That the human race is driven by emotion has been demonstrated too often over time not to be an analytical fact And so you have a certain group of people who will feel ( not that I used the word "feel") that they are too logical to think emotionally. And then you have a group of people who believe that they are discretionary traders because within themselves they feel ( there is that word again) that creativity is higher on their scale than logic. And so you have a group of people who can thoroughly enjoy opera on Sunday night at yet be at their workstation designing a bridge on Monday moning. And so there is a group of people for all occassions. We humans just love to catergorise other humans. It makes us FEEL good. Yehudi Menuhin was one of the most logical people you could ever hope to meet. Are you going to tell me that he produced the most spellbinding violin without passion, simply devoid of emotion and feeling. Those who believe that they are truely Discretionary Traders will tell you ... Yes they have a set of parameters and rules. Yes they acknowledge that the markets are living breathing creatures. Yes, the markets respond to their parameters and rules. Sometimes they respond this way and sometimes they respond that way. It just all depends on a set of parameters that Discretionary Traders look for before applying their rules. Notice that I said applying, I did not say "imposing their rules" If you want to call yourself logical or if you prefer to tick the box marked emotionally creative...then so be it. I have never had the privilege of hearing a one armed world class pianist. They may exist, it is just that I have never heard one play.
Mike, Great reply! You are making my exact point. As a student of language, connotation vs denotation, stated inference versus stated meaning the phrase "emotional mathematics" is not as oxymoronic as your quick glance may suggest. The historical discovery of scientific theory that then graduated into fact is all based in emotions. The fact that one seeks higher knowledge, study's for the refinement of his/her common thought is a result of either confidence, over-confidence or the lack thereof of either...these are emotions at their best. Students study, musicians practice, researchers research, traders trade and so on because they "believe" they can do something that someone else has done, which is confidence, or that no one else has done, over-confidence. Although all this may sound a bit grey intellectually it actually points to a much deeper point about the capital markets. At some point we entered an infinite regression because our computers are now computing other computers, codes now are written to recognize other codes and consequently that support you noticed on your chart is more a function of others noticing the same rather than "actual" support. Yes, market statistics are flawed. Why? because we define them as less emotional than they are. In all actuality, stats are the children of emotions. -Ross
What can I say Ross, I think you've nailed it. The other thing statistics is good at picking up is undercurrents and imperfections created by artifacts in the market I think.
do not statistics "quantify" emotion? not the reflection or children of, but rather the quantification of a nebulous subject. great thread! looking forward to following its development. surfer
I don't agree with you. You are looking at systematic trading, statistics and all the "mathematical" models just in terms of "patterns", not as an edge within the market. Even from a discretionary trader's side, I am very sure that other experienced prop. equities traders can confirm that discretionary traders trade the market dynamics and the tools we continue to use is not from composite of emotions. Added: I ended up reading back at your past posts to see where you are coming from. One question I'd like to ask you, due to your prop. trader background: Why do you open multiple charts and keep track of multiple quotes during trading?
Gann, The models are not emotionally driven because the emotions are doing the driving, we, the traders are in the back seat being driven. Look at it this way...how many stock charts have you looked at for IPO's in 2007? None, why? because stats are results not causes. Now there is alot of emotion right now in the corporations preparing to go public...Founders create product, market product or service, create strategic partnerships to fund marketing of product, market product, sale product, reach critical mass in private sector, seek underwriting, attain underwriting, go public, all owners become wealthy first day of IPO... The above truncated scenario is full of emotions...now here comes the trader, the last one in line seeking to acquire a small mountain of money from looking at the result of a string of emotions that the founders have had for years. It's a great job and I love it but don't continue to fool yourself...EVERYTHING is emotionally driven, show me historical technical analysis on stocks that don't yet trade and then you'll be on to something. -Ross
I think "intuition" is a better word to be used here. "Emotions" are very unreliable. I'm happy, so I should go long? Greed drives em up, Fear brings em down. A declining market, may indicate a fearful market, but the only conclusion guarenteed to be correct is the market is declining.
Ross, Pure mathematics is not derived from confidence. There is no emotion in the laws of math - mathematics captures indefinitely physical principles/inter-relationships from the world around us. Physics does this to some extent as well. What these true hard sciences tell us are not subject to randomness or a gausian distribution, 1+1 does not equal 2.01 1% of the time just like if you drop a ball from 10 feet above the earth it doesn't have a .01% chance of missing the earth. Statistics is a branch of mathematics that lives in a grey area as a soft science. IMO statistics is math's retarded offspring - the theorems are dirty and suspect to personal interpretation. The reason people use statistics to "explain" the market (or any non-linear, organic mechanism) is because no better method exists. Why pursue statistics? Well, here is where I see your point - the hope for possibly explaining the currently unexplainable is an emotion - and, without that specific emotion you would never have the hard sciences we have today. Mike
Gann, I fully understand your resistance to the concept...we traders like to think we aren't susceptible to emotions...sorry but we are. The correlated or non-coorelated instruments you are observing is a result of everything I've already detailed in this thread. Again, humans, based on emotions, create institutions, computers, banks, and yes even the money that is in your acct. No one commits violence on another because they were intellectually offended..no trader opens an acct because of the objective way they feel when the make money...no chart populates itself on your screen without first recalling the financial "evidence" of actual people buying and selling at certain levels. The quicker you understand the role of emotions without becoming overly emotional about this fact the better you'll be my friend.