Yuppie
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Right, interesting article in the latest New Scientist.
'What's luck got to do with it?'
The article is here.
The section (copied below) on knowing when to quit through 'diminishing returns' got my cogs turning as to possibilities for stopping trading for the day.
If you have trouble knowing when to quit, try getting your head around "diminishing returns" - the optimal stopping tool. The best way to demonstrate diminishing returns is the so-called marriage problem. Suppose you are told you must marry, and that you must choose your spouse out of 100 applicants. You may interview each applicant once. After each interview you must decide whether to marry that person. If you decline, you lose the opportunity forever. If you work your way through 99 applicants without choosing one, you must marry the 100th. You may think you have 1 in 100 chance of marrying your ideal partner, but the truth is that you can do a lot better than that.
If you interview half the potential partners then stop at the next best one - that is, the first one better than the best person you've already interviewed - you will marry the very best candidate about 25 per cent of the time. Once again, probability explains why. A quarter of the time, the second best partner will be in the first 50 people and the very best in the second. So 25 per cent of the time, the rule "stop at the next best one" will see you marrying the best candidate. Much of the rest of the time, you will end up marrying the 100th person, who has a 1 in 100 chance of being the worst, but hey, this is probability, not certainty.
You can do even better than 25 per cent, however. John Gilbert and Frederick Mosteller of Harvard University proved that you could raise your odds to 37 per cent by interviewing 37 people then stopping at the next best. The number 37 comes from dividing 100 by e, the base of the natural logarithms, which is roughly equal to 2.72. Gilbert and Mosteller's law works no matter how many candidates there are - you simply divide the number of options by e. So, for example, suppose you find 50 companies that offer car insurance but you have no idea whether the next quote will be better or worse than the previous one. Should you get a quote from all 50? No, phone up 18 (50 ÷ 2.72) and go with the next quote that beats the first 18.
This can also help you decide the optimal time to stop gambling. Say you fancy placing some bets at the bookies. Before you start, decide on the maximum number of bets you will make - 20, for example. To maximise your chance of walking away at the right time, make seven bets then stop at the next one that wins you more than the previous biggest win.
I'll add more thoughts soon, but, initially, my thoughts are running along the lines of this being a possible guide as to when to quit for the day - whether P&L is up or down.
Let's discuss...
Magnus
'What's luck got to do with it?'
The article is here.
The section (copied below) on knowing when to quit through 'diminishing returns' got my cogs turning as to possibilities for stopping trading for the day.
If you have trouble knowing when to quit, try getting your head around "diminishing returns" - the optimal stopping tool. The best way to demonstrate diminishing returns is the so-called marriage problem. Suppose you are told you must marry, and that you must choose your spouse out of 100 applicants. You may interview each applicant once. After each interview you must decide whether to marry that person. If you decline, you lose the opportunity forever. If you work your way through 99 applicants without choosing one, you must marry the 100th. You may think you have 1 in 100 chance of marrying your ideal partner, but the truth is that you can do a lot better than that.
If you interview half the potential partners then stop at the next best one - that is, the first one better than the best person you've already interviewed - you will marry the very best candidate about 25 per cent of the time. Once again, probability explains why. A quarter of the time, the second best partner will be in the first 50 people and the very best in the second. So 25 per cent of the time, the rule "stop at the next best one" will see you marrying the best candidate. Much of the rest of the time, you will end up marrying the 100th person, who has a 1 in 100 chance of being the worst, but hey, this is probability, not certainty.
You can do even better than 25 per cent, however. John Gilbert and Frederick Mosteller of Harvard University proved that you could raise your odds to 37 per cent by interviewing 37 people then stopping at the next best. The number 37 comes from dividing 100 by e, the base of the natural logarithms, which is roughly equal to 2.72. Gilbert and Mosteller's law works no matter how many candidates there are - you simply divide the number of options by e. So, for example, suppose you find 50 companies that offer car insurance but you have no idea whether the next quote will be better or worse than the previous one. Should you get a quote from all 50? No, phone up 18 (50 ÷ 2.72) and go with the next quote that beats the first 18.
This can also help you decide the optimal time to stop gambling. Say you fancy placing some bets at the bookies. Before you start, decide on the maximum number of bets you will make - 20, for example. To maximise your chance of walking away at the right time, make seven bets then stop at the next one that wins you more than the previous biggest win.
I'll add more thoughts soon, but, initially, my thoughts are running along the lines of this being a possible guide as to when to quit for the day - whether P&L is up or down.
Let's discuss...
Magnus
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). I mean if you trade FTSE at 4.20pm, things are gonna liven up somewhat; if you're not used to trading that kind of volatility, it's gonna hurt (this is based on my observations from when I used to trade 5 minute binaries between 4pm and 4.30pm - if you want a rush, if you want excitement, if you want a thrill, put a £5/tick 5 minute binary "trade" on at 4.15pm.).
