So it is extraordinary than in Financial "industry" such rigor is just not only ignored but elevated to the rank of veneration for "modern portfolio" theory like Markovitz, CAPM, B&S etc. which assume normal law. Even even after LTCM sunk the attitude of the quants continue to be ... quasi-mystic because that's what mysticism means : to believe in something that doesn't exist in other industries although the conditions in financial "industry" are even more questionable than in traditional one. So these "rational" traditional quants who criticise the mysticism of chartists should also look themselves in a mirror .
You read Deming ? great Yeap if one applies it to trading lack of precision can cost in term of slippage and stop loss.
Q It is only by knowledge of the subject matter, possibly aided by further experiments to cover a wider range of conditions, that one may decide, with a risk of being wrong, whether the environmental conditions of the future will be near enough the same as those of today to permit use of results in hand. (Incidentally, the risk of being wrong in a prediction can NOT be stated in terms of probability, contrary to some textbook and teaching. Empirical evidence is never complete. --- Mind and the World-Order, C I Lewis, p. 283) --- Out of the Crisis (W E Deming) p. 351 UQ
Even in Theorical Physics see http://www.elitetrader.com/vb/showthread.php?threadid=28193 Is the speed of light really constant ? Possible Resurgence of a modern "Ether" "Funny the first time I see about speed of lights mesure errors was in Walter SHEWART's book "Statistical Method from the Viewpoint of Quality Control" where he shows that even mesures supposed to be very precise are sometimes doubtful and he questioned if the mesure of light was indeed from a Normal Law ." Then a notorius Nobel Prize Maurice Allais - who was in fact a theorical Physician but also an Economist and funny he receives his Nobel Prize for Economy - questioned also about the mesures of light http://allais.maurice.free.fr/English/Science.htm Maurice Allais, initially, carried out his own experiments which led him to observe the existence of phenomena incompatible with the commonly accepted theories. He drew from them his own conclusions according to which the velocity of the light does not have a constant value but varies (slightly) according to the direction. What led him to show the existence of " ether " and of the anisotropy of space. In a second time and to consolidate his own results, Maurice Allais was brought to reexamine the detail of the results of the experiments which had been carried out in the past on the same subject in the U.S.A. by Michelson and Morley in 1887, by Morley and Miller in 1902, 1904 and 1905, and by Miller in 1925, 1926 and 1930. He then could observe that these results contain the same anomalies which were not noticed at the time by the experimenters or were neglected. Maurice Allais affirms today with force that these anomalies are real and indisputable and that they call into question the general theory of relativity of Einstein. And now SuperString Theory also questioned about the constant of light http://superstringtheory.com/cosmo/cosmo5.html "a cosmological event horizon is a major technical problem in high energy physics, because of the definition of relativistic quantum theory in terms of the collection of scattering amplitudes called the S Matrix. One of the fundamental assumptions of quantum relativistic theories of particles and strings is that when incoming and outgoing states are infinitely separated in time, they behave as free noninteracting states. But the presence of an event horizon implies a finite Hawking temperature and the conditions for defining the S Matrix cannot be fulfilled. This lack of an S Matrix is a formal mathematical problem not only in string theory but also in particle theories. One recent attempt to address this problem invokes quantum geometry and a varying speed of light. "
It is continually exciting to me to see the emphasis on this stuff by the financial industry. I once characterized it as "biggering" as in Dr Seuss's "The Lorax". It is so fine to see this influence acting as such a stabilizing influence of those dealing with the macro markets. What it all means to me as an exengineer (WECO, BTL, IBM) and physicist (theoretical stuff as PhD candidate, Bergman primarily) is that application of science to financial markets is an advantage only up to a certain point and not an inch or cm further. The alternative to macro and quant is so persuasive. Why not take advantage of the situation that is being driven by such approaches. If all the effort they make tends to stabilize (prevent change by massive common actions as a result of similar views), why not just examine where the efficiencies are greatest for extracting capital from the potential the market offers. This has to be coupled with optimizing personal operating efficiencies. Watching Harry deal with what he does instead of this making money efficiency theme is quite intreaguing. The specific contrast of viewing the totality of things in the financial world in contrast to specific targets of opportunity for appreciating a person's capital as rapidly as possible, is outstanding. The opportunity to make money is specifically defined by a given market's ability to deliver and the person's ability to extract what is available. You need to know the selected set of markets operating points and the way they migrate. Honing personal practice to acheive a match with the markets fundamentally depends upon comprehensiveness of the universe of sensory/emotion pair sets. What is the maths bottom line for all of this. It is not prediction nor is it distribution of selected phenomena. The fact that the major forces of the market operate to manage from this viewpoint, is what improves, for outsiders who are not trapped in this mileux, the efficiency of the market to deliver to them. It is fun to undertand how thye major forces operate and to continue to observe how limitedtheir success is compared to the potential acheived by the "extractors" who in Trend Fader's terms is thought to be "ridiculous" as a potential. Thank God the major forces provide such an excellent "smoothing" function for optimising capital extraction on a micro personal level.