You're confused. First, I'm not the one who brought up formulas, I just pointed out that mathematical formulas don't have to be exact in order to be useful. Second, I couldn't care less about price or market modelling. Complete rubbish IMO. My approach to trading is scientific precisely because I have no assumptions about market behavior, I simply pay very close attention to what is happening and respond accordingly. But the above refers to signal generation. When it comes to position sizing, the smart money is on a reliable and theoretically sound formula, albeit not necessarily exact but close enough.
Correct. Trading resembles counting cards in black jack. Card counters know when the remaining deck is in the player's favor*... that's when bigger bets should be made. Traders can also know when their play is favored. *The house often negates the player's advantage by dealing from an 8-deck shoe or shuffling the deck after each hand.
Nice Blog. Interesting content and nice graphics. I believe trading is part-science, part-art form. But the "scientific" portion is the whole reason I got into trading in the first place. One definition of science is identifying general truths or general laws that govern a system or the govern the universe. In this case, system=markets. I've never believed in pure TA because to me it misses the "scientific" portion of trading--it's not rooted in what causes prices to move. So I decided to study the Wyckoff methodology, and Wyckoff prescribes the following laws to understand price movement. 1--law of supply and demand 2--law of effort and results 3--law of cause and effect Law 3 basically equals a trading range. You need a range so that accumulation or distribution can take place (ie smart money buying or selling shares incrementally over time). Law 2 essentially refers to volume. Law 1 requires understanding support/resistance/trendlines. Takes a long time to truly understand these things in the market, and then develop a trading method from that knowledge, but to me this is a scientific approach to trading.
You call it "scientific"? Please... Science makes assumptions all the time. Every major physical theory is based on assumptions. They are often called postulates. So is mathematics, its assumptions are called axioms. There is more to science than you seem to realize. I may revisit this next time I am here, because it's something for a bigger post.
I agree. People who use words like "science" or "scientific" are often ego-trippers or gimmick artists. Deepak Chopra and his fellow New Age gurus never tire of using quantum mechanics to sell their dubious wares. I get this spirituality thing, but not when QM is involved.
Once again, you're confused. I didn't say I made no assumptions at all, I said I made no assumptions ABOUT MARKET BEHAVIOR. I don't know if your problem is reading comprehension, cognitive ability or a combination thereof but you should seek help for that.
So if I understand you correctly, Murray, youâre looking at applying the scientific method to trading and then claiming that if you can successfully do that then trading is a science. Iâm still not sure I follow 100% but Iâll keep watching the blog. As you know, I love your software but Iâm still not sure how the backtesting I do is really âscientificâ per se.
I like the card counting analogy earlier. I think it applies to what I was saying before. If done well card counting can be shown to give the player a slight edge. Thatâs not to say that they wonât lose money on any given night (just like a casino will lose money to some players) but that in general they will make money in the long run. In essence with trading itâs the same. Weâre designing systems that let us see when trades are statistically in our favor. We still might lose a lot of trades but in the long run weâll come out ahead. So in that respect is it not a science? We can study it, observe it, calculate it, and test hypotheses so why not a science?