Master Class monkey Lushi
At the end of the year a lot of amused Trading Desk Community story of a circus monkey on named Lusha. Lushe, for the sake of fun, “offered” to form investment portfolio: spread out in front of her 30 cubes with written on them the names of the shares. Monkey, guided by some one to her slave considerations, chose eight cubes – between eight and corresponding shares of the Russian stock market fun organizers distributed virtual million rubles. As a result, at the end of 2009, the investment portfolio showed Lushi yield higher than 96% of mutual funds where the portfolio is formed by professionals with higher economic education.
Two years earlier than a similar company arranged a fun American traders. They drew on the paper circle raschertili it into sectors inscribed in slices shares its name and began to play darts – to throw darts in a circle; in which sector dart hits, the share in the virtual portfolio and included. The result came about as in Lushi. That is a brilliant result.
And was the third similar case, the journalists mentioned about it in passing.
Of course, and the monkey and the darts – it’s entertainment tinsel; In both cases there has been a common random sampling. And these random luck by themselves even the score does not prove anything. They would be a serious food for thought, if not “the problem of hidden evidence,” as calls it in his new book, Nassim Taleb: we do not know anything about those traders who, after reading about the super-successful game of darts his colleagues decided to such a fun game and also to throw darts or pulled at random from a hat of paper with the names of the shares – but their “virtual investments” were unprofitable, were not made public, and the statistics were not included. To talk about the probability of a successful random sampling, it is necessary to create, say, a hundred random portfolios – then the results will be accurate.
The point, however, is that such experiments were carried out. And more than once held. And always with the same result.
And what were the chances of Lushi monkeys in experiments? ..
* * *
We all come to the Forex, already achieving success in something else – whether in business, in study, in science or in art. We have gained a wealth of experience on how to achieve our goal – and we are in the belief that the same methods, techniques, patterns of behavior, etc. will lead us to success in the financial market.
We’ve learned that life encourages us if we are doing the right thing and punishes mistakes. In this scenario, very easily and quickly manage to find the right course of action, in whatever surroundings we happen to be. In the “normal life”, we learn very quickly. And it becomes second nature.
Arriving at Forex, we begin to expect the same here: the market will punish us for our wrong actions and encouraged for the right. If the transaction was a loss, we believe they made a mistake; if profitable – do skorospeshny conclusion about his growing mastery and the next time subconsciously trying to repeat our actions (habit that is very difficult to get rid of at haphazard trade). We can not accept that Forex does not like “normal life.” The market can be encouraged for a long time for mistakes profits and punish right action damages.
Another mistaken belief that we all drag out for a “normal life” in the financial market – a belief that is bound to grow and skills as a result of persistent hard training.
We can not say that this belief is absolutely inapplicable to the trader’s trade. In some ways it is even running. For example, the persistence in trying to create a good trading system will eventually be rewarded, not only profits, but also invaluable experience – the following systems will be developed faster and easier. But here’s the study of fundamental analysis and scrupulous preparation of day-to-day basic forecasts in the hope that thanks to the acquired skill you will better predict currency movements – this activity is similar to training in guessing which side will drop a coin – heads or tails, in the hope that thanks to this training you will be more likely to guess.
… No, no, I do not want to say that the study of fundamental analysis is a waste of time, which will not give you anything. You start at the very least understand the global economy. You will learn to understand and explain movements in exchange rates; sometimes your understanding is wrong, and explain the far-fetched – but in general, you will learn that, yes. You will learn on the basis of economic data to make long-term forecasts – and sometimes these predictions will come true. But you never learn to make a profit by using fundamental analysis. Even if your knowledge in this field will be equal to the knowledge of, say, a doctor of economic sciences, the average you will still not sell better than if you were trading, generally do not use fundamental analysis and not paying attention to the news.
It is unlikely that I make a mistake, saying that among the readers of traders, which the previous paragraph led to outrage his alleged absurdity and nonsense, there is at least one graduate of Harvard graduate in economics. Hardly as someone from the readers expects that the depth of their knowledge of fundamental analysis he ever be able to compete with the world’s luminaries and professors. Meanwhile, no graduates of Harvard or eminent professors, not even Nobel Prize winners in their forecasts does not dazzling vision and craftsmanship. At the beginning of the article, arguing about what the probability of success of a random sample of the formation of investment portfolios, I mentioned about the experiments conducted by scientists with a view to find out (and not only that). Here they are, the results of these experiments, admire:
1) Predictions of scientists and economists have no advantage (to put it simply: no better than) as compared with forecasts of people with an average level of competence in economic matters (specifically, newspaper columnists);
2) And those and others predict a little bit better than people competent enough in the economy (in particular: the students of economic faculties of 1-2 courses);
3) In any case, all predictions are very distant from what is happening in reality;
4) Projections of famous and well-known economists are always worse than the forecasts of their lesser-known counterparts;
5) Unexpected events (hurricanes, corporate bankruptcies, collapses markets, etc.) can not predict none.
