Trading Wisdom for Aspiring Hedge Fund Managers

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Quote from darkhorse:

I like this Taleb quote, and I think he is more or less correct in speaking of the untrained mind. But he overlooks the brain's incredible powers of plasticity. Information does not have to be poisonous, nor does the flow have to be overwhelming; a large part of the point is that you can train yourself, and adopt your habits and automatic thinking patterns, to survive and thrive in the modern day environment. We are born with Savannah 1.0 wiring, but we have the ability to reconfigure the system manually and install Modernity 2.0 wiring. The mind is marvelously adaptable.
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and you would think that because you do provide market commentary.. :) and yes your right you can't throw a blanket statement and cover everyone... there are outliers


but in my opinion its better to take a mentor for what he is.. just a mentor.. there are no gods in trading just as in academia or in psychology.. everything needs to be taken in context.. we are all bias to some degree.. the degrees you are aware of your biases makes you a better trader
 
Quote from cdcaveman:

and you would think that because you do provide market commentary.. :) and yes your right you can't throw a blanket statement and cover everyone... there are outliers

but in my opinion its better to take a mentor for what he is.. just a mentor.. there are no gods in trading just as in academia or in psychology.. everything needs to be taken in context.. we are all bias to some degree.. the degrees you are aware of your biases makes you a better trader
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Well sure - though I would think exactly the same thing even if I provided no market commentary at all.

The best traders and mentors are humble on a profound level, because they understand what an awesome force of nature the market is.

Thinking you can 'conquer' the market, or that you are somehow bigger than the market, is like a mountain climber thinking he is bigger than Mt. Everest. True practitioners laugh at such notions - which are actually not funny, in a way, because they get a lot of folks killed.
 
Quote from darkhorse:

Well sure - though I would think exactly the same thing even if I provided no market commentary at all.

The best traders and mentors are humble on a profound level, because they understand what an awesome force of nature the market is.

Thinking you can 'conquer' the market, or that you are somehow bigger than the market, is like a mountain climber thinking he is bigger than Mt. Everest. True practitioners laugh at such notions - which are actually not funny, in a way, because they get a lot of folks killed.
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yeah thats very true..
 
Trading Wisdom 17: Breakout Bars and Following Your Own Rules

TW reader Gustav writes:

Why do traders need to wait on the breakout of a signal bar to enter a trade? What is so magical about it? Why not if you are so convinced about certain price action, to enter blindly at a much better spot?

JS comment:

Well, as far as this trader is concerned, there is nothing "magical" about a breakout bar at all. Some traders use breakout bars as an entry criterion aspect of their methodology. Others don't. There are plenty of reasons and rationales for entering a position.

If a trader were "convinced about certain price action," then it would indeed be illogical to wait for a breakout. Upon being convinced, you should be in the trade. But, for many traders, the whole point of the breakout bar is that the breakout is what "convinces" them to take action in the first place. No breakout, no conviction.

"Enter blindly at a much better spot" seems a contradiction in terms. If you are entering blindly, how do you know the spot is better? In most cases of breakout entry, the purpose of the breakout is to ensure forward movement - to increase the probability that the vehicle (stock, currency, futures contract etc.) continues to move in a desirable direction, as opposed to being stuck in a sloppy range.

Whether you use breakout bars or shun them, a key task is making sure you understand the reasoning behind your rules. All trading and investing is done via some combination of rules and pattern recognition, whether consciously or subconsciously.

Take the value investor who never looks at charts, for example: He will still have internal rules for determining what makes a good investment. If he ignores the charts, he will still be looking for "patterns" - ratios, clues, rates of change etc - in the composition of the balance sheet, possibilities for an event catalyst, scenario developments he has seen before, etcetera.

Finally, if you ever question the logic or efficiency of one of your own trading rules, consider modifying it, or even throwing it out completely. There is no harm in tinkering on paper, and possibly much to gain. Conduct thought experiments, manually backtest if you can. If you decide breakout bars are an illogical means of entry for the way you trade, perhaps you will find something that works better for you.

Just make sure your rules are consistent and coherent within the methodological framework you have created, and that you understand the reasoning behind every action you take. If you don't, that is good reason to investigate.

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Quote from cdcaveman:

i


My parents hate soros I think the guy has sick insight and balls! Reflexivity is to much like mean reversion to me. Mandelbrots fractals is rebellious math and pure goodness... guy was the shit... simple.... his fractal theory as the apply to markets beats soros. Soros is a god discretionary trader .. good intuitive master of the markets misperceptiins
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It makes you wonder why DH didn't "get it".

But it doesn't make me wonder why DH didn't "get it".

Both markets and trading are defined by systems.

Building systems begins with the smallest pieces.

The Bayes Blunder is the most common (look at the numbered advice's).

Why is it so unreasonable to get good results when the foundations are sound and so are all the building blocks?

There are not going to be any quotes from the authors I suggested.

Mandelbrot is important but only after the foundation of the market system is understood.

Keynes lays the keel with his paradigm theory and its emphasis of "in kind" and the required "completeness". At this point you have the PM of the HS totally in place and the market system can be measured in the Present.

The market system is measured by vectors which are two dimensional and bilateral.

This brings Carnap's theory into play and the two modern adjuncts are Boole and the invention of RDBMS (look for the APL's of the early 70's.

