rationalskepticism.org

Sonoran Lion wrote:I'll be sure to check out that book, especially if it is recommended. Maybe I'll take a couple CS classes here in the near future.

Taking some Computer Science classes is always a good idea. Tech literacy comes in handy in more areas than I can properly express.

The book is: The Evaluation and Optimization of Trading Strategies by Robert Pardo.

The man is borderline insane in that book. He legitimately lays out the entire design and knowledge base that someone would require to create a Trading System. Not just a Trading System, but one that actually works very efficiently and curtails a number of "newbie" problems that stupid newbies run into. It surprises me that he doesn't charge more .

Sonoran Lion wrote:

That said, Taleb's strategies are essentially the opposite of the ones you'll find in The Logical Trader. Where The Logical Trader tends to take an approach involving trend following, Taleb believes you should go opposite the trend (he has his own system that you can somewhat decipher if you analyze the book hard enough; keyword being somewhat).

I guess I will need to study both methods to see which one I would support.

I should tell you, both Taleb and Mark B. Fisher (author of The Logical Trader) are entirely correct in their strategies. If you think about it form a logical prospective, Fisher is correct in that if you follow a trend you can make money. It's all about detecting that trend (i.e. Buy high and sell higher as opposed to buy low and sell high). Also, if you're setting your sights to a clear cut buy-in price and a clear cut exit price, then you're in a good position. Taleb, on the other hand, gambles on sheer entropy. He tends to see a trend, see that it's been continuing unabated for weeks, and then predicts that eventually it's going to end. Usually a trend's reversal is far, far more exciting than a trend itself and therefore Taleb can make 8x returns on his money, meaning that he can afford to lose consistently to make that big profit.

I'll let you follow that to its natural conclusion, Sonoran .

Sonoran Lion wrote:

If you have anymore questions, feel free to ask me. I'll admit I'm relatively new to the field, but I've had the benefits of one hell of an education. I've been lucky enough to study under one of George Soros's students and one of Taleb's students. This combine with my opportunity to study under one of the original Financial Modelers has given me quite an interesting and unique outlook on this entire field in general.

I will be most sure to keep you in mind if I have any other questions. I do have on question: Why do you have a dismal view of Economic Theory and Degree holders? I think it is important to recognize the weakness of a field of knowledge. One thing I have noticed about economics is that there is no real central theory, but rather various schools of thought.

Ah, where to begin with Economic Theory and Degree Holders . For one thing, if GT2211 accidentally comes in here, I must add a disclaimer that I apologies for insulting him so badly. He's a good man with good ideas who has a good head on his shoulders and I feel bad trashing his life's study.


To start with, I have just read it is referred to as "The Dismal Science" and I think I'll be adopting that name for it . I've rewritten this paragraph several times because of the fact that there's so much information building up in my mind. To start with, I've met very few Economists who are Historians. If you get a chance, read The Ascent of Money by Neil Furgesson. It is perhaps the greatest Economics book I have ever read in my entire life, mostly because it was written by a historian who chronicled economic systems, theories, and various things attempted in them in the past and present. Let me give you one classic example:

The first Stock Company was The Dutch East Indies Company. It performed brilliantly and everyone made a great deal of money. Then came along The British East Indies Company. It was a government-backed initiative that was run like a Stock Company, only the government had a heavy vested interest, collected taxes, and essentially ran it from behind the scenes. It out competed The Dutch East Indies Company and drove it into extinction within a few years.

No one remembers this, but in my humble opinion, this isn't a victory for government industries over private ones. It's proof that a smartly run financial entity with a good leader, business plan, and people can and will win. It doesn't matter whether this financial entity is a government, a corporation, or a lemonade stand.

It also bothers me how everyone talks of a "Free Market". You may quote me on this, there is always a Free Market no matter where you go. In Soviet Russia there was a Free Market, they called it The Black Market. All the different trades we make are all a part of human nature and nothing will change that. There's been experiments done with chimps giving them token for which they can buy items from a human vendor. They all exhibit the same exact type of behavior that humans do. Some spend the coins as fast as they get them, some hoard them, some seek a middle ground, and some will trade them with other chimps for various goods and services.

