Normal
And to those 3 questions: why is that the case and why is a mechanical system one way to overcome this difficulty? So the answer lies in how a mechanical system is built and executed. It is built through applying a strategy to past market data. Then, you trade it. You trade it by not questioning it.What you totally ignore is the news feed.I have noticed that discretionary traders pay far too much attention to the news and are invariably caught out by it. The news is unimportant or already factored in (take your choice). How are they caught out?Through 'Representative Conjunctions': P(A) or P(B) has a higher probability than P(A+B). (A) is the news and (B) is the market's interpretation of the news. So we as discretionary traders, if we think that we can trade the news or interpret the news, are constantly in the domain of P(A+B) which carries the lower probability. Mechanical systems are in the domain of P(B). An example TSLA: Remember tech/a buying TSLA at $800/share? I thought he was mad. Valuations, any number of logical arguments could be put forward, yet, TSLA rose and rose and rose. I was overly influenced by P(A), whereas, if simply I had traded P(B) I could have made a lot of money.The conjunctive is the word "and" which is represented mathematically by +. The word "or" is disjunctive. Traders need to trade disjunctives and you would hope they choose P(B) and not P(A).The other factor re. P(B) is the law of large numbers. Now markets don't have enough numbers to fully qualify, but: (a) Indices are easier to trade than (b) sectors which are easier than (c) individual stocks. Adjust your probabilities accordingly. Of course as your probabilities change up or down, so to will your profit probabilities (returns) and risk (losses).Trading in this manner is hard. It is hard because you will enter trades that make no logical sense to you. Enter the market in late March? Madness. Buy TSLA at $800? Madness. Your system has just lost 5 trades in a row...I knew they were bad trades, and now when trade 6 appears, you don't take it: P(A+B).jog onduc
And to those 3 questions: why is that the case and why is a mechanical system one way to overcome this difficulty? So the answer lies in how a mechanical system is built and executed. It is built through applying a strategy to past market data. Then, you trade it. You trade it by not questioning it.
What you totally ignore is the news feed.
I have noticed that discretionary traders pay far too much attention to the news and are invariably caught out by it. The news is unimportant or already factored in (take your choice).
How are they caught out?
Through 'Representative Conjunctions': P(A) or P(B) has a higher probability than P(A+B). (A) is the news and (B) is the market's interpretation of the news. So we as discretionary traders, if we think that we can trade the news or interpret the news, are constantly in the domain of P(A+B) which carries the lower probability. Mechanical systems are in the domain of P(B). An example TSLA: Remember tech/a buying TSLA at $800/share? I thought he was mad. Valuations, any number of logical arguments could be put forward, yet, TSLA rose and rose and rose. I was overly influenced by P(A), whereas, if simply I had traded P(B) I could have made a lot of money.
The conjunctive is the word "and" which is represented mathematically by +. The word "or" is disjunctive. Traders need to trade disjunctives and you would hope they choose P(B) and not P(A).
The other factor re. P(B) is the law of large numbers. Now markets don't have enough numbers to fully qualify, but: (a) Indices are easier to trade than (b) sectors which are easier than (c) individual stocks. Adjust your probabilities accordingly. Of course as your probabilities change up or down, so to will your profit probabilities (returns) and risk (losses).
Trading in this manner is hard. It is hard because you will enter trades that make no logical sense to you. Enter the market in late March? Madness. Buy TSLA at $800? Madness. Your system has just lost 5 trades in a row...I knew they were bad trades, and now when trade 6 appears, you don't take it: P(A+B).
jog on
duc
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