I see beginners doing trading using one pagers as a cxonsequence. DH did the CW calc's and found it not believable when he applied his knowledge , skills and experience.

He backs up his viewpoint and orientation with his continuing commentary.

My views are "off the wall" to him. I am a scientist and I use the above as part of my practice.

Once the market system is completely defined, then the trader's plan, strategy and ATS can be put in place as a parallel development.

Hedge funds and their managers do not demonstrate performance. Greatness, that DH aspires to, must be better than the performance of my beginners. But he thinks their performance is unbelievable, that I should not post here, and he says he doesn't "get it".

Aspiring hedge fund managers need to understand the following thoroughly:

Keynes
Carnap
Boole, and
Mandelbrot.

when the DOW theory was advanced, so was the market system paradigm. Dodd and Granville published the paradigm.

make a chart from the tulips to 1957 to see the first 100 contributions by various early greats. I posted it as three block diagram charts many years ago.... lol
 
Trading Wisdom 17: Breakout Bars and Following Your Own Rules

TW reader Gustav writes:

Why do traders need to wait on the breakout of a signal bar to enter a trade? What is so magical about it? Why not if you are so convinced about certain price action, to enter blindly at a much better spot?

JH comment:


Three questions.

1. The signal to enter all trades is one and only one thing. It is the moment you are told to take a profit segment to take the prior trend full offer of the market.

A simple true/false test suffices. All tests are false.

Log bar-by-bar.

2. The magic is that a trend has run its course and the overlap with the new trend is beginning at this moment.

this assures you that you are taking the full offer of the market according to market sentiment. Market sentiment has the same test as pregnancy. If you are pregnant you are long; if you are not pregnant, you are short.

3. is a muddy expression. It shows how the CW emotions of trading are always there (fear, anxiety and anger). These emotions come rom not dealing with Q's 1 and 2. This thread is brief and light weight.

To shed these emotions, there is only one requirement. Bar-by-bar, it is incombant on the trader to "know that he knows" all of the time. this is done by testing completely bar-by-bar. Usually you know that you know a trend is coming to an end a couples of bars BEFORE the trend ends.

Because Gustav has created the questions, he is capable of dealing thoroughly with the proper answers. Is there any trader who cannot answer a true/false question? No. Do traders know the questions to answer? No.

Trading is simple. You have to know how two systems work: the market and you. Bar-by-bar.
 
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Quote from Ghost of Cutten:


Anyway, it's an interesting discussion, might be better on a philosophy board! Every trader, whether they know it or not, is trying to form an accurate epistemology about market data and future prices. In a way, it's a miniature version of what philosophers and scientific thinkers are trying to do with the whole cosmos.
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Yeah, I really enjoy this stuff, though it's easy to understand why many don't... one might further analogize critical thinking skills to knowing how to swim, in which case this is the deep end of the pool, or perhaps being out in the ocean (whereas a lot of traders still need floaties).

Wade in a little deeper.

Taleb is another who hasn't waded in very deeply.

It is humourous to suggest that more and more data causes less of anything.

anyone who is a data processor or a laguage builder know how to subordinate unusueful information. Search around to inform yourself.

mandelbrot provides an excellent example to you.

Begin with several charts, each with longer duration bars.

The OTR range chart soon fades away as the Depression measuring chart comes into view.

This is only one dimension of the systems' spaces.

turn to the "activity dimnsion of information. Rank the various activities conducted in markets according to their "activity" dimension. The T&S chart or list is not near or at the top.

finally spend some time on looking at how information "suppression" in interlocking fractals works. What may be important in one fractal, just happens to provide the "suppression in another frractal.

In working with learners (1,000's over 54 years) I have noticed that they invariably to not understand how to delegate importance to market signals. Read redneck influencing nodoji. The nickname for this beginner dilemma is "jumping fractals".

The deducting thinking recommended a while back created the interlocking nature of fractals. This ratio of 3:1 is immutable.

The "early exit" so popular in ET for creating fear and anxiety. Is an example of a non suppressed faster fractal signal being confused with the trading fractal signals.

So we have all of these hedge funds performing at "very beleivable" levels. The market system is generating "unbelievable" levels of performance. Does the aspiring person come to this fork and the road and take DH's choice he advocates, or does the person "grow up" and consider the market's offer on all its fractals that oopeate in a fixed immutable 3:1 ratio with each other? Obviously the lesser choice is taken and the person never encounters the five key principles that determine how the market system operates. Information suppression is one of them.

Will Taleb write a book on each one if and when he discovers them?
 
Quote from darkhorse:

Protean flexibility is unquestionably an asset. I think a lot of good traders who are also money managers understand that their clients often need certainty and rationality, or the soothing appearance of such, when simple return drivers such as cutting off tail risk sound too basic or unsophisticated for the large sums involved. So they sling a line of bullshit.
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Your observation is valid in general, but I think it is beside the point. If memory serves, I don't think Soros was trying to calm or appease anyone. Rather, he was justifying a view and position that he just happened to immediately reverse when the market did not support it. I don't think the underlying and justifying narrative for the original position was for anyone's benefit but his own, and he immediately disowned it. No unconditional love here.

And so, while I think we're essentially on the same page, there was no hand-holding for the client's benefit in this story. It was simply unfettered risk control and reaction.
 
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