Which leads me to my next major problem with Economics. Everything has become purely math-reliant. People pay very little attention to the Keynesian Animal Spirits. In other words, human psychology. Economics tends to ignore fairness and human nature. There was a good example in the book Animal Spirits where they go on about how there was a Chilean Automobile Factory that competed with Toyota. Both of them had the same financial backing, mandate, and came into existence at the same time. The only difference was in the Chilean one the workers were basically forced to work there and no one had any stake in the company, while in Toyota they considered a matter of personal honor and national pride. The keywords "fear" and "mania" have only come into vogue recently.

My next problem is that their math is too simple. Laffer's Curve is laughable with only two-dimensions (tax and GDP). If Economists are going to rely on Math, they need some grand-sweeping ungodly monstrosity of Mathematics that works in eight or nine dimensions. Very few people have the ability to do this, I will tell you. One of my theses when I was an undergrad was making a Heuristic Optimization Algorithm that worked in N-dimensions. The reason it's Heuristic (i.e. A rule of thumb) instead of any kind of theory is because when you hit the 5th dimension you're no longer able to represent your object in the 2nd dimension. You get a strange eye-like shape. That said though, if they're going to go hardline math, they need to really go hardline mathematics.

Then there's the level of stupidity that Economics seems to not only accept, but endorse. Rational Market Theorem (people are rational beings and therefore no regulation is needed on The Market seeing as how people can be relied upon to act rationally) is something that most people just sit there and go "WHAT?!?!?" about. Trickle-Down ignores the fact that the rich got that way because they don't spend their money foolishly. Not to say I fully endorse Keynesian, since the idea of the government throwing out massive amounts of money runs the risk of rampant inflation.

There's also things that Economists fail to fully explain. For example, the Japanese "Zombie Economy" where they have a zero interest rate. The reason it works is both a validation and a warning about the full embrace of the Keynesian school. Basically, since people can get loans easily and not have to worry about mounting debt, they're more willing to take out loans. This means that people are more willing to invest in absolutely stupid ideas like a company that makes little plush kitty dolls. Last time I checked, Hello Kitty is a multi-billion dollar industry and the Japanese Government is greatly enjoying the tax revenue that comes from it. Now that is just my opinion that the large amount of free capital leads to a large amount of spending and investment, which in turn leads to new discoveries, etc. etc.

Also, if you haven't read it, you MUST read Freakonomics. They find strange correlations, such as how abortion lowers crime rate, while outlawing it causes the crime rate to skyrocket. Now, to present you an interesting thing, Sonoran: It costs the United States a ridiculously large amount of money to house the criminal population. Those from homes where they're not wanted or from the foster system (it is absolutely horrendous, I have more horror stories than you can imagine since my best friend is from a ummm... "not-so-affluent neighborhood" to put it mildly). If said criminals never come into existence, then suddenly that money is no longer being spent and can be re-purposed for other means. One of their theories why Bill Clinton saw a dramatic drop in crime was because of Roe v. Wade.

I once posed an interesting point to one of my best friends whose an amateur financial modeler: Michele Obama has started a "grow your own garden campaign". Farms are going to suffer horribly as thousands, if not millions, of people start their own gardens. On the other hand, those who sell farm tools are going to be making money as are the people who mine and process the metals for these tools along with their distributors. On the other hand, there were a very nasty series of tornadoes that hit the west. Hundreds of thousands, maybe millions of dollars went into relief. That money will pay workers, it goes to lumber yards, tool makers, delis that the workers frequent, etc.


Which leads me to one of my personal theories. I feel mercantilism's theorem that there is a limited amount of wealth in this world is correct. If we could truly measure economic success (even now a days people are struggling to do that) it would be shown that the whole does not change, but the pieces it is broken into and the distribution of those pieces do. Again, this is my personal theory and you should not take it with any amount of authority. Even I disbelieve it at times