Thus, in the case of the global economic forecasting skills and professionalism still play a role: the professionals an advantage over newcomers still there, though, as studies show, and small. Yet this advantage vanishes when it comes to investment on the basis of his own forecasts. Eminent professors here again on an equal footing with the columnist, but in addition to that is this:
1) Investment portfolios few competent people in the economy yield no worse “professorial investment”;
2) Investment portfolios, compiled on the basis of random sampling, statistically no way inferior to investment professionals and semi-professionals.
Here is the answer, what are the chances monkey Lushi. If, for example, 30% of mutual funds ended the year with a profit, that have been Lushi tridtsatiprotsentnye chances of forming a profitable portfolio. If 10% of mutual funds showed superprofits, then with probability 1:10 super profitable and would have been a random sample.
… Well, how lamentably ended its existence LTCM (Long-Term Capital Management) hedge fund, which manages almost entirely doctors and even two Nobel Prize winners in economics – is known to everyone. That’s the whole price “skill in forecasting.”
And what Markowitz won the Nobel Prize for his theory of optimal portfolio, which is based on the postulate of rational behavior of investors – it is also known to all. But soon after Markowitz’s Nobel Prize winner in economics became Kahneman proved that investors (including professional) for the most part act irrationally. Amusing itself (smiley face). I dare say that the statement Kahneman far closer to the truth.
A “irrational” – is a literal translation from research into Russian means: the same as a monkey Lusha. Although all of them think that they are professionals and are guided by fundamental analysis.
Not given to us to anticipate and predict. As they say, here and not go to a fortune teller.
… In fact, almost everything that is written above is not written and compiled. I just svol together the information contained in different sources, and consistently presented them. If I had a prophetic gift and knew in advance that ever dare to write an essay on the fundamental analysis, I would make a detailed statement, with all statistics, and now has led to a lot of numbers – how many percent of the graduates of Harvard and many newspaper columnists have been successful in their forecasts. But as to sit for the article, and I had no idea, I wrote for himself only the final conclusions – and brought them up. Last book you read me, which refers to the inability of economists to predict – it’s a great book by N. Taleb’s “Black Swan” (Wiley, 2009); to her I refer the reader interested in the details (see chap. 10, and an extensive bibliography at the end of the book).
* * *
The dispute between “pure fundamentalists” and “pure techies” – is the eternal debate. “Fundamentalists” base their arguments on the fact that the foundation – engine market. “Techies” argue that the market is fundamentally configured in favor of a currency, it is perfectly clear from the graphs, so that the fundamental analysis in this case does not add anything and therefore, it simply is not necessary; but if the market can not be defined, and there are conflicting data – the more it is not necessary, it is converted into a stream of information garbage (stands out and requires reservations a question about the game on the news – but we do not touch it in this essay). However, both of those. analysis of its predictive power does not fundamentally better, and no matter how much trains in the “correctness” construction of trend lines – they will not be “right.” And the “fundamentalists” and “technicians”, making a decision about the transaction, either explicitly or implicitly make a forecast of the price movement. About that, what is the price of the prophecies, according to statistics given above. But besides the “fundamentalists” and “technicians” there is a third extensive clan. It mehsistemschiki.
Mehsistemschik, unlike his fellow trader’s shop, exchange-rate movements forecasts does not build, considering that, firstly, the forecasts are impossible, and secondly, they are not needed. Simply put, his job – to take a small loss when the system was wrong signal, and a big profit when the system turned out to be right. He needed just a statistical advantage over the market. He fulfills a positive expectation of your system – and all.
Alas, not all … Mehsistemschik also not free from this curse – to predict the future. Only he has not forecast the price and performance of their systems, not “broke” if the system is not whether it is time to remove it and replace with a new trade? And it will show whether this new system is at least a third of the effectiveness of which she showed to the historical test? .. But that’s another topic.
Starting … “for the dead”, I still finish this essay, “for health”, saying that beginners study of fundamental analysis is essential. Over time, you do decide you want it or not want, but to study it and know it, you just have to. As a nuclear physicist, despite its narrow specialization, should know and kinematics, thermodynamics. In the Institute of Literature of future novelists and journalists are forced to study Homer – none of them in life is not to write hexameters, but by studying the texts of Homer will be better.
Your trading system will be better if you understand the fundamental analysis – and it does not matter that these systems will not use fundamental data.
Learn fundamental analysis!
Trade rules by Jack Schwager
trade rules by Jack Schwager Dzhek Shvager manages the fund with a capital of more than 75 million. He is Director of Research at Prudential Securities,…
Saxo Bank does not exclude possibility of rise
Saxo Bank does not exclude the possibility of a rise in price of the dollar after Fed meeting Two of the most important aspects of the Russian ruble – is…
Currency risk (Currency Risk). When operations with currencies main reason for which the occurrence of damages perform currency risk value can sometimes…