Sigma-D
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Eschew Diversions
You have to put you mind on what it is you want to achieve.
You don't catch mice by reading the paper, posting on bulletin boards or taking the dog for a walk. Making a cup of tea/coffee, checking the business news on-line, reading the economist or coding your latest reincarnation of the holy grail.
When you do any of those things; engage fully, be mindful of precisely what it is you are doing and do it with all your conviction. But don't pretend you're doing something else. It's an insult to your Inner Cat to do otherwise.
You have to put you mind on what it is you want to achieve.
You don't catch mice by reading the paper, posting on bulletin boards or taking the dog for a walk. Making a cup of tea/coffee, checking the business news on-line, reading the economist or coding your latest reincarnation of the holy grail.
When you do any of those things; engage fully, be mindful of precisely what it is you are doing and do it with all your conviction. But don't pretend you're doing something else. It's an insult to your Inner Cat to do otherwise.
Sigma-D
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Confidence fed by the illusory certainty of Hindsight
I don't have much contact with humans, certainly not traders as they tend to be going to work just as I'm coming home. But it occurred to me if I could identify what causes them to fail, I could make sure I don't do the same.
Seems to me to fall into two broad categories each which could be considered the flip side of the other.
Excessive confidence in what you believe you know. Overestimating how much you really understand.
Failure to acknowledge the full extent of your ignorance. Failure to acknowledge the uncertainty of the world you live in and underestimation of the role of chance.
As a cat, my opportunities to trade the financial markets have been somewhat limited. So I know I know nothing. Or I at least start out with the assumption I know nothing. I also know that the good die young and the race is not always given to the swift and that chance determines far more, if not everything, than you can possibly imagine.
The unconscious part of you 'knows' this, but your conscious Ego shuts it out. Which is why you look at charts and 'see' patterns and reasons and rationale. Talking heads opine on why this did this and that did that. None of which bears a shred of critical examination and is all prepared and provided post hoc.
Everyone is an expert in hindsight.
Which is why when you use the patterns you've found in historic events and data going forward, they work less well. Forget data mining and curve fitting, forget even trading for a moment. So desperate is mankind for order he'll paste it anywhere he can. When it works again he'll remember it and cite it as a 'proof'. When it fails, it'll be quietly forgotten.
You fool yourselves into believing you know with a credible probability what is 'most likely' to happen next. Out of the Universe of possible 'what nexts' you consider a handful at most and then fit what does happen to one of these, though the fit is never that good, for obvious reasons.
Fundamental Analysis/Technical Analysis are about as useful as random chance, but they both provide an entire industry for the willing practitioners of both to satisfy their respective needs and whims.
At the bottom of my litter tray are a few sheets from an old shredded library book which I have painstakingly put together and there's a quote "Some astrological forecasts will turn out to be true, but most of it, time and experience will expose as empty and worthless. The latter part will be forgotten while the former will be carefully entered in people's memories, as is usual with the crowd." - It's from De fundamentis astrologiae certioribus by a cat named Kepler. He was talking about astrology but it struck me as a perfect assessment of the inappropriate level of confidence fed by the illusory certainty of hindsight.
I don't have much contact with humans, certainly not traders as they tend to be going to work just as I'm coming home. But it occurred to me if I could identify what causes them to fail, I could make sure I don't do the same.
Seems to me to fall into two broad categories each which could be considered the flip side of the other.
Excessive confidence in what you believe you know. Overestimating how much you really understand.
Failure to acknowledge the full extent of your ignorance. Failure to acknowledge the uncertainty of the world you live in and underestimation of the role of chance.
As a cat, my opportunities to trade the financial markets have been somewhat limited. So I know I know nothing. Or I at least start out with the assumption I know nothing. I also know that the good die young and the race is not always given to the swift and that chance determines far more, if not everything, than you can possibly imagine.
The unconscious part of you 'knows' this, but your conscious Ego shuts it out. Which is why you look at charts and 'see' patterns and reasons and rationale. Talking heads opine on why this did this and that did that. None of which bears a shred of critical examination and is all prepared and provided post hoc.
Everyone is an expert in hindsight.
Which is why when you use the patterns you've found in historic events and data going forward, they work less well. Forget data mining and curve fitting, forget even trading for a moment. So desperate is mankind for order he'll paste it anywhere he can. When it works again he'll remember it and cite it as a 'proof'. When it fails, it'll be quietly forgotten.
