the basic flaws in TA

sounds great.
Now honestly, did either lo or Jack help you crawl out of that 95% sinkhole into the magic 5% world?
Me not.

 

Hi Thunderdog,

You are one of the few who seem to be able to think clearly. What you are referring to has been described in the past as "SCIENTISM" (synonym for quackery).

This is perhaps the most prevalent sickness of the mind of our current times. People seem to find scientists these days in about every nook and cranny. Is this truly so? What is in fact a 'scientist'? A scientist is a person familiar with (a subset of) the corpus of "SCIENTIFIC KNOWLEDGE". What or when is knowledge of a scientific kind? How is "scientific knowledge gained"? Few of them 'scientists' will be able to give you a cogent answer to your question, i.e. many are in fact impostors or quacks.
(I posted enough already about this).

 

I think that one of the problems with TA, when taken in the aggregate, is the dilution effect. Personally, I think that there are a few valid TA principles, and I follow and use them.

However, the problem for a newcomer is the need to sift through the garbage. And while I recognize that one man's poison may be another man's meat, there is an awful lot of poison in TA. I think that the reason for this is because that is where the snake oil gravitates to. All of the "made easy" courses, books and seminars are usually based on some flimsy set of "proprietary indicators" which passes for TA. Given enough attention (book sales, articles, etc.), it then becomes part of the TA lexicon. The boneheads and the confidence men seem to gravitate to TA because it requires relatively little work to be accepted with open arms and surprisingly little scrutiny by an apparently sizeable segment of the buying public. All it takes is a squiggly line or two, some optimization and a bit of fine print.

The crap just keeps on accumulating, thereby obscuring that which has some value.

 

(I request a pardon in advance for the frustration-born sarcasm that follows. Ye have been warned.)

Dammit Surf… are you really this mathematically impaired, or are you just playing the patsy to keep me on your thread?

I directly answered your question in the last post. It was obvious what you were referring to when you brought up Taleb’s book in the first place. That is why I explained, or so I thought, that survivorship bias frequently applies to long-only managers and one-way hedge fund managers, and that luck can last for quarters to years in a secular bull market. But survivorship bias does NOT last for two decades. Nor did Taleb ever SUGGEST it did. He would not suggest such a ludicrous thing because, dare I say it, Taleb is probably handy with a calculator.

You mentioned the 10,000 manager starting point. In the hopes of closing this case, we will proceed with a seventh grade statistics lesson. Very elementary. Very simple to understand. I hope.

First, let’s imagine that a lucky fool manager has a 50% chance of surviving in any given year – that is to say, he has coinflip odds of sustaining a track record, not blowing up, and otherwise staying in business. (Note that this is a VERY charitable assumption for multidirectional markets. When trading futures, the odds of getting lucky sans edge for 12 long months are far below coin-flip.)

NOW. The question is, how big a starting base would it require for just ONE of these lucky fools to survive for twenty yearlong trials –- or actually just nineteen -- given that half the starting base folds each year until there is one manager standing.

This is easy to calculate. All we have to do is start with the number one – as in one lucky fool left standing – and double it as many times as it takes to get back to the original starting point. This works because the original starting base is decreased by half each year. 50% odds of attrition per year for all the lucky fools. GET IT? It is so very simple, please Lord say he gets it.

So, let’s see. In year twenty, there is only one lucky fool who got all the coinflips. That means in year nineteen, there were two lucky fools. In year eighteen, there were four. Year seventeen, there were eight. Year sixteen, there were sixteen. (Interesting.) Year fifteen, there were 32. And so on. You can take it from here.

Where do we wind up? Is a starting base of 10,000 managers sufficient to have a lucky fool – a lucky fool running hundreds of millions mind you – still in biz after two decades?

Ready for the frying pan to the face? Here it comes.

Based on the ridiculously charitable odds of 50% survival per year, to have just ONE LUCKY FOOL after all that time, you would need a starting base of not TEN THOUSAND managers, but FIVE HUNDRED AND TWENTY FOUR THOUSAND, TWO HUNDRED AND EIGHTY EIGHT.

Don’t believe me? It’s easy to check the math. Start with 524,288. Cut it in half nineteen times. You get down to one. Very simple.

But wait! There is more than just one multi-decade trend follower with big bucks under management! In fact there are more like ten -- and even that is probably a lowball estimate. Care to do the math on ten lucky fools over twenty years? I'll save you the trouble: for the coinflip bit to apply, the starting base would have to be 5 million plus.

Were there fiiiiive milllllllyun trend followers toiling away in 1985, surf, all sticking it out in their doomed randomness? Were there even 50,000 back then? 5,000? 500???????

I hereby declare your statistics license officially revoked.

p.s. I don’t know whether Taleb made nice with Niederhoffer, but I doubt it changes his professional opinion of the guy. Even blowhards can make good neighbors. If NT professes 'much respect' for VN, it's likely in the same way that Ali G has 'much respect' for the queen of england.

p.p.s. No more soup for you! I am DONE with this cockamamie thread.

Cheers.

 

I will try to summarize it.
1/Price movements is not a social science ,it is a physical fact.

2/There never was and never will be ANY certitude at all in social sciences. Comparison to a price is just not a correct one.

3/If price can be constructed as a graph, dynamics can be applied.

4/Scientists are really ill suited for trading profession, their quest for perfection prevents them from joyfully accepting frequent ass
kicking by markets.

Take a look at my "Nasdaq cycles " tread. Dynamics only are used as predictive tools .

 

With due respect to surf, I think we can safely assume the former.

 

I believe that we are destined to remain in disagreement.

1) I think that your first point is wrong. In the final analysis, price movement is a result of human behavior. I did not know that physics could be used to describe human behavior. I must have missed that class.

2) If you are implying that there is certitude in price prediction, then I need to be on the other side of your trades. I will repeat: price is a construct of human behavior, whatever the motivation. It may well have an economic basis, but it not be limited to one at any given time.

3) I don't even know what your third point means. Let us hope that one of us does.

4) I am not a scientist. I trade in the markets. I do not "joyfully" accept frequent ass kickings, and don't know of anyone who does except, perhaps, for those leather-clad S&M types.

As an aside, I wonder how many engineers who tried to apply the principles of signal processing to the markets have actually succeeded. Not very many, I suspect.

 

1/For some reason you think that price movement is the same thing as human behavior. Arrow trajectory is also result of a human behavior, so is many other physical movements. Movement of a price is a physical movement, not emotional one. One day you will get it. Hope it will be today.

2/Nobody can predict exact price ahead of time. What can be predicted is the time when profitable trade should be entered.

3/That is the problem. You are making categorical statements about things that are not clear to you.

 

Oh, come on. Comparing arrow trajectory with price movement is a very poor analogy. Once an arrow is released from its bow, the laws of physics take over, none of which I am familiar with. The human element only participates at the outset when the archer decides on the tension, angle and direction, be it with or against the wind. Beyond that, it is out of his hands. However, for prices to move, they require continuous human intervention (buying and selling), from beginning to end. I think that your elegant laws of physics get crowded out in the turmoil.

 

Thank you for your post. It's nice to know that someone here agrees with me.