Indeed. There are so many participants and so many "coins", that it's incredibly difficult to ascertain whether a given participant is skillful or lucky, even in the presence of consistent outperformance. A decent approach that has been used to evaluate fund managers (with depressingly poor results) is the comparison of investment/trading decisions with the result of random choices made under similar constraints. For those that are interested: Discovering the quality of portfolio decisions: http://www.portfolioprobe.com/2012/11/26/discovering-the-quality-of-portfolio-decisions/ Not Fooled by Randomness: Using Random Portfolios to Analyze Investment Funds http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2143293
Thanks Maestro... on caveat... I do not think I or anyone in our office got anywhere near a buck a share. now in general I have tought about this... I think one of the main points being missed and why I feel so strongly about this subject is that my scenario the trader were flat everyday. If you are flat everyday and making money day after day... you are fricken good. But this may be what tilts the tables... (the traders in my office were not averaging down. The ones who did were let go. )
I can not understand why my first drafts are so poor... this is the corrected version. --- Thanks Maestro... on(e) caveat... I do not think (myself) or anyone in our office got anywhere near a buck a share. I thought about this... the formulas are not looking at the following... we were flat everyday and we did not average down.
It is true I do glance at who I'm opposite when the day to nite margin goes into effect. I know I am always pushed by the herd, so genrally my extraction is made possible by the CW followers; that has always been a given. Big money doesn't make money; they just ride through the opportunities. So what you believe to be important is as you say just an opinion. Survivors push me; and like all others non survivors keep getting replaced.
You're conflating topics. There is a difference between "luck" and randomness. If this Taleb guy is claiming that trading is randomness, then he is wrong and or conflating topics as well. Randomness means there is no rhyme or reason to the outcome, luck is alltogether different. Suppose you are a Casino, one of the most successful businesses out there. There is absolutely no randomness in their outcomes. They have games/odds which are only slightly above 50/50. Some are 51% to the Casino and 49% to the player or less. Yet they still come out ahead, ALWAYS, on these games. It just requires enough runs. In 1 game it's almost a coin flip whether the casino will win, in a million runs it is almost 99% probability that the casino will win. Luck can be defined in different ways. Suppose that you have a probability of 55/45 on a trade, and you win on one run --this can be called luck. Despite the fact that you're favored to win, on one run it is basically a coin flip. The fact that you won on this run can be atrributed to luck. On the other hand if you have a million runs at 55/45, and your probability of coming on top is close to 100%, luck plays little to no role. In fact it would have to be terribly back luck for you to somehow lose with a .01 chance of losing. Randomness only plays a role when the odds are 50/50 --a million runs at 50/50 is still 50/50 for you to win. Randomness plays a role here. You'll have some players that somehow come on top after a million runs at 50/50, and you'll have some that lose --this is completely random, and its distribution is a bell curve.
an important question is "what is the chance that a given trader has performed this well due to skill?" to answer that you will want to ask "what is the chance a random coin tossing chimpanzee could have achieved those results?" but before you can even begin evaluating individuals you need to ask, "is there skill involved in trading as a whole?" to answer that you ask, "how predictable is any trader's future performance given his past performance?" so you measure what is called "serial autocorrelation," or the tendency for each trader to do similarly from one time period to the next. if a population of random coin tossing chimpanzees demonstrates the same distribution of serial autocorrelation as the population of real traders, then Taleb wins.