2009.06.24 WHY 95% OF TRADERS LOSE PART III

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TheRumpledOne
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Postby TheRumpledOne » Tue Sep 08, 2009 9:46 pm

THE ILLUSION OF CONTROL


"Individuals appear hard-wired to overattribute success to skill, and to underestimate the role of chance, when both are in fact present."


[Langer, E. J., The Illusion of Control, Journal of Personality and
Social Psychology 32 (2), 311-328 (1975)]

FINANCIAL MANAGEMENT


"After a full cycle of rise and fall after which stocks were valued just where they were at the start, all his clients lost money (Don Guyon, 1909).

Many academic works suggest that most managers underperform "buy-and-hold" strategy; persistence of winners is very rare, etc.

Most funds consistently fail to overperform random strategies (dart throwing)."



OVER-OPTIMIZATION

Rats beat humans in simple games

People makes STORIES!

"Normal people have an "interpreter" in their left brain that takes all the random, contradictory details of whatever they are doing or remembering at the moment, and smoothes everything in one coherent story. If there are details that do not fit, they are edited out or revised!"

(T. Grandin and C. Johnson, Animals in translation (Scribner,
New York, 2005)


http://www.er.ethz.ch/presentations/Ill ... 9Aug08.pdf

The rat will beat you if you do not understand this.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

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Postby PTG » Tue Sep 08, 2009 10:49 pm

That is actually a very convincing story TRO.

This would be valid for the use of standard indicators available on every platform:

The illusion-of-control effect in MG results from the fact that a
strategy that has performed well in the past becomes crowded out in
the future due the minority mechanism: performing well in the recent
past, there is a larger probability for a strategy to be chosen by an
increasing number of agents, which inevitably leads to its demise.


This apart from the fact that the definitions are oftentimes wrong if not misleading and the self-fulfilling prophecy of "well performing indicators".

I also find the remark about quality control rather interesting.

One more remark about the Fed: Greenspan's remark is way off. He knows Austrian economics and used to be somebody who favored the goldstandard so he knows exactly that the Fed meddling into the markets (high entropy !) and inflating/deflating money supply causes. He is therefore what I classify as a liar. Unfortunately his pants aren't on fire since he is in the company of other liars who -for now- have enough extinguishers available. The central bank is the issue because they lower the market entropy which is therefore doomed.

Anyway. Good find, this document !!
This is my new signature: "new signature".

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Postby TheRumpledOne » Tue Sep 08, 2009 11:55 pm

"The obvious is often unseen."
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby TheRumpledOne » Thu Sep 10, 2009 7:23 pm

"The question arises as to what trend to trade. The trend can be different on different time frames. The approach that I have found that works the best is to look at three different time frames. Two examples are Monthly and Weekly, Daily and Weekly, and Daily and Hourly. The smallest time frame is the trading time frame. When the higher two time frames are in agreement, we enter trades in the same direction on the smallest time frame.

Marketclub's "Trade Triangle" Technology is a good example of a method that employs the above approach. The Monthly trend is up when the market makes a 3 month high. The Weekly trend is up when the market makes a 3 week high. We enter long on the Daily time frame, i.e. on a specific day, when today?s price exceeds the high of the prior 3 weeks."

Interesting....
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby TheRumpledOne » Thu Sep 10, 2009 8:17 pm

Image

Of course, I had to write an indicator... LOL!
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Hi TRO

Postby germantrader » Sat Sep 12, 2009 2:02 pm

You recommend to trade only in one direction.

How about the following scenario:
-price opens at the hour, moves down 5 pips - entering short. sl 8, tp 20+
-price opens at the next hour, moves up 5 pips - entering long, sl 8 tp 20+

Or do you think trading in only one direction is more efficient ?

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Postby techchap » Sat Sep 12, 2009 5:01 pm

Greetings Traders,

Thanks to everyone for sharing your knowledge.

I am a newbie and will be so for a long time to come. After reading the forums for the past eight months, I'm setting some modest expectations for myself. First I will train myself to become a "Chimp" and then a trader., as TRO says. Afterall there is nothing wrong in taking a step back in the evolutionary time line, atleast for a while.

I have listened to the audio of Mark Douglas, WizeTrade workshop and Live at TAG - 3 part series. The purpose of this post is to seek your assistance in locating audio resources for forex trading that is available on the web. Recent economic conditions have resulted in my job loss and luckily I found a part time job far away from my home. I travel 110 miles one way to work and spend over five hours on road every three days in a week. I have listened to Mark Douglas over 50 times and I have learned the following:

1. Just follow the system. Enter into the trade when the system says you have an edge. Don't think.
2. There is no guarantee you will win. But over a sequence of trade, you will win. Don't get discouraged even if you have a sequence of loosing trades.
3. Money management and psychology, combined with your trading edge will result in success.
4. Three stages of trader's development are Mechanical, Subjective and Intuitive. Trading beyond one's development is dangerous. I will aim for Mechanical.

