Trading Black Swans in Forex - page 7
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Badi, you started this conversation with the statement "A Black Swan is an unpredictable event that carries massive consequences."
I agree with all aspects of the statement except the word "unpredictable".
Throughout the history of "black swans" there have been people who have predicted the event, but were ignored.
At this very moment, Bob Prechter has predicted a prolonged bear market, and he is being ignored except by some.
Throughout the history of "black swans" there have been people who have predicted the event, but were ignored.
Another way of putting it would be: assuming that Bob Prechter's predicted bear market is an equity bear market, what is he suggesting as an alternative asset class? Cash? Or something racier? And when does his prediction start from? For example, the DJIA isn't looking much like a bear market from the point of view of someone who invested in March 09.
I think Taleb's response would either be that they've been lucky in their predictions - you'll always retrospectively find someone somewhere with a contrarian/contrary view - or that their predictions have been insufficiently precise to be usefully tradeable in advance, or that they've been less right in the longer term. For example, many people in the UK called the top in the housing market in 2008, but had also been calling it for years previously, missing out on significant potential gains.
Another way of putting it would be: assuming that Bob Prechter's predicted bear market is an equity bear market, what is he suggesting as an alternative asset class? Cash? Or something racier? And when does his prediction start from? For example, the DJIA isn't looking much like a bear market from the point of view of someone who invested in March 09.
You are quite right about "lucky" predictions or vague predictions that are not tradeable. But Prechter (http://www.robertprechter.com/) has succesfully called both directions of socionomics with uncanny precision since 1970.
I've had quite a lot of fun discussing this line of argument with equity analysts. On the one hand, they tend to like Taleb (and his ilk) because he's "contrarian" and because they all like to think of themselves as "contrarian". On the other hand, they can't bring themselves to entertain the notion that industry figure X has results which are explicable solely through chance. It's not a flattering mirror to look into (particularly because of the startlingly poor evidence that fundamental equity analysis works.)
Badi, you started this conversation with the statement "A Black Swan is an unpredictable event that carries massive consequences."
I agree with all aspects of the statement except the word "unpredictable".
Throughout the history of "black swans" there have been people who have predicted the event, but were ignored.
A Black Swan in unpredictable by definition, I think it is an epistemological concept more than anything else, you can't say "predictable Black Swan", just like you can't say "my white shirt is green", because your "white shirt" is white by definition.
I agree that most of those who fire away predictions about the future are ignored, I think they should be...
For a particular someone that predicts the future, look at it this way : instead of seeing only his predictions that came out right, look also at the ones that didn't (consider the silent evidence). Another good way to look at it is by picking a list of massive events of the past and see how many of them that given person predicted.
I insist that you should only consider a particular person, as individual, when testing the ability of prediction, because if you take a population of, let's say 1 million person, and each one makes a prediction about the next year to come, you can have an acceptable percentage of good predictions, but that doesn't mean those who got it right are "good at prediction", it doesn't mean you can count on one of them to work for you and give you predictions...
At this very moment, Bob Prechter has predicted a prolonged bear market, and he is being ignored except by some.
I believe jjc has a very good answer
You may prefer to wait and see that a given prediction is wrong, personally I've given up on predictions...
Best wishes
...personally I've given up on predictions...I suppose this comment is adressed to me as I am the one who started the topic.
Astrologer? No, cloudbreaker..............................etc
Actually no, Badi, my comment wasn't addressed to you but at BlueSkyThinking as he had "found" a swan in the chart in much the same way that astrologers find pictures amongst the constellations.
Does this mean I can safely ignore the rest of your post?
CB
Actually no, Badi, my comment wasn't addressed to you but at BlueSkyThinking as he had "found" a swan in the chart in much the same way that astrologers find pictures amongst the constellations.
Does this mean I can safely ignore the rest of your post?
CB
I tried staying out of this conversation but I thought I'de add my 2cents.
Firsty I think that systems that have small losses and bigger wins are much better geared to handle different market conditions. Secondly I think you should always diversify in different pairs or systems that may even trade different market conditions.
If you look at a 50 or 100 year market index chart after a crash, there always seems to be a long sideways period (except the 80 crash). Sometimes the sideways market may last for upto 3 years before we see solid consolidation of stocks and equities. The difference this time is that the volitility is much higher than previous market bubbles. If you look at the AUDUSD weekly you will see the size of the range its in. I don't chase a 'holy grail' system or %1000 backtesting results as its realistic and you will be chasing your tail for years. Smart money is on diversifaction with low risk and constant optimisation to adapt to current climate.
Are you a trader, Badi? If you are, then making predictions about the immediate future is what you do all the time.
Well, I used to predict, but not anymore, I don't know if this is hard to conceive but I do trade without predicting... That is what I call Trading Black Swans... I wouldn't bother and start a topic about Black Swans if my system wasn't fundamentally different from most of the systems out there.
regards
Actually no, Badi, my comment wasn't addressed to you but at BlueSkyThinking as he had "found" a swan in the chart in much the same way that astrologers find pictures amongst the constellations.
Does this mean I can safely ignore the rest of your post?
CB
Then it is a nice comment for a funny picture ; )
If you are a trader it is SAFER to read the rest ...
Cheers !