Randomness Now that I’ve answered you: Kindly, If someone is risking ruin, and/or trading with negative EV(which is the same as ruin..), are they lucky when they experience gains whilst on their path to (guaranteed) financial ruin? Remember: Trading with negative EV = the more you trade(increase frequency), the closer you’ll get to ruin, because you’re losing on average and eventually lose it all. And the longer you’re exposed to risk of ruin, the likelier it is that you’ll be ruined as time passes. With this being said, it is a statistical fact that they’ll lose their money. Once this trader hits ruin (which is a statistical fact), should he consider the gains he experienced on hispath to ruin to be attributed to skill.. or luck?
Howard Marks on luck and on Nassim Taleb: Source: http://www.richardhughesjones.com/luck-randomness/ Howard Marks, Co-Founder, Oaktree Capital, AUM: $100,000,000,000 Here we have Marks, Taleb, Buffet, Munger, et al. all respecting the role of luck in things, but ET TA day traders not...... Appreciating the role of luck & randomness Marks is a keen follower of Nassim Taleb, whose ideas he says he finds novel and provocative. He quotes Taleb’s book Fooled by Randomness: The Hidden Role of Chance in Life & in the Markets (Amazon UK, US) at the start of the chapter on luck: Randomness (or luck) plays a huge part in life’s results, and outcomes that hinge on random events should be viewed as different from those that do not… Clearly my way of judging matters is probabilistic in nature; it relies on the notion of what could have probably happened… If we have heard of [history’s great generals and inventors], it is simply because they took considerable risks, along with thousands of others, and happened to win. They were intelligent, courageous, noble, had the highest possible obtainable culture in their day – but so did thousands of others who live in the musty footnotes of history. This is Taleb’s idea of ‘alternative histories’ – other things that could have happened just as easy as the ‘visible histories’ (i.e. noteworthy events) that did. Marks sees this as particularly relevant to investing: The fact that a strategem or action worked – under the circumstances that unfolded – doesn’t necessarily prove the decision behind it was wise. Maybe what ultimately made the decision a success was a completely unlikely event, something that was just a matter of luck. In that case, that decision – as successful as it turned out to be – may have been unwise, and the many other histories that could have happened would have shown the error of the decision. ‘Lucky idiots’ All told, Marks encourages the reader to remember that: Every once in a while, someone makes a risky bet on an improbable or certain outcome and ends up looking like a genius. But we should recognise that it happened because of boldness, not skill… One good coup can be enough to build a reputation, but clearly a coup can arise out of randomness alone. Few of these ‘geniuses’ are right more than once or twice in a row [Taleb refers to them as ‘lucky idiots’]. Howard Marks on decision making He also provides some fascinating anecdote on decision making which all of us should bear in mind when making hard choices: The first thing I remember learning at Wharton in 1963 was that the correctness of a decision can’t be judged from the outcome. Because of the randomness at work in the world and the unpredictability of the future, lots of bad decisions lead to good results, and lots of good decisions end in failure. The correctness of a decision can’t be judged from the outcome. Nevertheless, that’s how people assess it. A good decision is one that is optimal at the time it is made, when the future is by definition unknown. [It is] one that a logical, intelligent and informed person would have made under the circumstances as they appeared at the time, before the outcome was known. A note of caution should go to entrepreneurial readers who concentrate their attention on individuals and their business success stories. The role of luck, combined with a story telling narrative fallacy (another Taleb coined term), can provide a potent illusion of preordained and planned success that overstates skill and understates the role of luck. The reality is far more complex.
Ray Dalio has written a company manual called “Principles” to share his life and business management principles with his employees “I learned to be especially wary about data mining – to not go looking for what would have worked in the past, which will lead me to have an incorrect perspective.” Source: https://www.ofeed.com/Ray-Dalio-The-king-of-the-rich-hedge-fund-industry To not confuse passebyers: Somebody mentioned earlier that Technicals Analysis provides information about what happened. And this is correct. It’s the interpretation and application of this information that misleads the masses.
