Using history is bunk

Discussion in 'Trading' started by garfangle, Sep 5, 2009.

  1. I believe that over reliance on historical patterns and market moves is bunk and should not be considered an important indicator of future trends. Market commentary and analysis, esp. in the financial press and TV, unfortunately gravitates to this thinking because they need some reference to anchor their opinions and using historical markers makes you seem like a serious person whereas those who say "I don't know what the future will behold" are dismissed or marginalized.

    Many bulls point to the early 1980s or the 1990s and therefore believe the market has further upside. Conversely, many bears point to 1930 or post-bubble Japan as indicators of the trouble we will face and therefore you should either stay on the sidelines or short an already frothy market.

    However, both sides are wrong. History doesn't repeat itself and therefore it cannot be used as guide to what may happen in the future. Although you might think that some can predict the future and know what will happen, this is merely an artifact of survivorship bias. The ones who got it "right" are the ones you remember and the ones who got it wrong fad away. These supposed seers attract a lot of press and attention until their predictions turn out wrong. Then we move onto a new set of "experts". Rinse and repeat.

    Moreover, the markets have changed considerably from past reference points. Trading is driven by technology and the number of participants is only increasing, reducing any edge traders once had. Concepts like mean reversion and other arbitrage strategies like pairs trading are nice in theory and as academic papers, but are flawed as actionable investments. What once might have worked using backtesting doesn't mean it will perform as expected in real time.
  2. Sooo, what are we doing here?

    1. Posting our thoughts

    2. Looking for affirmation

    3. Waiting for engaging counterpoint argument
  3. the number of participants is only increasing,


    Does the size of the herd matter?
  4. History does not repeat itself? Are you in high school. The reason why this market is at these levels is precisely because of history.
  5. Trading is not about knowing what the future will be. It is about the probabilty that X will happen over Y. That in itself shows how little you know about trading.

    Wrong again. There are recurrent patterns in the markets. Just because you couldn't find one doesn't mean that they are not there.

    Good luck.
  6. You mean next time it rains I should not expect to see any people carrying umbrellas. Interesting. I did not know there are people who deny counterfactuality.
  7. if it does repeat it repeats randomly with the illusion of otherwise. Otherwise the market couldn't function as repeatable patterns are exploitable untill the market is cornered. Therefore the repetative patterns are random and not exploitable by default. This very illusion keeps the market active. You people are quite naive
  8. Alexis


    In science (Chartism is not a science), stats and maths, history repeats itself 100% of the time.
  9. No, I think the issue is "not exploitable" vs. "exploited fast".

    There is no illusion. When a pattern forms, the player(s) who exploits fast enough is the winner.

    The problem is not randomness. The real problem is the zero (negative)- sum game. The faster player(s) makes the money from the slower players. This is why the hype about HFT and flash orders.
  10. don't know whether you're confused and frustrated by the 'it's going up / going down'
    debate or you're priming us before revealing The method and answer

    garfangle: "over reliance on historical patterns" - the Elliott Wave Principle relies
    of course on 'historical patterns', whether they be durations of seconds, decades,
    centuries, so right there we have an emphasis on Time

    another matter is Spiral rather than up/down, so it's appropriate when 'Gann's angle'
    of 45° is . . .

    we can now understand the growth and distribution of leaves on the stem of plants
    and appreciate Chauncey Gardner's wisdom ~
    ". . . growth has it seasons. First comes spring and summer, but then we have fall
    and winter. And then we get spring and summer again."

    edge ? what's that ? . . . . . all we need do is plant and weed
    #10     Sep 6, 2009