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People actually fall for this

  #10 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011


I think what grantx was trying to emphasize was that there wasn't even a direction, let alone a trade with a stop loss and profit target called, and the graphic is ambiguous. In other words, the first question is whether or not a trade or prediction is made and the second is the profitability.

Now what I suggested and it is something I have thought about for years is a way to compute returns for ambiguous statements and one way to do that statistically is to take every possible trade that might make sense and then compute the total return. This is a general form of generalization and diversification. On this trade, this looks to be something that can be computer generated though, so it could clearly be tested. What is interesting is that we can even compute the actual average perceptual value by sampling a set of traders and having them give us their "probabilities" of what makes sense. We could do this for each trader, example asking what is the most reasonable stop/target or we could ask each trader to provide probabilities of reasonableness for a range of possibilities.

Exactly, trendisyourfriend make a good point that when traders talk about trying to define a game plan that lay out different possibilities then it can seen very similar to making a non prediction. However, the implicit assumption must be there is some information contained in those statements if they have value.

Let's take the common breakout trade which basically says to go long or short if we're above or below a recent high or low. Now, I could apply that as a forecast or toward my trading plan/prep instead of a trade. I could say look for longs above X and shorts below Y. It is true it is not a prediction. But, it is still testable in the sense that we could test every possible long or short above X and below Y and compute the return. If there was any information then we should find something of use -- though it might take a bit of work to figure out where the real value was. So, trendisyourfriend, I suspect that's what advanced traders are doing. If they are able to make use of the "prior", then they may also be able to use some sort of Bayesian inference. For example, if a trader were to give a forecast that seems nonsensical such as "focus on longs unless we start to lose then we will focus on shorts". It sounds information-less. But, it is still possible there is real information contained. For example, if this trader's trades tend to be dependent then it could still make sense.

As for order flow trading or tape reading, first it was always difficult but I agree it is more difficult today. But, if what you are saying is really the case for you then it might make sense for you to drop the order flow trading and/or work harder to make it more useful. I think there is value in eliminating anything that doesn't provide real value. (I do find value in the tape though.)

Last edited by tpredictor; March 11th, 2018 at 07:14 PM.
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