This isn't word association. A definition please. And please also stop shouting. You don't want something to think you are babbling idiot do you?
You interpreted it as shouting. I’m not shouting. I defined luck as it relates to our context; randomness, (the hidden role) of randomness. Kindly, please answer my question; If someone is risking ruin, and/or trading with negative EV(which is the same as ruin..), are they lucky when they experience gains whilst on their path to (guaranteed) financial ruin? Remember: Trading with negative EV = the more you trade(increase frequency), the closer you’ll get to ruin, because you’re losing on average and eventually lose it all. And the longer you’re exposed to risk of ruin, the likelier it is that you’ll be ruined as time passes. With this being said, it is a statistical fact that they’ll lose their money. Once this trader hits ruin (which is a statistical fact), should he consider the gains he experienced on hispath to ruin to be attributed to skill.. or luck?
I agree with OP, if someone is not prepared for black swan events, or if they trade with a negative expectancy, they're going to get wiped out (all at once, or in due time). Disagreement (for me) is where his posts imply that anyone trading less than a year time frame (target audience, day traders) can't have positive expectancy. To me, OP's posts imply that it’s possible to have positive expectancy through reliance on signals that are found on 1+ year chart, but using any lower time frames will not work. I agree that as timeframe expands, signal becomes more clear/reliable. My disagreement is the implication that anything less than 1 year is pure noise (or 99%) noise. It's "Noiser", sure. As for Black Swans, A catastrophic event for for the money sitting in my trading account would be if ES (one of the most liquid instruments in the world) somehow gapped about 250 points BEYOND my average stop loss level, without filling my stop market order. The largest intraday point swing for the S&P 500 index since 1967 is 125 points. So I think I’m safe from the “Black Swan”. As for Expectancy, I dont know what other traders have done or do, but my own experience, let’s say I had never scaled up contracts as my account size has grown, and just kept things baseline (trading 1 contract) since day one. Accounting for the Net Ticks accumulated up until now (all using the same strategy), I’d literally have to lose 500+ consecutive trades (without a single winner), just to get back to my starting point of 0 ticks. But over the last 2000+ trades , the most trades I’ve lost in a row is 10, I rarely lose more than 4-5 in a row, and my winners are bigger than my losers. And all of this “luck” occurred through various market conditions (extreme volatility, choppy, flat). After experiencing this, at the moment, what is difficult for me to believe is that I can personally be so damn lucky. It’s just easier for me to believe that there is at least an infinitesimal possibility that I’ve acquired some "skill" at day trading. As a trader, I do dread a protracted, extreme contraction in the market. Such a time will eventually happen, But I have the ability to recognize when I’m in those conditions. And, it’s not an account ending event, but merely a time I’ll have to find something else to do until range expands again. I would consider a newbie trader very "unlucky" to begin their journey at that time, because they probably wouldn’t have had time to develop the "skill" to recognize what is happening. That said, I don’t expect my personal opinions on trading to have much value for anyone else. It’s just one man’s opinion/experience. Insignificant. Sorry for the longwinded post. Edit: I changed underlined words, as OP didn't state these views verbatim, but (at least to me) some of the prior 500+ posts he's made in the last 7 days, seemed to imply as much. But I may have misunderstood.
Hello, as I'm reading your post, I realized I must correct you here before going on further. I never claimed that "trading less than a year time frame can't have positive expectancy" nor that a "day trader cannot have positive expectancy". Not that they don't work per se, but that it is a very heavy, burdensome load of noise, especially relative to longer time frames. No one is qualified to make the ultimate conclusion that it will not work. But if positive expectancy is only a relying on signals found on charts that are 1 year ago or less, I do not believe that you'll have positive expectancy. There are many errors in logic in that conclusion. The market has more dimensions that factor in and wipe you out.
I never contended that it's possible to have positive expectancy through reliance on signals that are found on 1+ year charts. If all your strategy is based on is data/charts/past, it does not have a positive expectancy. You need to incorporate some protection against unknown unknowns then I'll believe it. You have to think in different scales, not so 1st order.