khaneman and his partner teversky produced some extraordinary results. they didn't exactly say people can't trade, what they found was that people really suck at dealing with probabilites and as a direct consequence really really suck at "rationally" weighing out expectations. they absolutely deserved to win a nobel. googling "kahneman teversky" produces lots of good hits. http://www.sjsu.edu/faculty/watkins/prospect.htm
this is an excellent introduction to the field: "Inevitable Illusions: How Mistakes of Reason Rule Our Minds" http://www.amazon.com/exec/obidos/t..._books_3/104-7741576-5521563?v=glance&s=books it always comes back to the famous quote of Pinker's: "we are built for survival, not truth".
THINK OF WHAT AN EDGE REALLY IS. an edge is defining when most people will over-react (due to emotions) in one direction. the more timeframes people are over-reacting on at the same time, the better for you. if you find an edge, then what you've really done is defined a point which on your timeframe, for whatever reasons, a lot of people (even ones that trade different timeframes than you) have all over-reacted (because of human emotions) the same way too far in one direction. maybe your analysis is not so good that you can predict for sure that you are right, but it may be good enough that if you correctly act appropriately at that point over many times, you can make money over time. THAT'S WHAT AN EDGE IS. in my head i know exactly what i'm talking about, it's just hard to put into words.
http://www.nobel.se/economics/laureates/2002/kahneman-lecture.html this is the best stuff I found for a intro... PT doesn't exactly say human beings can't trade, but I am only suggesting there MIGHT be a relationship between the 95% of people who loses money in trading and their heuristic biases. It's probably very hard to establish a direct casual relationship between the two in a strict scientific manner, but I think the statistics speak for itself... as someone above said, I am not the first one to draw this conclusion, william echarck has made a similar statement in market wizard too..so if anybody thinks this is nonsense, they might want to read that interview again or go write a thesis to dirsprove it I am more than happy to change my mind.. Another interesting point is that the axiom behind trend-following, cut your losses and letting your profit run is exactly the oppostie of what PT implies, take risk when you are losing and pocket your profits when you see it..
Very good point, GG. It appears an edge simply equals to a better/ earlier timing for taking actions by winners (than the timing by losers (many others/ the crowd) who would have to willingly or unwillingly follow the winners' actions, before it's too late )
I watched the presentation on the Nobel site, here are some of what I felt were key points made: 1) Perception --> Intuition --> Reason The authors of this theory use a hierarchical model to describe human experience as it pertains to the decision-making process. Perception is the process we share with the animal kingdom, wherein we feel, see, smell, etc. The important aspect to remember here is that our perception is relativistic. For example, if you aligned three bowls of water in a row: cold, tepid, hot and placed your left and right hands in the cold and hot bowls for a time and then moved them both into the tepid bowl the nerve endings in each hand would stimulate a different perception of the temperature of the tepid water. Intuition was loosely defined as those thoughts, or decisions, which occur very quickly and without the aid of reason. 'Intuition as constrained to and reflecting perception.' It should be noted that the presenter also stated that intuition is used very often and can be used in a very complex manner. It occurs when the labor of reasoning is no longer necessary, like when a tape reader simply 'sees,' or senses a change in the market. 2) Decision-making is often left to the intuition. The speaker described the historical model of the decision-making process and its originator briefly. In summary, the previous model described human decision-making as a process whereby value-judgements were made concerning the options at hand and decsisions were made based on the weighing of these perceived values. The criticism of this theory was that it failed to describe certain phenomena. An example: a)Is this gamble attractive? - 50% chance of winning $15,000 and 50% chance of losing $10,000 ? b)Estimate your total net worth and call this 'W' You own 'W.' Which is more attractive? - 50% chance of owning W - $10,000 50% chance of owning W + $15,000 ? Informal results: (a) Unattractive. It is generally found that unless a gamble has a two to one payout 50% odds are not acceptable. (b) Slightly more attractive. The presenter notes that the only difference is in the consideration of wealth, and that the preference for (b) is a failure of the 'pure reason' notion of decision-making. An example: Given the question, "how much would you pay?," three groups were presented [A] 4 dishes, 4 cups, 4 knives & 4 dishes, 4 cups, 4 knives, 4 bowls (1 broken), 4 forks (2 bent). Group 1 was shown both [A] & and valued more, as expected Group 2 was shown only [A] and valued the set at $33 Group 3 was shown only and valued the set at $23 By showing Groups 2 & 3 only [A] or their ability to reason that the two were equivalent, save some extra pieces in , is removed. As a result, the groups were negatively biased against because of the broken pieces. So, the value of things is transient - based not soley on preference and reason, but phrasing (or presentation). 3) Pleasure and Pain. Here's the set up: a) Person discovers their net value went from $4 mil to $3 mil b) Person discovers their net value went from $1 mil to $1.1 mil The point of contention: Who is happier? Prior theory would indicate that person (a) should be happier because of greater total wealth. It is obsevered however, that person (a) is relatively discontent. My personal take on this would be that we become accustomed to our states of wealth as we become accustomed to being in hot/cold water. We adapt perceptually, and this adaptation also occurs in the abstract. Also, it would seem direction is a good rule of happiness - am I making progress?, or am I losing money? But I have digressed. 4) Averages and Sums. See the dishes, cups, knives example. This is the presenter's discussion of why such things are valued differently.
If you had $25 billion and I had $1000 and all else was equal - would one of us have a trading advantage? What if I was paying $0.005 per share to trade and you were paying $5 per share? What if you got prices as they occurred and I received them at a 4 hour delay, or a 4 week delay? What if I had access to all the world's economic data, and you only knew the price of Microsoft? If these seem obvious that is alright, I merely want to set a starting point.
GG... you r too funny!!!!! U constantly proclaim how you keep busting out and need to sell your car etc. etc. and then you got all these seemmingly insightful opinions... from where I sure as heck don't know. No offense, but first start making some money consistently.... and then maybe anything you say will have some credibility! Believe me..... talk is cheap! For you, me and anyone else on ET. But results do not lie! This is not fantasy trading. So you want to show you know what you are "talking" about... start producing "some" profits >>>>and for more than a couple weeks or so... in a large bear market rally! and while you're at it..... stop busting out! THEN, maybe, you qualify to 'preach' about trading! Of course, you do, once in a while, contribute some 'interesting' stuff to ET which I'm sure some enjoy viewing, so please don't get too offended by my comments. However, why not try..... DOING..... then............... talking!?? Cause until then.............. given your past whining and self-absorption threads.... your current posting of ersatz knowledge is indeed too humorous, bro! Consider this some "fatherly" advice! Tough luv etc. :eek: G'luck.. have a great weekend ! Ice