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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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Friday Dec. 5, 2003
Trader Tom Ryan on the Truly Useful
One can find an abundant number of sources providing a descriptive view of the markets and untested theories as to how they are supposed to function. But describing phenomena after the fact does not in and of itself lead to trading profits.
Instead it is predictions that lead to trading profits (and, I must add, losses on occasion like for me today).
To formulate a prediction you must first ask a few good questions. So if you ask me what improves the quality of posts to the SpecList, I can name a number of factors but foremost, For me, it is that the postings get us all to ask a few good questions. Questions that can lead to testable, falsifiable propositions. I have found over the years - that is a path for improvement.
Of course this leads us into the debate of induction and deduction. Induction is the process of deriving general principles or theories from particular facts or data after the fact. However, as discussed here before, instead of scientific knowledge being discovered after the fact and verified by way of inductive generalizations, like bolts of lightening leaping from the data into our blank minds, Popper realized that science advances instead by deductive falsification through a process of conjecture and refutation.
Explaining why markets moved after the fact has limited use. However, pointing out the potential implications for the future because of a recent move, now that is useful. E.g. it is useful to know that wrapping paper sales and shipments are down because that leads to one asking the question as to whether this might be a leading indicator of future retail sales in December. Pointing out a 1% drop in the bunds with the testable proposition that large moves there often precede large moves in other markets is another example of something I find very useful -- far better than explanations of why something just happened with no testable proposition offered (e.g. bonds dropped today because Bernanke burped). OK, so Bernanke burped, options expired, foreign flows in September were down, al-Qaeda released another propaganda tape, etc etc etc. I really don't care if Bernanke burped, and I sure as hell don't want to be Betrand Russell's chicken. The descriptive after the fact stuff is just not very useful.
Note from the editors: Tom eats his own cooking, and included this prediction:
In the stocks, I believe that after consummating Dow 10000, we are in store for a bit of rough weather. I base this on the statistics regarding 4,5,6% declines and the recent lack thereof combined with the fact that we are far closer to 20-day high than 20-day low.