I dream of painting, and then I paint my dream – Vincent Van Gogh Even though my father would say on occasion that I didn’t have a brain in my head, I found out later that I actually have two. The left hemisphere which controls the right side of the body, helps us with the [...]
How do we know we have enough samples of whatever it is we are testing? What amount of trades is the number? When can we be confident we have enough trades to rely on the results of our back test? Jacob Bernoulli, the famous Swiss mathematician, is best known for his introduction of the theorem [...]
My brother Jim has been trading the markets for over thirty years. Yesterday, we got involved in a conversation about the markets and the stock market in particular. He always does a good amount of research to support his own trading decisions and since sharing observations is one of the reasons I started this blog, [...]
I thought this was a good addition to the blog. Even though it is a joke, it’s also is a great example of the survivorship bias on Wall Street. Investopedia explains survivorship bias as, “The tendency for mutual funds with poor performance to be dropped by mutual fund companies, generally because of poor results or low asset accumulation. This [...]
It is the mark of an educated mind to entertain a thought without accepting it – ARISTOTLE When using a mechanical trading approach we must learn how to entertain a good set of probabilities without accepting them as fact. What is potentially more dangerous than the information which makes up the numbers is how we [...]
In light of the exciting PGA Championship, I thought I would make a point with a golf analogy. No matter how professional you are in your field it seems like a loss “feels worse” than a gain “feels good”. Even Tiger Woods is affected by this pull of irrational behavior when faced with bogey vs. [...]
Like any other effort in science, the back test can vary from shallow and useless to very useful. It is a matter of the quality of information that forms the test. A shallow back test, and the discipline to stick with it, is a recipe for disaster. The quality of information determines the significance in [...]
It is tough to make predictions, especially about the future. – YOGI BERRA I keep CNBC on all day while I work. Perhaps I think I will miss something, or maybe it’s the background noise that’s appealing. In any event, what I always find amazing is the parade of experts making one prediction after another. [...]
Here is an interesting excerpt from Benoit Mandelbrot’s paper entitled “A focus on the exceptions that prove the rule” If you would like the full article click here.“Conventional studies of uncertainty, whether in statistics, economics, finance or social science, have largely stayed close to the so-called “bell curve”, a symmetrical graph that represents a probability distribution. [...]
My 10 year old nephew Kevin paid me a visit this week. I thought he would enjoy meeting the guys I work with, so I brought him into the office one day. After looking at the screens and watching the prices go up and down, he asked, “How do you make money from all this?” [...]