TRO and others, please add to the above list if I am missing something.

Again, if you know of any good audio resources for forex please let me know.

Thanks
Chimp in training :D

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Postby TheRumpledOne » Sat Sep 12, 2009 8:45 pm

Rats beat Yalies: Doing better by getting less information?

Louis Menand's review of Philip Tetlock?s book ?Expert Political Judgment" makes the point that in "more than a hundred studies that have pitted experts against statistical or actuarial formulas, ... the people either do no better than the formulas or do worse". Menand suggests that the experts' downfall "is exactly the trouble that all human beings have: we fall in love with our hunches, and we really, really hate to be wrong". Tetlock puts it like this (p. 40): "the refusal to accept the inevitability of error -- to acknowledge that some phenomena are irreducibly probabilistic -- can be harmful. Political observers ... look for patterns in random concatenations of events. They would do better by thinking less."

Tetlock suggests that humans perform worse in this experiment because we have a higher-order, more abstract intelligence than rats do: "Human performance suffers [relative to the rat] because we are, deep down, deterministic thinkers with an aversion to probabilistic strategies... We insist on looking for order in random sequences." Menand, on the other hand, thinks it's just vanity:

The students looked for patterns of left-right placement, and ended up scoring only fifty-two per cent, an F. The rat, having no reputation to begin with, was not embarrassed about being wrong two out of every five tries. But Yale students, who do have reputations, searched for a hidden order in the sequence. They couldn?t deal with forty-per-cent error, so they ended up with almost fifty-per-cent error.

But why does more information make for worse performance? We're used to seeing evolution develop optimal solutions to such basic problems as choosing where to look for food. So what's gone wrong here? If animals have accurate estimates of how much food is likely to be where -- however those estimates are learned -- then the rule of "[proportioning] their choices in accord with the relative expected rates" is the students' solution, not the rat's solution. The rule says to allocate your foraging time among the alternative locations in proportion to your estimate of the likely pay-off. That's what the students did. But the maximum-likelihood solution is to put all your chips on the option with the highest expected return -- what the rat did.



The question is how many traders reading this are TOO STUBBORN to apply this new information? I would wager more traders will cling to their "squiggly lines" than admit the rat will beat them and trade like a rat.

http://itre.cis.upenn.edu/~myl/language ... 02700.html
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby TheRumpledOne » Wed Sep 16, 2009 3:31 pm

Parrot beats investors in South Korean stock market contest


Image

http://www.telegraph.co.uk/news/newstop ... ntest.html

Human investors picked any stocks they wanted. The parrot, using its beak, made random choices from balls representing 30 blue chips including Samsung Electronics.

"The outcome of our contest was amazing. Ddalgi stood third with her investment return standing at 13.7 per cent," Chung Yeon-Dae, the Paxnet general manager, told AFP.

Human investors averaged a 4.6 per cent loss, with only two outperforming the parrot - one by 64.4 per cent and one by 21.4 per cent.


Image
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby TheRumpledOne » Wed Sep 23, 2009 10:49 pm

"Who Took My Money?"


ask a gambler

rich dad said, a professional investor need to know three things, they are:

when to enter a market?
when to exit a market?
and how to get their money off the table?

as a investor, you need to looking for a market signal to enter, a plan to exit, and when to get out, amateur investors leave their money sitting on the table and eventually lose it all, why do they lose it all ? I asked, because eventually the market wins, the market gives and the market takes it all back if you just let your money sitting there.

between 2000 and 2003, many people broke the rules by leaving their money in their retirement on the table, many people bet their entire financial future on roll of the dice, even after losing, many those seeing millions of the people still have their money on the table, hoping the market will come back, and they can make up their losses. every professional gamblers know when you betting money to make up for your losses, it is time to stop, it is time to get away from the table, take a break and look for a new options. unfortunately, do the current rules of many retirement plan, millions of people can not step away from the table, many investor are no timer plan that penalize them step away from the table and put their money in different investments.


words of wisdom

don't counting your money while you sitting on the table, those the pricessless wisdom followed by profesional gamblers


three very important rules that professional gamblors and investors follow, they are:

1. as long as your money is on the table, it is your money, as long as the money in the game, the money belong to the game, not to you

2.the game is more important than counting money.

3.the object of the game is to get your money off the table, and still remain on the game, a professional gambler or a professional investor ultimately want to play the game with OPM, other people's money. that is the object of the game


the four kinds of money are

your money,
the bank's money,
the tax man's money, and the house's money,

a professional gambler want to be playing the house money as soon as possible, while in las vegas, if I put my money back in my pocket, and only played with my winning, that is a example of playing in a house money

as a professional investor, I want to

invest my money into my asset ,
get my money back,
keep control of the assets,
then move my money into a new asset,
get my money back again,
keep control of that asset,
then repeat the process, this process is called the philosophy of money, it is one reason that richer get richer and average investor risks losing at all.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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