The alternative thinking for trading thread

[MS+Tradesim]

The point of this thread is to talk about non-mainstream ideas related to trading. Although I draw the line at the spukhafte Fernwirkung of astrology and ilk.

In kicking off...

Here's a series of lectures George Soros gave in Oct 09 at the Central European University. It seems to me that what he has to say is worth hearing and there may be others who would like to take a look there. I am currently live testing a trading idea which is a direct application of Soros' concept of reflexivity but more on that some other time.

I was pondering a bit today and I wonder if a mathematician could provide perspective here. Roger Penrose argued that given Gödel's incompleteness theorems, human consciousness and decision-making cannot be exhaustively reduced to a set of algorithms, that there is something 'extra' which is non-computable (and from my own philosophical background I would accept this as true anyway but via the problem of qualia). If this is the case, then mathematical models for finance and economics are inherently unstable, even if they demonstrate stability for long periods of time. The non-computable X factor in human decision-making would always remain a wild-card (even in the most sophisticated and exhaustive modelling ever possible) and, if I'm understanding it correctly, would actually be a major spanner in the works of the efficient market hypothesis. Further, it would tend to dovetail neatly with Soros' reflexivity concept. As I don't have much background in maths, perhaps someone who does could appropriately comment? My curiosity about this is currently trivial ie. no major purpose for wanting to know, just attempting to fit some pieces of the puzzle together, or not, as the case may be.

Unfortunately my darling wife insisted on talking to me the whole time I was writing this post so I may not have explained myself very well.

 

[Naked shorts]

I am currently live testing a trading idea which is a direct application of Soros' concept of reflexivity but more on that some other time.

How would this be any different to a basic trend following strategy? or basically any technical strategy for that matter?

Open any economic text book and it will clearly say that economic models are just that... models, they are not the real thing..

 

[mazzatelli]

Yes, you're correct - There are no fundamental laws in finance and most models assume investors make simple rational assessments on a few understandable variables - i.e. they are perturbative. Humans don't obey mathematical principles.

Though most of the work in financial modeling is focused on pricing securities rather than trading models. For example, we can't use Geometric Brownian motion to try and predict price and trade, rather it's used as a proxy for stock price dynamics to calculate derivative values.

 

[MS+Tradesim]

How would this be any different to a basic trend following strategy? or basically any technical strategy for that matter?

Trend following is a domain, not a specific method ie. there are different ways to follow trends. Reflexivity is an idea that allows one to predict (imprecisely of course) how/where a trend might eventuate and to identify nascent trends. Ways to find potential reflexive opportunities could involve intermarket analysis or macro-political events or seasonal analysis in agriculture but focused not so much on what might happen directly but where and how it might flow through to further stages after the initial event is confirmed. eg. Soros' famous trade against the pound was identified several currencies back. He didn't just look at a chart and decide the pound was in a down-trend.

Open any economic text book and it will clearly say that economic models are just that... models, they are not the real thing..

Of course, but that wasn't my point of interest or question.

--------

Thanks mazz. That gives me a few more things to look at.

 

[MRC & Co]

Soros' famous trade against the pound was identified several currencies back. He didn't just look at a chart and decide the pound was in a down-trend.

Actually that trade was identified by Stanley Druckenmiller and I believe it was purely based on macro economic factors.

I have done a rediculous amount of research on Soros (and have wrote a mini book on it) and actually have a trading style based on his which has an extremelly high win % for around a 1:1 R:R, but interestingly, most of Soros trading does not come from anything to do with his famous theory of reflexivity. Only a few of his big trades came through this method, but it is extremelly rare.

Most of his trading is trying to work out what the market is currently 'viewing', if you can work this out, you can look for political/economic events that may cause an inflection point and hence, alter the prevailing bias. I.e. picking tops and bottoms, which Soros does a lot of, and from what I have studied, is the same as what Tudor Jones does. Basically looking simply at market psychology and events which may alter this psycholgy. It's how a lot of global macro hedge funds trade.

 

[Naked shorts]

Soros' famous trade against the pound was identified several currencies back. He didn't just look at a chart and decide the pound was in a down-trend.

Like MRC said, it was Soros who actually let Druckenmiller go ahead with the trade and told him to use more capital to do it (Druckenmiller was working for Soros at the time).

and have wrote a mini book on it

Can you send me that?

 

[MS+Tradesim]

Like MRC said, it was Soros who actually let Druckenmiller go ahead with the trade and told him to use more capital to do it (Druckenmiller was working for Soros at the time).

Fair enough, but it doesn't invalidate what I've said. I'm not interested in nit-picking details. This thread is to explore alternative ideas. Do you have something to add along those lines?

-----------------------

MRC,

I'm glad you're around and I was hoping you would join. Thanks for the further info on Soros and I too would be very interested in reading your mini-book. I've just ordered The Alchemy of Finance yesterday as a Christmas present to myself.

I also have a Soros inspired trading idea which has a fantastically high win rate at about 1:1. It's based on a reflexive pattern I identified and is still in live testing mode.

Cheers.

 

[MRC & Co]

MRC,

I'm glad you're around and I was hoping you would join. Thanks for the further info on Soros and I too would be very interested in reading your mini-book. I've just ordered The Alchemy of Finance yesterday as a Christmas present to myself.

I also have a Soros inspired trading idea which has a fantastically high win rate at about 1:1. It's based on a reflexive pattern I identified and is still in live testing mode.

Cheers.

Always interested to discuss alternative thinking and ideas for trading, good thread Tradeism.

The mini book I wrote has the vast core of it taken out of the Alchemy of Finance, along with some other information I have read on Soros along my ways. This is single handed, the greatest trading book you will ever read I believe from the greatest trader who ever lived IMVHO. No "T/A", no "F/A", just plain and simple how the markets work and his explanation of why they move the way they do (which looks spot on to me).

