote from abattia:

From a pure logician's standpoint, you can't with certainty from a track record deduce that a given trader is skilled, no matter how stellar that track record is (for the reason given by the previous poster ... there's always the chance that it was down to chance).

But if it's any consolation, nor can you with certainty deduce that a given trader is not skilled based on their track record ...
More...
But for traders, “certainty” is not the point, IMHO.

A trader (i.e. a.k.a. “somebody used to dealing with uncertainty”) can look at a track-record and form a view of the odds that that trader is skilled, and that’s enough for the trader…

… but not for the pure logician, who’s left befuddled and unable to decide.
 
Well lets start with a simple question.

Andy Murray winning a Wimbledon final.

Luck or Skill. I hope everyone here is logical enough to understand that was skill regardless of if he won a few lucky points.

You can't be Djokovic with luck.

if we all agree... lets move on to the next one.

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At some point... might we not all concede... after say 10,000 trades... some equity curve could not be created with luck? I might not be requesting metphysical certitude... but would't some number like 80 percent winners and 3 to 1 risk reward be impossible with luck?
 
Quote from jem:

Well lets start with a simple question.

Andy Murray winning a Wimbledon final.

Luck or Skill. I hope everyone here is logical enough to understand that was skill regardless of if he won a few lucky points.

You can't be Djokovic with luck.

if we all agree... lets move on to the next one.

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At some point... might we not all concede... after say 10,000 trades... some equity curve could not be created with luck? I might not be requesting metphysical certitude... but would't some number like 80 percent winners and 3 to 1 risk reward be impossible with luck?
More...

Huge difference comparing sports with trading. For example, if I played Andy Murray in tennis (and I use to be pretty good at tennis) and played him 100 times. I would probably, no, I would definitely lose 100 times out of 100. That is called skill. There is no variance in the results. It's when you have large variances, that's when luck can surface simply due to the distribution curve of results. If my mother were to start daytrading the spoos, if she did it long enough, some where in her results she would have a streak that would make many of you envious. It would be pure luck of course via the variance. But still, with a skilled marketer she could probably raise money and start a hedge fund.

What Taleb talks about and I have read his work thoroughly is how a lot of professionals can hide away in the variance of life. It's not just trading, there are other professions like acting and of course politics. Anything that has a large distribution is vulnerable to allowing you to be fooled by randomness.

One of the reasons this business attracts so many snake oil salesmen is that they can live and breed within the mountains of data that exist in this business. It's so easy to take that data and make it say anything you want it to say. As long as you have a large enough distribution. So what Taleb is not saying is that there are no talented traders out there. What is he saying is that you won't be able to identify them with a high degree of certainty. And the good thing is you don't have to. Most people in this business who hire traders or money managers are skilled at reducing variance and lowering volatility and minimizing the potential risks of being exposed to bad traders or money managers. And the beauty is, you can do that without even knowing exactly which ones they are.
 
nadal and federer were knocked out v early on. the guys who beat them, luck or skill?

in any knockout tournament, there is an element of luck.
 
There's no doubt that certain people who make consistently huge profits haven't done so out of luck!
They've got access to information that only some are privy too, or they have a technological advantage etc etc..

The question of luck only seems to come up when we are talking of retail traders who are basing their trading decisions from charts.

JPMorgan didn't have a losing day in the whole quarter ending 31st march. They're not lucky...
 
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