I mostly agree with your post, but I would like to differ between HFT and other forms of trading. Market making and arbitrage works very well with binary logic, as long as one is fast enough. I definitely think that the human mind is superior to automated systems in several areas. I'm especially thinking of analysis at the macro level. I find it best to let machines do the information gathering and filtering, but still use discretion to make the final decision. This is where the use of AI's is really interesting. If Kurzweil is right about the Singularity, I guess that I can upload my mind to a machine in a couple of decades. That would be something...
Going against traditional trading wisdom, I have always been very interested in prediction. Predictive analytics is a very interesting field. As one can gather from my avatar, I'm quite intrigued by Chaos Theory. I've been fascinated by the work of Packard (among others), and I think these are interesting reads:
That was wry humor about the INTJ smart - ass bit, it's a fine line isn't it. Between humility, false modesty, haughtiness and "rightfulness". How well does Rand's outspoken stand on this sit with you? I most certainly sit concur with her stand on this....and have been told many times that I cross that line between simply being truthful to being an "ass"....people have thin skin and once you confront their intellect, the issue is lost immediately as the discussion veers towards whose dick is bigger.....but go ahead, it's fun being an ass than being PC...(no doubt the presence of that on this forum is very evident to you too).......
Not well versed to say anything about singularity, but that predictive bit is very appealing to me, especially if one believes the notion that crowd behaviour follows certain fight or flight reactions in nearly all cases, it would be not extraordinary to think that at some point someone will be able to figure out a way to automate a trading system based on that fairly easy to understand premise (but hard to quantify)........which is why EW appeals to me so much. 150years of the industrial evolution, with digital breakthoughs making even faster changes possible and yet the mind behaves in predictable ways (some would argue that with more science allowing us to delegate some of decisions to machines is a very bad thing for humanity - a point I tend to view as valuable. One only need visit a local Starbucks to see how validated we feel about making pointless decisions)
Theoretically if we can separate the individual to act on his own (isolated from crowd participation altogether), human kind would really progress (with only logical influences and little of no mob mentality)...... Behaviors, responses would all change on their own with more intellectual influences......kind of like the Matrix or the Surrogates (but what a dry world would that be)......no wonder Geeks and nerdy types are such socail misfits....living in their own minds...detached from reality....
So suffice to say, that despite our growing brains.....we continue to behave like cockroaches in groups and societies....(the cockroaches did survive pretty much everything though....)
Last edited by Deucalion; March 27th, 2012 at 08:25 PM.
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Flocking behavior / Physics in Crowd Behaviour - it's an thoughtful look at group behviour, but that's group behaviour nevertheless (albeit a smart well informed mob...but a mob nevertheless.....even though the traders are trading separate instruments and the article suggests they are operating as distinct entities....that is very much group think (sophisticated...subtle and even unconscious in nature but very much influenced by the same guidelines.....)
Go to a party...people talk about generic BS...innocent items....about the weekend, about pets, weather....then talk about something polarzing and watch how the crowd stops talking immediately..subtly but immediately.......
I was in a group a couple of nights ago here in Brisbane....3 Americans, 4 Australians, 1 Dutch, 2 Kiwis (1 Maori and 1 Caucasian) and 1 Canadian....(all was going well ...politics...dogs....scenery..the local food joint...even politics...until the rude Canadian decided to say that Ron Paul is awesome because he is going to decriminalize pot (for effect said with dead pan seriousness..) other than the Dutch guy.. all others become immediately guarded...especially the Americans.....it was funny as shit....... group think had taken over...no one wanted to offend anyone...and went back to polite things to talk about.....
This behavior is a powerful tool in my trading....we all read the same stuff, watch the same issues on telly....If you did a poll on BMT of how many thought, for example, if Iran was a rogue country...a predictable answer would be a high percentage....I would argue that is perfect example of mob reaction....watch how offended people get now and post a gazliion links from media to prove how wrong I am
I was told that ES and CL make moves at certain RTH times....957AM for example. And sure enough, more times than not, it did..and some people base their trades on it. And I thought, I don't give a shit if that is true or not unless I know why that is the case (maybe its flocking behviour)...but I cannot trade that unless I know the logic behind it....
The 2nd article using Physics to analyse crowd behavior is pretty reductionist though....each function (human) in that crowd may or may not be mutually independent....it would neither be a truly multi-variate distribution nor a uniform distribution but somewhere in-between...
Last edited by Deucalion; March 27th, 2012 at 11:27 PM.
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Between the Wired article and the Bass' piece - a feeling of deja vu as Doyne talks about essentially heuristic and Bayesian behavior (in my opinion). More of the latter, as those Bayesian methods are much more all encompassing to study models that cannot accurately be quantifed and studied.