The 'real life experiment' is the main part of information you would want to read in relation to trading, the rest is a lot of the typical Soros rant, which becomes very repetitive after a while.

Interesting to see your trading system from him has similar results to mine, which is more about being right for me and identifying broader flows, than 'skewing the numbers' so to speak. Something which seems a cardinal sin around here.

PM me your email addresses and I will forward this 'book'/document I wrote, it's still not finished, got sidetracked along the way, but it's close enough to done and will be completed in 2010. Note: The vast majority is pure plagiarism, but I tried to capture the specific points of what Soros was saying, and take out all the BS he rants on about. He said he wrote that book at all hours of the night and just did it when he got time, not much thinking, just sit down and type kind of job, and you can tell as it gets very messy, hence my effort to refine it into some kind of order.

I know Timmy is interested in this field also, so hopefully he will give us his also and keep the thread alive! Put you in it now hey Timmy......

 

[MS+Tradesim]

MRC,

I'll think I'll have more to say after I've read Alchemy but I wanted to kick off the thread in the meantime and see where it goes. Reflexivity appeals to me quite strongly because it really meshes with what I've studied in other fields such as history and philosophy. Personally, I'd love to eavesdrop on a conversation between Soros and Penrose.

Also, as I said, any other intelligent alternative ideas are welcomed for exploration here.

 

[skc]

I have an idea that is not nearly as smart as following Soros or anything like that... the idea is simply to look to "beat the house", esp on houses that are not in order.

With the growth in retail trading, every man and their dog are starting their own FX / CFD trading outfit. Some of them have good management and invest in good IT, while others are pretty low budget and may not have thought through their products / systems and policies.

This idea is like going to every new casino in town, the dodgier the better, and see if they have a table paying the wrong odds, a pokie not working properly, a dealer who doesn't know what he's doing or a lack of system to deter card counting...

The upside would be like printing money while it lasts, but the downside is obviously that it will not be consistently viable, and inevitably you will be shut down at some stage. Also, it is definitely not scalable beyond some retail returns.

 

[MRC & Co]

lol, I reckon that is a true winner skc. Skyquake may be the man to set this kind of operation up!

Any input from him? I'll throw in for the funding of this operation!

 

[Naked shorts]

With the growth in retail trading, every man and their dog are starting their own FX / CFD trading outfit. Some of them have good management and invest in good IT, while others are pretty low budget and may not have thought through their products / systems and policies.

This idea is like going to every new casino in town, the dodgier the better, and see if they have a table paying the wrong odds, a pokie not working properly, a dealer who doesn't know what he's doing or a lack of system to deter card counting...

The upside would be like printing money while it lasts, but the downside is obviously that it will not be consistently viable, and inevitably you will be shut down at some stage. Also, it is definitely not scalable beyond some retail returns.

lol I have already found a glitch like that in a certain fx bucketshop broker that likes to send out advertising to all ASF members... I called them up to ask them about a certain topic closely relevant to what I was doing... wasn't soon after that the "glitch" was shut down

But that whole topic reminds me of my alternative trading idea for your reading pleasure MS+Tradesim...

I would gather up all the relatives, family friends and acquaintances i can and give them a 1 hour lecture on the wonders of technical analysis. After this I would sit them all down in front of computers and get them to start trading with a sim account (but tell them its real money).. hook these accounts up with a program that sends money into the real market and just takes the exact opposite side of their trades.... if liquidity becomes a problem, just setup accounts with multiple bucketshop brokers and route all the orders to each of them.
This would be a money making MACHINE! :brille::brille:

If they got bored, I would have plenty of alcohol, weed and caffeine at the ready.

 

[Wysiwyg]

This idea is like going to every new casino in town, the dodgier the better, and see if they have a table paying the wrong odds, a pokie not working properly, a dealer who doesn't know what he's doing or a lack of system to deter card counting...

An example would be exploiting a delay in price movement between different brokers. This delay could be due to a junky data stream against a precise data stream.

 

[Naked shorts]

An example would be exploiting a delay in price movement between different brokers. This delay could be due to a junky data stream against a precise data stream.

Done that too and basically got free brokerage, but your trade ideas actually have to move your way a little to get anything out of it.. very hard to get anything more without some serious IT support.

 

[Naked shorts]

I would gather up all the relatives, family friends and acquaintances i can and give them a 1 hour lecture on the wonders of technical analysis. After this I would sit them all down in front of computers and get them to start trading with a sim account (but tell them its real money).. hook these accounts up with a program that sends money into the real market and just takes the exact opposite side of their trades...

Well.. I just gave one of my relatives a lesson on technical analysis, setting up the trading system now so he can trade it tonight
Gota make sure he trades on a 5min+ timeframe or brokerage is going to rip me a new one

 

[Sean K]

I would gather up all the relatives, family friends and acquaintances i can and give them a 1 hour lecture on the wonders of technical analysis. After this I would sit them all down in front of computers and get them to start trading with a sim account (but tell them its real money).. hook these accounts up with a program that sends money into the real market and just takes the exact opposite side of their trades....

Ah, that would be my trading account.

When I buy, sell!
When I sell, buy!

 

[skyQuake]

An example would be exploiting a delay in price movement between different brokers. This delay could be due to a junky data stream against a precise data stream.

Worked with IG mkts for a while :

 

[Sean K]

Worked with IG mkts for a while :

Yeah, so did I. Nice spread...

 

[Naked shorts]

Well.. I just gave one of my relatives a lesson on technical analysis, setting up the trading system now so he can trade it tonight
Gota make sure he trades on a 5min+ timeframe or brokerage is going to rip me a new one

Im doing a trade journal for this.
https://www.aussiestockforums.com/forums/showthread.php?p=527351