Fooled by Randomness

Discussion in 'Psychology' started by oddiduro, Jul 17, 2005.

  1. I see it. Do you have a suggestion as to how to overcome the effect? Or, are you just resigned to the knowlege that there isn't as much margin to be had as their once was?
     
    #21     Jul 18, 2005
  2. Quiet1

    Quiet1

    i'm not convinced the reduction in volatility is due to quants and decimalisation. Before or at least on the same plane I'd put:-

    - relatively more money on the mean-reversion side of the market than the momentum side of the market
    - extended period of lack of volatlity in the fundamental data coming out of economies world wide.

    the basic point is that lack of volatility means anti-volatility strategies are making more money than pro-volatility strategies

    ie, its not a "bad market" its just evidence of what is winning right now...

    :)
    Q1
     
    #22     Jul 18, 2005
  3. nitro

    nitro

    Well,

    Most of the stuff is relatively elemantary to anyone that has done extensive statistical research of the markets. If you don't have that kind of a background though, this book is a pretty honest and good introduction to this kind of thinking.

    nitro
     
    #23     Jul 18, 2005
  4. The lack of interday volitility has been replaced by some pretty huge intraday swings, during the past 12 months. The dow swings up and down several hundred points every month. If you're catching those waves, you're making some pretty serious bread. But, you have to hold positions overnight, and that means having 4x more capital. This, in my opinion, is how the big houses are keeping traders from poaching at the market.
     
    #24     Jul 18, 2005
  5. "I once believed in FA, but made all my money using TA."

    "I started out reading TA books, but finally figured out a real edge using SA."

    etc etc etc

    Fundamental analysis, technical analysis, statistical analysis -- do you guys see the "trend" here? The bottom line is, whatever form the majority will herd to will begin to fail eventually, that's just the way it goes. Expect the market to change, it's the only thing that doesn't change.
     
    #25     Jul 18, 2005
  6. sigh... about as productive as contemplating one's navel.
     
    #26     Jul 18, 2005
  7. Holmes

    Holmes

    I second that.


    It may be well to remember:

    Tao te Ching, tetragram 56:

    Those who know do not speak
    Those who speak do not know
    Block the passages
    Close the door
    Blunt the sharpness
    Untie the tangles
    Harmonize with the brightness
    Identify with the way of the world


    Nothing has changed in thousands of years. As long as people trade there will be fear and greed and that will make the market go up and down. Up to you to find out how to profit.

    Sherlock (coming out of hibernation)
     
    #27     Jul 18, 2005
  8. nitro

    nitro

    That is a false assumption because a perfectly reasonable state for the markets to be is in equilibrium, i.e., there is no edge to taking a trade at an equilibrium point except for the MM. If everyone had a sophisticated way of gathering maximum information and adapting to every particular instance and had terrific comissions and were well capitilized, I expect that it would result in a kind of heat death for the markets where there would be close to no edge left for everyone except possibly a new kind of breed that would make fractions of pennies profits from institutions. This would be a kind of toll to execute more than "trading". I know that people think that is not possible because there is the old presumption that as long as there are people, there is psychology, and where there is psychology there is fear and greed and a host of other market moving emotions.

    The problem is that this premise of markets being moved by greed and fear is holding less and less true everyday as more and more computers are responsible for each and every bid/ask/trade. Granted, this is not true today, but it is more true than it was "yesterday."

    The only real defense that one has is to go where there are still [human] edges to be had, but that is a different premise than the one you espouse.

    nitro
     
    #28     Jul 18, 2005
  9. I think there is value in getting familiar with the lay of the land and the potential pitfalls before embarking on a journey.
     
    #29     Jul 18, 2005
  10. newguy1

    newguy1

    so there is no concensus on whether or not automated trading/computers have made trading more difficult for the average trader?

    Does anyone see the future of the daytrading profession at risk? Some quants belive their days are numbered, unlike say a lawyer or doctor....anything could happen, but theres no reason to suggest either a career in med or law is at certain risk.

    Is the daytrading profession at risk?
     
    #30     Jul 18, 2005