I am a great fan of this approach, not only as Elliot wave thinking essentially lines up with this, but also because Dr Brett has done several pieces of work on Bayesian probablity in trading and its application to markets that are seemingly chaotic and not quite random.
To me (and quoting that fantastic one liner from David Weinberger at the Prediction Company) - "This is a religious issue, either you believe there is structure in the markets or you don’t."
Such elegance, no need to be LTCM, just study one repeating pattern in seeming chaos...and see if you can predict it happening the next time... by the signature that precedes it and follows it"
One tiny sequence, is all they need. Their edge isn't great.....5% over the market but that's' enough.....and the fact that it was born out of the way the human brain can pick out patterns unconsciously. Experienced discretionary traders have a much greater edge over the market than that metric. Without a doubt though, their algo (now UBS' algo) would have sharpened since then.
And that's the beauty of it, they acknowledge the human brain can unconsciously and powerfully keep evolving to discern these patterns as markets change and shift...the computer, once it learns that behavior can do it faster and better than the brain.....but only because there is a human to model it on.....(so far)
Both ways work, I cannot fathom why people argue that the human mind is the machine that other machines are trying to emulate......and the brain is moving target, it can adapt faster than a machine....the machine maybe faster and powerful.....once it gets there......
The stuff on the casino experiment and the evolution of that sub group of eudaemons (tom bass) is fairly basic and a lot less interesting than Farmer and his work...
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First of all: Motherfucker! I wrote a long reply, but then Chrome crashed. Hopefully my extreme amount of anger won't pollute this second attempt.
Second, I apologize for the lateness of my reply. I have too much going on these days, and, also partly because of my ADD, I haven't managed to answer you until now.
Please don't perceive it as a reflection of my thoughts about your thoughts about my thoughts.
I'm also an arrogant asshole, there is no denying that. However, I've become a little better (or perhaps worse from your point of view ) during the past few years. I must be getting old... There is nothing more fun than polemics, though, and I can't imagine letting too many opportunities slip away.
To be perfectly honest, I've never liked Rand. I've always referred to her as the philosopher for the non-philosopher. I started reading Nietzsche in high school, and I didn't come across Rand until years later. I could only see a bastardization of his ideas, yet she claims to be his superior. But, I digress...
I watched the documentary "Transcendent Man" a little while back, and I was quite fascinated. I like stuff like that. Jason Silva is also coming out with a documentary soon, and I'm a fan of his philosopical ramblings.
By the way, I share your thoughts on humanity. We are cockroaches, and the world pays for it everyday.
Brisbane? Are you living down under? I lived in Brisbane a few years back, and I'm currently contemplating moving back to Australia. It would be nice to make some new friends. I'm more likely to settle in Sydney, though.
You essentially summed up why I despise the human race. I've never been comfortable in groups, as I tend to say what I mean and try to reason as objectively as possible. Nietzsche said: "Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule".
I find the apparent spinelessness of most human beings to be appalling. That is why the world is the way it is; too few have the guts to stand up for themselves. This results in people with psychopathic tendencies being able to trample on the hopeless masses with ease. It is a testiment to the inherent servility, or perhaps rather futility, of our kind.
To take an everyday example: Most people bitch about their boss behind his/her back, but few deliver the message directly to the recipient. I guess that's why quite a few of my teachers hated me, and I had no choice but to start trading on my own rather than pursue a professional career. What appears to be character flaws in "real" life are actually advantageous when it comes to trading.
Yes, as is evident by my avatar, I am a "fan" of my (almost) brother-by-name Lorenz.
That is a good quote, and it sums up my thoughts exactly. My trading is based on the structure of volatility, I guess would be fair to say. I've always been a reductionist, and try to "make things as simple as possible, but not simpler".
You also touched upon my view of all of this, namely that a successful discretionary trader has an advantageous starting point. Often there is little overlap between discretionary and algorithmic traders, but it has been my goal to combine the two. Regardless of the outcome, it is a lot of fun. I've always enjoyed doing research more than the actually trading. I should have started on this much sooner, though. I've made quite a decent living off being a discretionary trader, and I haven't managed to foster enough "courage" to learn to program sufficiently until recently. I think I have formulated some good ideas, but there is no way to tell yet. I am far too paranoid to talk much about them, though.
While I haven't read it in a couple of years, Steenbarger's blog definitely had some interesting material in it. Nothing revolutionary, but at least in the vicinity of valid concepts. Most of this is common sense, but traders seem to often get lost in a haze of "pretty" indicators.
I don't use EW in my trading, but I studied it briefly years ago. I went through a wave phase, delving into the works of Kondratiev, Hurst and Armstrong. It's hard not to like the concept of phi. Trading is all about exploiting the gyrations, though. That much I agree with.
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