Why do I see "Trends" in Randomly Generated Data?

Quote from RedDuke:

MAESTRO,

What can I say. Medalion successfully trades around $4 billion by utilizing intra day models. Some of which were revealed during the lawsuit when 2Phds left the fund. One was to deal with gaps and another with analyzing level 2 data. Their models utilize repeating patterns (pattern has many definitions).

Regards,
redduke
More...


Hi RD,

Do you have any further information on this lawsuit?

Regards,

surf
 
Quote from marketsurfer:

Hi RD,

Do you have any further information on this lawsuit?

Regards,

surf
More...

http://infoproc.blogspot.com/2007/07/algorithm-wars.html



Surf, I just don't see why posters around here rip on you so much. Your "cynical" beliefs are not much far from my own (if I'm interpreting correctly). A professor once said, "A cynic is someone who sees the truth for what it is." Words that stuck over the years.

People need to start reading more books like richard ney's "wall street jungle" and "trading with the enemy: cramer." Once you understand and agree that the playing field is not level, then you begin to model around that hypothesis.
--------------------------------------------

http://www.arezzotrade.com/wall_street.php

"When you start to think you've got the special sauce, someone else (probably)
has it too,"


"David Viniar, chief financial officer of Goldman Sachs, told clients in a conference call Monday detailing Goldman's own quant funds' steep losses that the unusual dislocation in stock prices last week was a 22 standard deviation move. In other words, it should not have happened in the entirety of human history if returns are what statisticians refer to as log normally distributed. Similarly, the 1987 stock market crash should not have happened either. Clearly unusual moves can and do happen, meaning that basing models on even a 150-year history of stock prices can miss disastrous outliers. Simons acknowledged as much in an Aug. 9 letter to investors detailing the 8.7% loss over the first six trading days of August.
"We have been caught in what appears to be a large wave of de-leveraging on the part of quantitative long/short hedge funds," he wrote.
Renaissance ignored several requests for further comment about its performance and operations."

The sneaky spurious fat tails keep jolting the Gaussian modelers.
 
Quote from dtrader98:

. . . A professor once said, "A cynic is someone who sees the truth for what it is." Words that stuck over the years.

People need to start reading more . . .

Once you understand and agree that the playing field is not level, then you begin to model around that hypothesis.
More...

Another professor once said, "A cynic is someone who sees "a" truth for what how it fits into his corner of his universe".

People need to start thinking more by personally validating what they read.

The playing field has never been level from the day each of us entered this world and will only become level when we die.
 
Quote from dtrader98:

Interesting theory. It's funny how I've often thought about the similarities to market modeling and philosophy. They are very similar. You have the die hard platonists that believe there is an underlying objective reality behind all, then there are the existentialists who are horribly depressed by realization that it is all rather chaotic and there really is no underlying order, they've come to such realizations as religion is simply a fabrication (ex TA cults?).
Nietzsche once said something to the effect that no matter how deep science reaches and how minuscule their microscopes, they will never uncover an absolute truth. Rather like icarus, who flew to the sun, at best, they might be blinded. About the only thing I can say about the holy grail, is that once the masses find it, the rules will change and the grail will disappear (SOES anyone?). Sorry for the digression, rambling out loud.

BTW. Although I didn't read it in detail, your paper seems to be saying very similar arguments to what I mentioned about a positive offset in the mean of the markets. Great work. You seem to use a lot of engineering signal terms in your work (omega, non-zero crossing, bias)... just an observation.

There's a great layman's book that has been out for awhile. Reading your background, I think you would get a kick out of it. It's called "origin of wealth," by beinhocker.
http://www.amazon.com/Origin-Wealth...bs_sr_1?ie=UTF8&s=books&qid=1204064679&sr=8-1
The book attempts to explain how modern physicists are trying to rewrite the classical rules of economics using complexity, and non-linear dynamics, as well as game theory, and behavioral psychology as tools in their arsenal.

I particularly like the studies they model whereby once a set of agents stumbles upon a successful trading rule, it quickly takes off then dies as more and more agents jump on. While that seems obvious in hindsight, the objective simulations they ran on it were pretty interesting.
More...
Interesting commentary. So, could you tell us in broad strokes (nothing proprietary, of course) how you trade the markets?
 
Maestro,

I need to disagree with your well accepted idea that it is the masses that move the market, therefore studying their pyschology is beneficial. At one point in history this was likely correct, however now, due to monster capital pools controlled by the very few, crowd psychology is no longer relevant in the financial markets--the crowd is trend followers by default, always too late. I believe the premise of behavioral finance as it relates to market prediction is fundamentally flawed, much like TA itself, due to the above.

regards,
surf
 
Quote from Thunderdog:

Interesting commentary. So, could you tell us in broad strokes (nothing proprietary, of course) how you trade the markets?
More...

If you are asking me, then the answer is very simple. I use the game described in my paper to construct multiple strategies utilizing differences between distributions exhibited in the markets vs. Gaussian distribution. It only works well (no losing days at all) if you are involved in hundreds non-correlated games at the same time. I think it is as far as I can go with it. The clues are all in the paper.
Cheers,
:cool:
 
Quote from marketsurfer:

Maestro,

I need to disagree with your well accepted idea that it is the masses that move the market, therefore studying their pyschology is beneficial. At one point in history this was likely correct, however now, due to monster capital pools controlled by the very few, crowd psychology is no longer relevant in the financial markets--the crowd is trend followers by default, always too late. I believe the premise of behavioral finance as it relates to market prediction is fundamentally flawed, much like TA itself, due to the above.

regards,
surf
More...

In the traditional sense, you are correct. Traditional behavioral finance like TA is wrong. However, I use totally different approach that, in my opinion, is free of the mentioned by you short comings.
Cheers
 
You must log in or register to reply here.
Back
Top