Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

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7/14/04
Philosophy of Counting by Phil McDonnell

A few recommendations regarding counting:

1. I think looking at long term data is educational but not necessarily applicable to trading.
2. Over any long period of time (5-10+ yrs) it is better to use percents rather than points. 3 points when the s&p is at 300 is 1%. When the s&p is at 1200 3 points only means .25%. Using percents keeps things in relative perspective.
3. The ONLY way to make money in the market is to use inside information. Using corporate inside information is illegal so forget that. But information based on superior analysis known only to you is quite legal. That's what counting is all about - how to generate superior information known only to you.
4. The problem with all of the PhD papers and books is that once they are published you can assume that they are known to the market. Thus they will no longer work after publication.
5. Given the above, a trader must endeavor to discover a workable trading system based on a sufficient amount of data so as to establish statistical significance. On the other hand the data should not go back so far in time that it may be dominated by old stale data which no longer applies. Obviously it's a Goldilocks standard - not too new and not too old, but just right.

Hopefully this helps some Specs with the philosophy of counting...