Bits, pieces

Anyone look at Abnormal Returns blog? Great resource. Lots of links, many of them pertinent to my daily activity and many of a more longer-term value. Reason I ask is some days I just find a bunch of links I want to post, Abnormal Returns style. For whatever reason, these are things that I want to note down, maybe of use now, maybe of use later … but some are just for fun, some not. Many you (the reader) can safely ignore, whereas some are probably worthwhile not ignoring.

OK, lets get Abnormal!

This you can safely ignore: It is not “Pedal to the medal”. Its “Pedal to the metal”. I thought it was a typo.

For those of us trading when we should really be sleeping:
Short on sleep, the brain optimistically favors long odds
http://www.scientificamerican.com/blog/post.cfm?id=short-on-sleep-brain-optimistically-2011-03-08

a new study shows how just one night of missed sleep can make people more likely to chase big gains while risking even larger losses—independent of their tapering attention spans.

More on the leading indicators (I posted on these yesterday):
http://mjperry.blogspot.com/2011/03/oecd-leading-index-reaches-highest.html

For those learning about the markets, take note of the last few trading sessions, summarised very nicely in one line by Team Macro Man:

This is a good old fashioned position liquidation day

http://macro-man.blogspot.com/2011/03/meltdowns-and-tipping-points.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MacroMan+%28Macro+Man%29

Barry Ritholtz provides a list of some of recent events:

The people claiming you cannot anticipate an Earthquake/Tsunami/Nuclear accident are missing the point: We can anticipate disruptive events, as they come along all too frequently in history. Consider the following list, via Doug Kass of those 100-year flood/once in a lifetime events. These occur far more regularly than most people believe:

http://www.ritholtz.com/blog/2011/03/black-swans-100-year-floods/

Probably my favourite today … in a “Huh, WTF?” kinda way.
Jumping on the bandwagon brings rewards
Day traders made bigger profits when they moved with the herd

http://www.sciencenews.org/view/generic/id/71196/title/Jumping_on_the_bandwagon_brings_rewards
OK. So, trading with the trend can be profitable, right? Errrr …. thanks.

OK, now this. I don’t know why, but I can’t link directly to the article (well, I can, but I get a 404 page). It on the Marginal Revolution blog, on March 12, 2011 and is titled: What I learn from chess and computers. Find it on the MR home page. Bit annoying, I know, but I think it is worth reading.

I’m going to have to think about this article, but I reckon there is a lot of value in it that is applicable to trading (I am reading from the perspective of improving my trading, not my chess).

Some lines that got me thinking (and the ones that really got me thinking are bolded):

1. Databases equalize preparation opportunities for the top players. Those who rise to the very top have very strong creative skills. In relative terms, being a chess “grind” is worth less than in times past.

4. Chess is an area where educational reform has been extremely rapid and extremely successful. Chess education today revolves around learning how to learn from the computer, and this change has come within the last ten to fifteen years. No intermediaries were able to prevent it or slow it down. Humans now teach themselves how to team with computers, and the leading human players have to be very good at this. The computers which most successfully team with humans are those which replicate most rapidly.

6. We used to think that computers would play chess like we did, only “without the mistakes.” We now know that playing without the mistakes involves a very different style from what we had imagined. A lot of human positional intuitions are garbage, and the computer can make sense out of ugly-looking moves. A lot of the human progress since then has involved unlearning previous positional rules and realizing how contingent they are. Younger players, who grew up playing chess with computers, are especially good at this. For older players, it is a good way to learn how unreliable your intuitions can be.

7. Highly exact and concrete analysis, and calculation of variations, is now the centerpiece of grandmaster chess at top levels. We have learned how to become more like the computers. The computers have taught us well.

8. Chess-playing computers still are not meta-rational. They do not understand what they do not understand very well, for instance blocked positions and long sequences of repetition. That is one reason why human-computer teams are so important and so productive.

And this. How the flood of information available over the internet can hamper our decision-making.
I Can’t Think!
http://www.newsweek.com/2011/02/27/i-can-t-think.print.html
Again, I am looking at this in the context of improving my trading. I am not going to summarise the article, it covers a lot of ground, may different points. Have a read of it, but these are some of my initial thoughts.
For a long time, way before the internet was readily available, traders have been dealing with huge loads of information. We are used to it (doesn’t necessarily mean we are good at doing so though).
The “Recency” bias. This triggered recognition in me. That price move against the direction I expected, a price move enough to put me off taking the trade, only to see it then move how I expected (without me on it … arghhhh!). That’s the recency effect.
Check this out, too … for all the chart users:

In one experiment, M.B.A. students choosing a (make-believe) stock portfolio were divided into two groups, one that was inundated with information from analysts and the financial press, and another that saw only stock-price changes. The latter reaped more than twice the returns of the info-deluged group…

There is more in the article, really useful stuff.

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