Is Trading a Perfect or Imperfect Information Game?

Discussion in 'Trading' started by Pinozi, Mar 20, 2011.

  1. Pinozi


    Perfect information describes the situation when a player has available the same information to determine all of the possible games (all combinations of legal moves) as would be available at the end of the game.

    In Game theory a game is described as a game of perfect information if perfect information is available for all moves. Chess is an example of a game with perfect information as each player can see all of the pieces on the board at all times. Other examples of perfect games include tic tac toe, irensei, and go. Games with perfect information represent a small subset of games. Card games where each player's cards are hidden from other players are examples of games of imperfect information.

    In microeconomics, a state of perfect information is assumed in some models of perfect competition. That is, assuming that all agents are rational and have perfect information, they will choose the best products, and the market will reward those who make the best products with higher sales. Perfect information would practically mean that all consumers know all things, about all products, at all times, and therefore always make the best decision regarding purchase. In competitive markets, unlike game-theoretic models, perfect competition does not require that agents have complete knowledge about the actions of others; all relevant information is reflected in prices.

    The concept of perfect information has often been criticized by the various schools of heterodox economics.

    Trading is a game we all play in various forms. So do you think trading is a perfect or imperfect information game?
  2. Perfect, assuming you know which information to read, and how to read it.
  3. Well, if you have any deviation from perfect information you get uncertainty.

    That being said, events introduce uncertainty all the time - not just in terms of real events, but events in the Market itself... funds liquidate positions, their are regime changes, routs, some people pile on winning positions etc...

    Those Market behaviors also create imperfect information by their own movements.

    I think you could argue that without imperfect information, trends would not exist.

    Because a trend is one aspect thats represents the inability to measure duration, without only a slight skew towards the direction of something. And really, in the case of a trend as a risk based process, you are more concerned about the trending process than the direction.
  4. This is philosophy. There is no such thing as "perfect". Just forget about it and concentrate on developing a system with a good bias for profit.
  5. Cheese


    This thread points at a main self barrier exhibited at ET all the time.

    You do not need perfect information. You only need prices on charts. You then have a huge choice as to how you want to present that information to yourself (fast or slow charts - using time, volume or range bar charts). You use indicators. You marshal and so order the price flow so that this information, live, gives you your buy and sell triggers.

    Natural losers and those that cannot step up to big money making in markets are weighed down by their biases of background and attitude. Blue collar notions of fighting alleged corruption, ever lurking conspiracies and unfair advantages of the rich and powerful are just neck deep in fantasies that can only produce failure or insufficient progress. Stand back. Get real. Other than yourself, no one gives a sh*t how much money you make for yourself.

    Short answer: go get it. Make your money!
  6. taojaxx


    May i reply with a question:
    Do you have the same information as Goldman Sachs?
    Answering this should answer your question.
  7. Obviously imperfect.
    In a world of perfect information, there would be either no trends (prices sit until something changes, then move suddenly to a new level, and then sit there) or nothing but trends (the perfect upward slope of a savings account). The stock market acts as it does because of the uncertainty of the real world.
  8. It depends on whether you believe in the technical analysis & charting mumbo-jumbo.
  9. GS is not acting like the typical trader here. They are market makers amongst other things. They differ from you and me because they have scores of highly trained people to process information fast and efficiently. You and I don't have that. They have the same information most of the time, just a better way og analyzing it.
  10. Pinozi


    Let me just say that the reason I posted this question here on ET is that I think people's replies will give us some insight on that posters trading experiences

    Here's mine

    From my experience in trading the stock and options market in Australia, I think equities are an imperfect information game - the large players (market makers, instos, funds) have inside info they keep from the market to take money from the smaller or weaker players.

    I've found in the largest markets like FX i think thats a perfect information game - I've got mates who work for the biggest FX desks and I sometimes get a call when they are pushing a truckload of volume into the AUD and they can only move/game the markets so much, the market is just too big. So from what I've seen all info in that market is available to all participants

    Another factor about information is the speed - with all the talk about HFT and low latency even if you do get all the information if you arent able to get to the money first then what good is that information.

    Either way, perfect or imperfect I believe there is probably way too much information out there and its peoples inability to filter out what isnt necessary that stops people from making a buck trading
    #10     Mar 20, 2011