Sep

5

From Ask the Specs, by Victor Niederhoffer, Laurel Kenner, and Dr. Brett Steenbarger (December, 2003):

May I issue a call for an emphasis on predictive distributions rather than descriptive studies? By predictive, I mean, a study that:

• enumerates all observations of what has happened after a defined market event over a specific period of time;
• weighs whether the results indicate a random phenomenon or a tradable anomaly;
• measures the uncertainty associated with the latter conclusion; and
• predicts the probability that an x-percent move will follow the event being studied.

Based on my experience, the biggest mistake a trader can make is to concentrate on “advanced” methods such as Hurst exponents, regression coefficients, Fourier series, chaos, wavelets, fractals, et al. Unfortunately, all of those sophisticated techniques will get you nothing but a barrel of retrospective nothingness.


The key is to find a measure that can be calculated often and independently and then use it to predict. For example, what happens in the next one, five and 10 days after stocks reach a 20-day low? The philosophic memory and longings and expectations of the market are of great interest, but I have found queries as to whether they trend or reverse in accord with Prechter or Fibonacci or Elliott a distraction to the pursuit of profitable trading.

You could put the 100 smartest academics in the world in a room and let them try to predict the market for 100 years, and unless they were steered on a path to make fruitful predictions with readily ascertainable estimates of uncertainty, constantly adjusting for ever-changing cycles, they would achieve below-random results. The numerous professors I have hosted and supported in my office have not disabused me of this assessment.


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  1. Andre Wallin on September 6, 2024 12:37 pm

    although the list is a great resource for statistics, economics, and wall street after reaching my 40s i believe the list to be lacking in philosophical thought and to believe ayn rand is the be it end all and not recommend Schopenhauer i find extremely alarming as I wonder what harm is done without having solid first principles.

    not surprising after discovering peter thiel is a catholic- the older one gets the more disappointed one is in his/her heroes. i shouldnt say disappointed because that is too negative, but one sees the flaws and not only the strengths.

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