Discussion in 'Trading' started by Took2Summit, Feb 2, 2013.

  1. I'm curious, if the black Monday event that took place in 1987 was an 18 standard deviation move (on the conservative side) which should happen less often then 1 in the entire duration of the universe (were we just so lucky in the first say 100 years of the market to see a once in a universe event?). How can people claim to have an edge? I know risk management can limit your losses from a 1 day 18SD event, but what's to say a 5 year stretch doesn't hit an 18 SD event? How can you even have statistics on events that all possibilities aren't even known? Statistics on dice or cards are obvious as all possibilities are a given, but how can someone assume they know all possibilities in the stock market? Are edges just delusional? Real question looking for thoughtful answers.
  2. Please, you are assuming a standard distribution. The Market is not the universe, which can be described with physics. The Market is a huge quivering mass of tiny insects, suckling at the hive, which have a strange tendency to burst into chaos in freak moves, every time their collective mood swingz
  3. I'm assuming statistics and standard deviations, which is what traders need to quantify an edge. And a standard deviation of 18 with a time value of a day is in the ballpark of 1 in many many billions of days. Given the markets historic volatility, black Monday was an 18 SD event
  4. Please, It is impossible to calculate the probability of any level of standard deviation unless you assume a distribution......

    The Market obliterates any quant who fails to consider its propensity to lash out with tails on a regular basis, completely beyond their ability to calculate....
  5. Right..in essences it sounds like you are agreeing with me. I guess I should ask you to drop the 18SD black monday event as you seem to be getting caught up in it and instead move back to my main point. how can someone quantifiable have an edge, which requires a statistical exactness, when all the possibilities are not known?

    The equivalent would be a texas hold'em player not knowing what composes a deck of cards.

    what i am saying, or asking i guess, is how can someone say they have an edge, which requires statistical exactness, in a world (the market) that has variables that no one even knows about yet until they happen. sure someone can be profitable for 5, 10, 15, 60 years (even buy and hold investors have been profitable over 60 years). i do not think this is an "edge", however.
  6. The edge comes from learning to find a charting format that you can read with consistency. This way you will know what to do when it is time to do it.
  7. This charting format is something that you will have to do on your own, so don't waste time buying a bunch of books. Find a software platform, get thru the indicator process as fast as you can, learn PA, and then go make money.:)
  8. im making money, ive made 60% in the last 2.5 years. not great, not terrible.

    however you again are assuming in your charting format that you know all the variables, but you don't. new variables can be introduced at any point, and these variables may be hidden by other variables.

    here's an example with the deck of cards again. you are playing texas hold'em, you have a royal flush, you assume this is the best hand possible so you bet the farm so to speak. the market can do the equivalent of adding 100 new cards and making a new combination of cards, while you are holding your royal flush assuming you are playing with a 52 card deck!

    so once again how can someone have an edge when it's impossible to know all the variables of any given market you trade, whether its options, equities, currency..or even worse how many variables there even are.
  9. thats like telling a texas holdem player to know when his royal flush is beat because the dealer added 4 joker cards, yet never told the person holding the royal flush
  10. One never knows all the variables in a game of probabilities. Is that something that concerns you?
    #10     Feb 3, 2013