You fool yourselves into believing you know with a credible probability what is 'most likely' to happen next. Out of the Universe of possible 'what nexts' you consider a handful at most and then fit what does happen to one of these, though the fit is never that good, for obvious reasons.
Fundamental Analysis/Technical Analysis are about as useful as random chance, but they both provide an entire industry for the willing practitioners of both to satisfy their respective needs and whims.
At the bottom of my litter tray are a few sheets from an old shredded library book which I have painstakingly put together and there's a quote "Some astrological forecasts will turn out to be true, but most of it, time and experience will expose as empty and worthless. The latter part will be forgotten while the former will be carefully entered in people's memories, as is usual with the crowd." - It's from De fundamentis astrologiae certioribus by a cat named Kepler. He was talking about astrology but it struck me as a perfect assessment of the inappropriate level of confidence fed by the illusory certainty of hindsight.
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postman
Is it really 'A universe of possibles' there are boundaries limited by probability, and this is a game of probabilities not certainties.
I mean its not actually possible for the Dow to close at 100,000 tomorrow so we can at least agree the possibilities are 'limited' its just a question of how limited. 6 possible outcomes might cover >1 standard deviation which is a 67% probability. I like those odds. 😉
Sigma-D
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postman - yeah, I think I've seen you in my street.
You're into shorts this time of year, no?
Let me know when you've finished your round and I'll let you know the classic mistakes you're making.
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postman
My mistake, I thought you had some valid points you wanted to discuss on an open forum, but as your response was ad hominem and didnt even address my point I see I was wrong.
Or maybe you see the validity of my point but have no rebuttal?
I'd love to hear the mistakes I'm making then I can be a better trader, thats what we all want dont we?
My round is done, I think its your turn now.
Sigma-D
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My dear chap, the irony of a fallacious use of ad hominem is like a saucer of cream to a tired old moggy like me. I neither rejected your arguments nor did I utilise reference to any negative character traits you may or may not have as a basis for doing so. I merely suggested I would respond at a time convenient to you which I had hoped you would recongnise in the humour intended. As that has clearly missed the mark, take it as a parody of an argument from authority.
This most certainly is a game of probabilities not certainties. What is missing is the statistically valid approach to assessing those probabilities. The two aspects which I posted in bold capture, I think, the root cause of the lack of any scientific or statistically appropriate treatment of the topic.
It is possible that the DOW closes at 100,000 today, but unlikely.
"So we can at least agree the possibilities are 'limited' its just a question of how limited. 6 possible outcomes might cover >1 standard deviation which is a 67% probability. I like those odds.". This is the problem. You have no basis, or if you have, you haven't stated it, for assuming the possibilities are limited. You correctly state that just how limited is the question but don't go on to answer it. Because you can't. And neither can I, nor anyone else. That's an acknowledgement of ignorance. You then pluck 6 possible outcomes from the air and suggest using standard deviation without I suspect any rational basis for doing so and without, I am making an assumption here, any deep knowledge of what standard deviation is useful for and what it is not. It's the common problem of reliance of mathematical devices as tools in the hope rather than certainty they'll be better than nothing. Knowing you don't know something makes it that much easier to find out what you need to know than pretending you know something that isn't correct.
Do you want some random yet reasonably realistic statistics?
DOW to touch 16724 today - 86%, 16609 43%.
DOW to touch 17063 today - 73%, 17175 21%.
How does that help anyone?
This most certainly is a game of probabilities not certainties. What is missing is the statistically valid approach to assessing those probabilities. The two aspects which I posted in bold capture, I think, the root cause of the lack of any scientific or statistically appropriate treatment of the topic.
It is possible that the DOW closes at 100,000 today, but unlikely.
"So we can at least agree the possibilities are 'limited' its just a question of how limited. 6 possible outcomes might cover >1 standard deviation which is a 67% probability. I like those odds.". This is the problem. You have no basis, or if you have, you haven't stated it, for assuming the possibilities are limited. You correctly state that just how limited is the question but don't go on to answer it. Because you can't. And neither can I, nor anyone else. That's an acknowledgement of ignorance. You then pluck 6 possible outcomes from the air and suggest using standard deviation without I suspect any rational basis for doing so and without, I am making an assumption here, any deep knowledge of what standard deviation is useful for and what it is not. It's the common problem of reliance of mathematical devices as tools in the hope rather than certainty they'll be better than nothing. Knowing you don't know something makes it that much easier to find out what you need to know than pretending you know something that isn't correct.
