Markets and mysticysm

[andycan]

Rhody,

I had to read your reply quite a few times before I could comprehend what you were saying. I think you broadly supported what I said. If that’s wrong, blame my Arts background.

This is Taleb’s favourite topic, isn’t it?

Thank you for the reply.

Andy,

I reckon your spot-on on both counts. One could “guesstimate” parameters statistically (possibly very accurately) but I suspect it would be the timing which will be the killer, eg index up 200 points within two months. End of first month, down 100 points, end of second month up 300 points (from previous month). Net equals up 200 points as predicted. Problem is, does one have the nerve, deep pockets and conviction to sustain an (interim) 100 point loss?

If markets were predictable, there would be no market (everyone would be on the same side). Or perhaps only a few can predict the market.

Grant.

grant

indeed market predictability is an art form, it requires the participant to have a very deep understanding of what markets do, now this is based on the reference that all traders are small traders
but the goal post shifts when the said trader/s are big and powerfull, powerfull enough to make an impression in the markets, then one is talking of a completely different approach,
the likes of you and me is to figure what these guys are doing
they dont need to figure what we are doing, do you see?

 

[alexander]

Or is it the case that mean-reversion is actually applied – in the context of financial markets - to fixed time periods, thus avoiding what I see as an objection?

Grant.

A few ways:

(1) Naive: The experiment is the process of making a prediction, the event is the predicted price direction, and the values are +1 for correct and -1 for wrong prediction. As the number of events becomes large, the sum of the values approaches zero.

(2) Sophisticated: Returns based on predictions do not outperform over medium to longer term those made by a monkey throwing darts at stock tables, as recent studies have concluded. (Actually, the monkey outperformed the managers)

(3) More complicated: over a longer period of time, the profit factor of a system based on predictive algorithms approaches 1 (less commissions is

 

[blackcab]

naturally that would be your opinion as its the majority thought
the markets are not random they are structured in such a way as to appear random
my statement was expressing a point as you see it and the final point was as i see it do you see now

To clarify, when I said "That statement says almost nothing of value" I was referring to my statement ("I suggest that markets are somewhere between completely random and completely predictable").

I was disputing the absolute nature of statements such as "the markets are random" or "the markets are predictable". I do not believe the markets are absolutely, 100% anything - random, non-random or predictable. "Mostly" or "nearly always" or "rarely" or "99%" is fine. I would only have to enter orders myself large enough to move price, for my own unpredictable reasons, to disprove the absolute, 100% stance.

I'll make an absolute statement myself: no-one and nothing can predict a market to an arbitrary level of accuracy over an arbitrarily long series. That doesn't mean you're not achieving extraordinarily high win rates, though - good on you if you are.

 

[Trader333]

indeed market predictability is an art form

Personally I don't think it is, Grey1 has consistently demonstrated that a scientific approach works on a consistent basis.


Paul

 

[temptrader]

Personally I don't think it is, Grey1 has consistently demonstrated that a scientific approach works on a consistent basis.


Paul

and that has always been a thorn on the darksidders side:cheesy:

 

[andycan]

To clarify, when I said "That statement says almost nothing of value" I was referring to my statement ("I suggest that markets are somewhere between completely random and completely predictable").

I was disputing the absolute nature of statements such as "the markets are random" or "the markets are predictable". I do not believe the markets are absolutely, 100% anything - random, non-random or predictable. "Mostly" or "nearly always" or "rarely" or "99%" is fine. I would only have to enter orders myself large enough to move price, for my own unpredictable reasons, to disprove the absolute, 100% stance.

I'll make an absolute statement myself: no-one and nothing can predict a market to an arbitrary level of accuracy over an arbitrarily long series. That doesn't mean you're not achieving extraordinarily high win rates, though - good on you if you are.

my apologies blackcab
i clearly misunderstood
you right constant predictability is like like saying who is in front in the motorway
it may appear to be you it maybe the the wally holding everyone up its a perception based on what point you are looking from and what point is the perceived conclusion

 

[andycan]

Personally I don't think it is, Grey1 has consistently demonstrated that a scientific approach works on a consistent basis.


Paul

you are talking opposite site of a coin here
the chap uses a mechanical system to enter and exit, there is no need to for him to undertand the market and what it does at a conscious level
i personaly could not trade that way each to their own i guess

 

[TheBramble]

All things are known in advance. A phrase often used by another member. A phrase I will get to in a moment.

