Mav, i have learnt a ton from your posts on ET. But i will be the devils advocate here; as a retail trader, i dont think one should hang their hat on predicting vol or price. Cause what is the chance that their forecast is better than the tons of other doing so? Forecasting intrinsically assumes market is wrong and your forecasts are better - well that sounds like the reasons why genius fails.
So i would say you will have to make your trading totally agnostic to any forecasting; yes you can have market opinion but that should be irrelevant to the business of trading.
As an aside, i do not believe anyone actually can predict the market (price or vol or anything for that matter) with any accuracy due to the non-stationary nature of the markets. Not even the goldies of the world; whatever money has been made has been mostly made due to enjoying structural edges - or by taking blind chance.
-gariki
I wholeheartedly disagree with this. First of all, if one is not predicting vol or price, what exactly is your position? Random? Theta is not an edge neither is blindly selling premium. When you sell options you are implicitly making both a vol and price forecast whether you want to or not but it seems like you are simply making it blindly.
Second, your views on forecasting are unfortunate. Data science has made unbelievable advances. We can model traffic, weather, the human body, and the movement of terrorist cells. All data can be organized, classified, structured and interpreted. There is lots of noise in data, this is true, but there are millions of signals within the noise. And it's not a matter of "prediction" as much as it is "approximation". For example, if you were asking me to forecast the drive time for you leaving work and on a normal day it takes you 45 minutes. So I model that and come up with a forecast to estimate your drive home. While I may not be able to say to you, it will take you exactly 57 minutes, my model might show that based on the given data, it will take you longer then 55 minutes, meaning my model is showing somewhere between 55 and 65 minutes. Your concern is not the exact time, but is this particular drive home more then one standard deviation away from the avg drive time which lets say is 4 minutes. It appears my model is showing you that your drive will actually be more then 2 standard deviations from normal so you stay at work longer and get more stuff done. THIS is what modelling is. It is not giving you an EXACT answer. These models are absolutely effective in trading and they absolutely do work. It's not being seeing the future, but rather understanding the possible paths and then valuing them.
Simply to ignore them and say, I'm going to get in my car and I don't care what you say, the traffic looks fine to me is being ignorant. You would not let your doctor use that approach, you would not let a pilot do that on a flight you are on, no one can predict the weather, I'm going to fly anyway. You would not buy a house in a dangerous neighborhood because you know, crime statistics are over rated. You use and depend on data analysis every day of your life. Why would you not use it for the most important thing you do, manage your money? It's nonsensical. Worse, it's ignorant. Now I do agree most retail folks are not going to go down this route and the data shows, for the most part, they are not profitable. Correlation or causation? You decide.