Do you want some random yet reasonably realistic statistics?
DOW to touch 16724 today - 86%, 16609 43%.
DOW to touch 17063 today - 73%, 17175 21%.
How does that help anyone?
Sigma-D
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In the Universe of possible "what nexts", some might start from its current level of 16850 and interpolate statistical probabilities for the DOW reaching a point 67% of the way from its current level to either of the nearest levels suggested. Without any rational basis for doing so, but they'd be using percentages and standard deviations and they'd be busy so it's valid, right? No, not right.
Others might apply the statistical data provided (if they believed them to be valid) and construct a trade to express those beliefs using any number of methods and techniques - option derivatives spring to mind. Would that be valid? Better, but still not statistically valid.
The fact is, nobody knows what levels the DOW will touch today. We can assign probabilities to levels being hit and the farther they are from the current level, the lower the probability. But regardless of the degree of sophistication of the model you use to pin your beliefs upon, these probabilities do not confer a trading advantage. It's all smoke and mirrors.
All you ever have with any given instrument is current price at tick and price at tick -1, tick -2, tick -3...From these series of data we believe we have the basis to draw a conclusion about tick +1. We do not. Ever.
So if you jettison any attempt at an ability to predict, what are you left with?
Others might apply the statistical data provided (if they believed them to be valid) and construct a trade to express those beliefs using any number of methods and techniques - option derivatives spring to mind. Would that be valid? Better, but still not statistically valid.
The fact is, nobody knows what levels the DOW will touch today. We can assign probabilities to levels being hit and the farther they are from the current level, the lower the probability. But regardless of the degree of sophistication of the model you use to pin your beliefs upon, these probabilities do not confer a trading advantage. It's all smoke and mirrors.
All you ever have with any given instrument is current price at tick and price at tick -1, tick -2, tick -3...From these series of data we believe we have the basis to draw a conclusion about tick +1. We do not. Ever.
So if you jettison any attempt at an ability to predict, what are you left with?
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postman
Being a cat you might not appreciate how dumb humans can be, they are insecure, scared of the unknown and things that are different, as such they cling to things that are familiar like levels of support and resistance.
A market is the sum of all fears and greed, which are human emotions, so when a price (or index) starts to move and peoples money is on the line they get emotional. If a market moves up into unknown territory it moves cautiously, like someone feeling their way around a dark room to find the light switch. If it starts to fall it moves quickly to a level of known support that the majority of people are comfortable with.
Round numbers used to scare people (and still do to some extent) that is why when an index hit(s) 10,000 or 17,000 people start to sell (they resist buying above that level), its irrational, its a human emotion we have plenty of threads round here to support that.
Markets take note of support and resistance which are known quantities, and oscillate between them. That is how on Sunday 29th June I was able to 'guess' where the S&P would close on Thursday 3rd July to within 0.56 points.
http://www.trade2win.com/boards/ind...y-competition-2014-prizes-59.html#post2357638 (You will note I am pictured as a cat 😆)
Price action wont tell you that.
Technical analysis will prove statistically valid over time and price action will make you profitable intraday, a combination of both will make you a powerful trader.
A market is the sum of all fears and greed, which are human emotions, so when a price (or index) starts to move and peoples money is on the line they get emotional. If a market moves up into unknown territory it moves cautiously, like someone feeling their way around a dark room to find the light switch. If it starts to fall it moves quickly to a level of known support that the majority of people are comfortable with.
Round numbers used to scare people (and still do to some extent) that is why when an index hit(s) 10,000 or 17,000 people start to sell (they resist buying above that level), its irrational, its a human emotion we have plenty of threads round here to support that.
Markets take note of support and resistance which are known quantities, and oscillate between them. That is how on Sunday 29th June I was able to 'guess' where the S&P would close on Thursday 3rd July to within 0.56 points.
http://www.trade2win.com/boards/ind...y-competition-2014-prizes-59.html#post2357638 (You will note I am pictured as a cat 😆)
Price action wont tell you that.
Technical analysis will prove statistically valid over time and price action will make you profitable intraday, a combination of both will make you a powerful trader.
Sigma-D
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A good post. And Atilla was very sensible to assign you the persona he did. Alsatians are intelligent (for canines) and know when to show due deference.
But will you show us or at least give us an honest estimate, of all your guesses which fell short (or long) of the mark? Unless of course all your analyses are equally successful in which case you could tell us the high and low and close of the DOW today?