The markets are predictable in direct proportion to the degree with which the trader has studied the markets and researched the underlying factors that drive the markets and analysed very carefully the roles and strategies of all market players and the basis under which each of those players participates, or chooses not to participate, and under what circumstances they will be reactive and under which they will become proactive. This is all ahead of understanding price development and structure and the relationship price action has with volume (or should that more sensibly be the other way round?) and the necessity of understanding the implications higher and lower timeframes have on the dynamic interpretation of instrument analysis in any one specific timeframe. With that lot under your belt after a number of years graft and totally adopted as a vital and integral daily part of your routine to the point that it becomes so totally ingrained into the fabric of your trading soul that you don’t feel in tune with the markets if you haven’t done your daily workout, you can indeed, to a large degree satisfy yourself that the markets are significantly predictable to a level which those who have not put in the hours will find hard to believe.

For all things to be known in advance, you do not necessarily have to know exactly and precisely what will happen – you just need to be aware of the range of possibilities and the degree of probability appropriate to each of these possibilities. Then indeed, all things are known in advance. All of them. Every single possibility. And in knowing that, is the security in knowing you have prepared a plan of action (or inaction) to respond to the development of any one of these possibilities into your reality. Of course, it doesn’t just stop there. Once a possibility becomes a reality (for you) you then need to have already considered the spectrum of possibilities and their relative probabilities, from that point in time outward. And so on. It only sounds complex until you have mastered it. But master it you must.

So yes, the markets are effectively predictable. Perhaps that is where the issue of mysticism comes in and where this thread started. Mysticism is inexorably associated with matters astrological when it comes to trading and in no other aspect of human endeavour does astrology feature so strongly as an influence. Apart from popular horoscopes of course. Why would that be I wonder.

 

[TheBramble]

you are talking opposite site of a coin here
the chap uses a mechanical system to enter and exit, there is no need to for him to undertand the market and what it does at a conscious level
i personaly could not trade that way each to their own i guess

I’m not normally given to responding to others views as their views are as valid as mine and rarely is there much to debate – it simply is. But in this case andycan I think you may have misjudged the basis upon which successful automated trading systems are constructed.

They are not a proxy for understanding the markets, they are a byproduct of understanding the markets at their most fundamental level.

 

[Rhody Trader]

For all things to be known in advance, you do not necessarily have to know exactly and precisely what will happen – you just need to be aware of the range of possibilities and the degree of probability appropriate to each of these possibilities. Then indeed, all things are known in advance. All of them. Every single possibility. And in knowing that, is the security in knowing you have prepared a plan of action (or inaction) to respond to the development of any one of these possibilities into your reality. Of course, it doesn’t just stop there. Once a possibility becomes a reality (for you) you then need to have already considered the spectrum of possibilities and their relative probabilities, from that point in time outward. And so on. It only sounds complex until you have mastered it. But master it you must.

I don't think I've ever seen or heard it stated so clearly. Very well done.

So many traders fly blind because they don't understand the full scope of potentialities, and thus they never truly have a plan of action appropriately developed.

Mysticism is inexorably associated with matters astrological when it comes to trading

Maybe it's a question of my definition of "matters astrological" being more narrow, but I don't see it that way. I see astrology as one aspect of ways in which folks seek to be mystical (note I didn't say they were actually being mystical), but it certainly isn't the only path taken.

 

[grantx]

Alex,

Thank you for your reply.

I think everyone is surprised - or possibly not - at the level of ignorance in others. What really bothers (frightens) me is my own ignorance of the topic(s) covered in your posts which I intend to rectify. You’ve done me a favour, and I owe you a drink.

Grant.

 

[rols]

BTW It's mysticism.

And on the subject of spelling think about the word 'spell'.

Yes that's right. Words are 'spells' and letters are like magic runes.

When you 'spell' a word correctly, you are taking a set of abstract symbols and charging them with meaning and power.

Words transport us through space and time, words can heal and cause pain too.

A few marks made on a piece of paper can be read by somebody a thousand years away and they can know our deepest thoughts.

Combine the power of words with the power of numbers and what a fine spell may be cast.

'The Dow Jones will close at a record high of 14000 within the next 7 days', for example.

 

[Charlton]

BTW It's mysticism.

And on the subject of spelling think about the word 'spell'.

Yes that's right. Words are 'spells' and letters are like magic runes.

When you 'spell' a word correctly, you are taking a set of abstract symbols and charging them with meaning and power.

Words transport us through space and time, words can heal and cause pain too.

A few marks made on a piece of paper can be read by somebody a thousand years away and they can know our deepest thoughts.

Combine the power of words with the power of numbers and what a fine spell may be cast.

'The Dow Jones will close at a record high of 14000 within the next 7 days', for example.

In the beginning was the word and the word was with God and the word was God.......And the Word became flesh

Words are closely linked to thoughts.

Thoughts are the precursors to actions and creation.

