Mar

7

I have been considering the way a chess player thinks and the chairman's trip to Florida. I wonder if there might be a major conflict between the way the fish sense danger and the way that market patterns are counted.

For example, it may be good to buy stocks during 'panics,' but how does one define a panic? Three to four days down may or may not be a panic just as an x day low may or may not be one. But as soon as one starts to add conditions, e.g., high volatility, then the number of independent variables will upset the statistically minded.

I know how chess players deal with such issues — they synthesize different factors and 'take a view,' even if the position is a unique sample. So an isolated d-pawn is not necessarily a bad thing, it depends on other factors. Some say that exchanges mean that the pawn will be more of a liability, but this is also not really true. And by the time one has thoroughly assessed the various details, it could turn out that the outcome depends on a player's king position. If it were on g7 he'd be fine, but with it on h7 he has great difficulties, simply because of a check in a particular variation.

In competitive chess this has serious implications. One of the ways to win games is to lead people to believing they have a good position when in fact there is a small but important change to the standard scenarios. So when we got four days down on Feb 26th, one needn't have looked further than Altucher's Trade Like A Hedge Fund to see how advantageous this is. But we all know how the next day turned out.


Of course knowing precedent and systemizing advantages is a valid method in chess, and one can see this very clearly in the games of Max Euwe for example. But the very strengths of this methodology would also seem to contain a serious weakness, the unique position that defies the usual means of assessment. And this was very much in evidence in the second Alekhine - Euwe match in 1937 in which Alekhine deliberately targeted Euwe's approach by finding positions with a sample of one.

Now markets wouldn't deliberately do such a thing, or would they? What if the increasing number of quant traders were to produce an adaptation in markets, just as a virus might adapt to antibiotics? Wouldn't there be increasing chaos, with traditional patterns breaking down?


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search