"Technical analysis will prove statistically valid over time ". Will it? How will you prove this? Over what period of time and for how many practitioners - all, some, a few? That I disagree completely with your statement will be no surprise, but I can counter with some empirical data that goes a lot further to substantiating my position. If what you say is true, why would fewer than 1% (according to posts on this site which I can reference if pressed) of those commencing trading make it to long term consistent profitability? If technical analysis proved statistically valid over time, this figure would be significantly higher.
"price action will make you profitable intraday" - indeed. Providing you have the wit to be the right side of it. My view is that price action is all you ever have.
Don't forget, I'm just a streetsmarts cat detailing my approach to developing a method as to how I would go about trading if I ever I chose to do so, without falling into the subjective ego traps that humans seem so intent on.
But will you show us or at least give us an honest estimate, of all your guesses which fell short (or long) of the mark? Unless of course all your analyses are equally successful in which case you could tell us the high and low and close of the DOW today?
"Technical analysis will prove statistically valid over time ". Will it? How will you prove this? Over what period of time and for how many practitioners - all, some, a few? That I disagree completely with your statement will be no surprise, but I can counter with some empirical data that goes a lot further to substantiating my position. If what you say is true, why would fewer than 1% (according to posts on this site which I can reference if pressed) of those commencing trading make it to long term consistent profitability? If technical analysis proved statistically valid over time, this figure would be significantly higher.
"price action will make you profitable intraday" - indeed. Providing you have the wit to be the right side of it. My view is that price action is all you ever have.
Don't forget, I'm just a streetsmarts cat detailing my approach to developing a method as to how I would go about trading if I ever I chose to do so, without falling into the subjective ego traps that humans seem so intent on.
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postman
I enjoy posting here as trading is a game of wait, wait, wait, trade, wait, wait, wait .... and it passes the 'wait' time. I hope I don't come across as rude, dismissive, or arrogant that is not my intention. Its a great place to share ideas and views. We will all be wrong and right over time, there is no one size fits all.
Could I tell you the high low and close of Dow today No! Could price analysis No! Its irrelevant.
Why would fewer than 1% trade consistently profitable? I cant answer for everyone but I'm guessing they're using the wrong technical analysis, or have bad money management or dont have the right psychological attitude to enter / exit at the right time, trading is a mixture of skills.
"Don't forget, I'm just a streetsmarts cat detailing my approach to developing a method as to how I would go about trading if I ever I chose to do so"
Please continue to develop your method, just remember it will only suit you, I have found one that suits me.
Here are a few pointers on how to develop your method.
http://www.trade2win.com/boards/new-trading/30625-i-m-new-trading-where-do-i-start.html#post416411
I wish you luck when you start putting real money into an account and press the button and all the theory goes out of the window.
Could I tell you the high low and close of Dow today No! Could price analysis No! Its irrelevant.
Why would fewer than 1% trade consistently profitable? I cant answer for everyone but I'm guessing they're using the wrong technical analysis, or have bad money management or dont have the right psychological attitude to enter / exit at the right time, trading is a mixture of skills.
"Don't forget, I'm just a streetsmarts cat detailing my approach to developing a method as to how I would go about trading if I ever I chose to do so"
Please continue to develop your method, just remember it will only suit you, I have found one that suits me.
Here are a few pointers on how to develop your method.
http://www.trade2win.com/boards/new-trading/30625-i-m-new-trading-where-do-i-start.html#post416411
I wish you luck when you start putting real money into an account and press the button and all the theory goes out of the window.
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postman
Just a random guess but Dow might finish at 17,060 tonight. Then again it might not.
Sigma-D
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Nope. Not to me anyhow. But I am a cat. As for the non-feline members of this site YMMV.
This is important. These are the differences between people and cats that make the difference. If a cat knew the high and the low (forget the close) he'd put in a limit buy and a limit sell then head off don the beach for the day. Obviously humans want to sweat it out, tick by tick, for their daily bread. Interesting. Irrelevant? I don't think so.
But you didn't fess up on the central question I asked - not that you're obliged to of course - in how many right guesses do you get per number of wrong guesses? I'm not trying to pin you down to a performance profile, merely to illustrate the point I made yesterday about the successes featuring larger in human minds then the failures.
So they'd only need to get one of those wrong and it needn't even be the same one wrong every time to end up in the 99% losers pile?
Where am I going to get real money from, I'm a cat!
I don't have a theory and if it goes to plan, I won't have one either. Theories are hypotheses and if you're hypothesising, you don't know the answer. When (if) I have the answer, it won't be a theory, it'll be the answer.
