Science versus the gut

[StarDust9182]

Personally - trust the gut after plenty of experience.....then try and quantify that.



Dealing with people....
After dealing with a lot of people when someone is trying to sell you something but it just does not feel right. Trust your gut. Then maybe afterwards you will be able to quantify why it does not feel right after the emotion/pressure of the sales pitch is gone
Choosing a partner....
You know when someone seems to tick all the right boxes but you just dont seem to feel right about it. Once away from them sometimes you can be a bit more objective and realise what it is.

There is always the trap of afterwards finding excuses to justify your decision, but that is usually when you have done something....whereas I prefer to trust my gut as to when to avoid something.

This made me think - Is trusting your gut similar to following rules of thumb whereby its impossible to quantify because they are heuristics and are not meant to be complex and quantifiable but a quick and dirty solution.....(in answering myself not really) or is it simply that instinct by its very nature is not meant to be quantified. Its simply that indescribable feeling that puts a lot of complex things together in an emotion quickly.
(Not sure given it is Friday and my guts are hungry for a nice Martini)

+1

.... and isn't that precisely what trading is ... dealing with other people? Or even worse, could it be, that one trades against one's self, one's beliefs, one's perceptions and that there is no objective out there, out there.

 

[StarDust9182]

Experience will help you develop the right conclusions.
An analytical mind will help.
A formal education in the subject matter will help as well.
Character helps a lot too.

I've seen it countless times in trading but also in other business endeavors (senior management) as well.

While I agree with your comments somewhat, it seems that many system traders will attempt to force their "the market has rules" beliefs on others. I suspect so that they will feel safe and in control. In fact, many newbies will tell you something like .... the market has to go down because there was a death cross ....

I use principles and not rules - more akin to fuzzy logic vs the market shall go up when the sma is crossed type "commandments." Why do systems use stops, if they have predictive value? There are edges that don't rely on charts yet have predictable outcomes. Trends in markets shouldn't exist IMO, and yet they do. Great wisdom comes in trading when we realize that we don't have ( or need) control over markets.

Further, one of the side effects IMO of the HFT stuff is that system traders were largely wiped out and the discretionary traders increased. Computers can replicate every system and defeat it since they know what the system trader will do. Many system traders actually have discretionary rules in them but they are often disguised - for example ..... and must have a good chart pattern ....

 

[dealmaker]

Just read this thread:

http://www.elitetrader.com/vb/showthread.php?t=236208

I am fascinated by traders with a STEM background (a college degree in science, technology, engineering or mathematics) who decide to go the discretionary route rather than the systematic route.

What is it about the "gut-feel" approach to trading that is more appealing than the analytical problem-solving approach they learned in college?

Here is a book, " Trading From Your Gut" by Curtis Faith former Turtle...

http://www.amazon.com/s/ref=nb_sb_n...eywords=trading from your gut by Curtis Faith

 

[Redneck]

Or even worse, could it be, that one trades against one's self, one's beliefs, one's perceptions and that there is no objective out there, out there.

Yup

eta..., which is why I hold that we must make our internal trading self - mirror - as close as is humanly possible - the reality of the mkt..., price movement..., & trading

Otherwise..., the mkt & price is only.., and always - out to get me :eek:

RN

 

[Redneck]

Here is a book, " Trading From Your Gut" by Curtis Faith former Turtle...

http://www.amazon.com/s/ref=nb_sb_n...eywords=trading from your gut by Curtis Faith

A good read imho

RN

 

[jack hershey]

Science is only good if it is properly understood. More traders are now realizing the limitations of backtesting and they are worse than any discretionary bias. Here is an interesting angle:

" Traders who use such products without understanding these realities of repeated backtesting with many degrees of freedom become the victims of their own ignorance and have no chances of ever finding a true edge unless they get to the bottom of this but that requires another edge in the form of an understanding of what must be done to avoid the pitfalls of such processes." Source

It boils down to the fact that what is at the heart of automated trading, the backtesting routine, is a problematic process as it turns out. This is the reason for a current massive switch to gut trading. If you fail, at least it was your mistake and not some data mining bias thing.

All of this post is 100% true.

Until Siuya posted, all the posters were making this mistake (and probably will not take Siuya's direction).

By using the maths term "degrees of freedom" the solution to the system of the market's operation (STEM based) involves three stages of dealing with degrees of freedom.

Stage I receiving and organizing the raw data degrees of freedom. Six are invloved.

Stage II Increasing the degrees of freedom to "process" information through a logic system. about 70 degrees of freedom are invloved.

Stage III funnelling the 70 degrees of freedom back down to the bare bones
comprehensive "certainty decision tree".

The "gut" thing is a system outside of the STEM since it is a "betting system". betting is done with an emotion based statisticalating. The center pice is HOPE attended by "predicting" in a context called variously "noise", chaos, and/or "randomenss". A sort of "fools paradise".

A. Lo of MIT went through a highly descrabed process into the dungeon of "financial engineering". you can watch him over the years as he "proves" the patterns he sees do not work in any significant manner.

glance at the "head and shoulders". Look at the pertibations applied to prove it is not statistically significant. But what if you use STEM and see it as two consecutive type C trends (the one of the four types that is complete and is not in drift type D)

Suiya suggests the test is made to see if a trend continues, rather than the CW test to determine a trend ended.

Why do not A Lo nor the MBA's know as yet tht there are four distinct types of trends?

The above quoted post is the reason. by using so few egrees of freedom the ype of trends are never differentiated.

Type A incomplete one leg

type B incomplete two legs

type C complete three legs (which is how "The Pattern" is fabricated as the CORE trsding CYCLE)

type D multiples of odd legs greater than three. A complete trend type called DRIFT".

Once a person climbs to a vantage point to be able to see (determine and define using STEM) the sequencing of types of trends, he steps into a new world that is totally different than the world where types of trends are not differentiated.

so now glance at a headand shouldersas two thre leg complete trends where the sentiment reversal is the moment right between the two complete trends.

Now look at the sequence of turn types in the HS. at the junction of each leg there is a turn. The turn types in the HS are a, to b to c to a to b to c.

In terms of "degrees of freedom" this post has introduced the four types of trns the three types of turns and subjuctively, the fact that the sts of like kind items on the sytem of operation of markets always follow Orders Of Events, where b an event is simply a uniquely defined item in terms of STEM.

 

[doggyfx]

A good read imho

RN

Nothing constructive and applicable to real trading. Just long-winded legthy tirades without concrete conclusions. I woud recommend reading books of J. Murphy's instead (of course if you're comitted to technical trading)