Charlton

 

[Rhody Trader]

BTW It's mysticism.

And on the subject of spelling think about the word 'spell'.

Yes that's right. Words are 'spells' and letters are like magic runes.

When you 'spell' a word correctly, you are taking a set of abstract symbols and charging them with meaning and power.

Words transport us through space and time, words can heal and cause pain too.

A few marks made on a piece of paper can be read by somebody a thousand years away and they can know our deepest thoughts.

Combine the power of words with the power of numbers and what a fine spell may be cast.

'The Dow Jones will close at a record high of 14000 within the next 7 days', for example.

I couldn't agree more. Well, maybe not about the Dow new high in seven sessions part, but definitely the rest of it. Words convey thought, and therefore power.

 

[Rhody Trader]

Thoughts are the precursors to actions and creation.

This might be splitting hairs in terms of this discussion, but I'm pretty sure research indicates that we actually react to stimuli more quickly than we can form the thoughts necessary to drive conscious action. It might have been Brett Steenbarger who wrote about that. I found that to be really interesting.

 

[Charlton]

This might be splitting hairs in terms of this discussion, but I'm pretty sure research indicates that we actually react to stimuli more quickly than we can form the thoughts necessary to drive conscious action. It might have been Brett Steenbarger who wrote about that. I found that to be really interesting.

You may well be right. I don't know the exact physiological aspects of this, but reactions to physical stimuli may well precede thought. These use, I believe, neural pathways that are more direct and don't necessarily go via the brain first. The same could be said of automatic processes such as the functioning of the heart.

When we are subject to an intense stimuli such as when we feel pain from a heat source the physical reation comes first - we withdraw out hand - and later we think about it and begin to feel the pain and intellectualise it.

Of course I wasn't really thinking of this aspect, but more about the considered intellectual logical or emotional reasoning. As an example, if someone thinks I want to get a good job the thought precedes the action and the materialisation. By giving it our full attention we are able to create it.

Thanks for introducing another aspect to the discussion.

Charlton

 

[grantx]

Rhody,


I presume you’re referring to reflex actions. I suspect this is how some trade; either through experience, talent or both, trading becomes almost a second nature. However, perhaps I should qualify this by saying that it may be just symptomatic of a superior ability to absorb and assess data – prices, news, chart patterns – far more quickly than the average person.

By way of analogy, fighter pilots are considered the ‘best’, but given sufficient time and training I believe most people of average intelligence could fly a jet (this excludes effectiveness in combat situations which may well assume a unique talent).

Charlton,

“By giving it our full attention we are able to create it.” A recurring problem in trading – or life generally - eliminating negative and destructive thoughts and behaviour. Perhaps part of the problem is the inability to concentrate totally (full attention) on the trading. The questions are, Why this difficulty, and How is it resolved?
I would certainly like to know.


Grant.

 

[alexander]

Alex,

Thank you for your reply.

I think everyone is surprised - or possibly not - at the level of ignorance in others. What really bothers (frightens) me is my own ignorance of the topic(s) covered in your posts which I intend to rectify. You’ve done me a favour, and I owe you a drink.

Grant.

Grant, for some strange reason my previous post was truncated. Anyway, I wrote next that my experience says that what the market rewards is not what people think. The market does not reward ability to predict as many think. It rewards discipline, risk taking and luck. Actually, mechanical trading systems are not rewarded for making correct predictions but for enforcing discipline. If there is also some luck, the result is profit. I would go further to say that markets often punish those who try to predict them:

Contribution to profitability:

Discipline: 50%
Risk taking: 40%
Luck: 10%
Effort to predict: 0% in the longer term

People think that what they are doing is predictions but that is impossible by the nature of the markets. But if you do that systematically and you are lucky enough and take risks, maybe you can make money.

Alex

 

[Rhody Trader]

Grant, Charlton:

While the reflex response to physical stimuli is certainly part of it, that's not the whole scope of things. We also react in a reflex fashion to non-physical stimuli - like the emotional reaction we would have to being given bad news. It just happens. We don't think about it, but we can definitely train ourselves to react in certain ways.

I have long been a volleyball coach. Athletic training is about making both physical actions and decision-making processes automatic. It comes, of course, through repetition an experience. With enough of that done in the right manner, you turn something that the athlete has to think their way through to something they can do without conscious thought at all.

I would argue that the same is possible in trading. It takes a lot of repetition and feedback (also known as experience), though. Unfortunately, most traders don't get enough because they don't last long enough.

 

[new_trader]

People think that what they are doing is predictions but that is impossible by the nature of the markets. But if you do that systematically and you are lucky enough and take risks, maybe you can make money.

Alex

What is it about the "nature" of the markets that make it impossible to predict?