Sigma-D
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So you're saying it could just as easily by 16928 as 17060?
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postman
Thats right, its a probability thing I'm sure your familiar with "Schrodinger's Kittens and the Search for Reality by John Gribbin " it explains how nothing is definite it just has a probability of being there or not. The Dow closing at 17,060 is within the future probability.
I would place a trade on the basis of the Dow being at 17,060 at close and if the probability were equal I would trade the Dow closing at 16,928. There are ways of trading large moves without knowing direction. 🙂
Sigma-D
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Leave my kids out of this.
I haven't read "Kittens" but from memory the dude's cat was both dead and alive - not one or the other. Which in this context is equivalent to saying the DOW closes at 16928 AND 17060.
"There are ways of trading large moves without knowing direction". Are you assuming a large move would be on increasing volatility and therefore you could trade that through long strangles and straddles, back spreads and debit spreads? Or do you have a preferred alternative method? Or is it nothing to do with IV?
Back to the question on the asymmetric nature of memory, for that one link you posted to a near as damn it spot on call, how many links could you post to less successful calls? I'm really not trying to embarrass you, but as you've been so kind as to engage with a flea infested mog on this topic, I'm keen to explore the tricks that humans play with their minds on themselves in convincing themselves they're better than their results suggest.
I haven't read "Kittens" but from memory the dude's cat was both dead and alive - not one or the other. Which in this context is equivalent to saying the DOW closes at 16928 AND 17060.
"There are ways of trading large moves without knowing direction". Are you assuming a large move would be on increasing volatility and therefore you could trade that through long strangles and straddles, back spreads and debit spreads? Or do you have a preferred alternative method? Or is it nothing to do with IV?
Back to the question on the asymmetric nature of memory, for that one link you posted to a near as damn it spot on call, how many links could you post to less successful calls? I'm really not trying to embarrass you, but as you've been so kind as to engage with a flea infested mog on this topic, I'm keen to explore the tricks that humans play with their minds on themselves in convincing themselves they're better than their results suggest.
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postman
I really dont know I havent kept track but if you want to help me I have 3 calls running at the moment.
1. Posted at 7.30 Monday morning Dax bounces off 9750.
2. Dax goes back to 10,000
3. Posted on Sunday I believe, S&P to finish the week at 2008.
You can add Dow 17,060 close today.
Who knows it might improve my trading and everyone could use that. 🙂
I admit it is folly to try and guess the level of a market in advance especially 5 or more days (anything could happen) but the low volatility makes things more predictable.
Sigma-D
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I hardly think you need help monitoring these calls. But in any event, this doesn't really qualify as trading. Making calls on what levels might or might not be reached is one thing, but as you enumerated earlier, there are a number of factors which need to be met in order to trade successfully. Without method, entry, exit, stop and money management, the levels in and of themselves are nothing more than a 'guess my weight' game. That's not a value judgement of course as it's all good fun, but it's not really anythin to do with trading professionally.
Really? Perhaps I'm too suspicious for my own good, but when things get quiet around my neighborhood, I know somethings going down and the fit will hit the shand real soon. I've would have thought it sensible to buy volatility when it's flat, not make predictions on outrights.
Sigma-D
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the Ego factor was one I thought important enough to address early on in this thread. I'm pleased to receive additional support for the significance of it. But surely even professional traders have egos - notwithstanding dire Hollywood versions of how they think traders should be characterised - but instead of 'guess the level' is it more likely 'look how much I made' this day/week.month/quarter/year? Unless they are all totally devoid of ego - or is that just the old hands that have been doing it for longer than any of the bright young stars?
I'm interested.
Presumably risk-adjusted returns means comparing your reward with your initial risk. And possibly drawdown (MAE?). I'm sure there are some delightfully complex ratios with grand names which model various performance criteria. But is it basically all down to how much you make compared with how much you risk?
And is the effort to maximise these risk adjusted returns simply a function of using less risk and/or making more reward? That sounds like an optimum theoretical strategy of course, but the operational basis under which you effect those functions is presumably the tough bit.
The more I scout this site the more I am inclined to suspect that if I ever were to start trading, it wouldn't be outright directionals, for a number of reasons, but the most significant being that most on here appear to be doing just that and I get the vibe not all are doing terribly well.
counter_violent
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Yes I agree but when this topic comes up (playing both sides) it usually causes a complete **** storm from those who can only think in one direction.