When I first became interested in trading, I would often consult many traditional sources and old-school market wisdom. I particularly liked the Stock Trader's Almanac.
While there is real wisdom in some of those sources, most might as well be horoscopes or Nostradamus-level predictions. Throw enough darts, and one of them might hit the bullseye.
Still, it seems better than using astrology to trade.
Want something easy to predict? Traders love patterns ... from the simple head-and-shoulders to Fibonacci sequences and the Elliot Wave Theory.
Here's an example from Samuel Benner, an Ohio farmer, in 1875. That year, he released a book titled "Benners Prophecies: Future Ups and Downs in Prices," and in it, he shared a now relatively famous chart called the Benner Cycle. Some claim that it's been accurately predicting the ups and downs of the market for over 100 years. Let's check it out.
Here's what it does get right ... markets go up, and then they go down ... and that cycle continues. Consequently, if you want to make money, you should buy low and sell high ... It's hard to call that a competitive advantage.
Mostly, you're looking at vague predictions with +/- 2-year error bars on a 10-year cycle.
However, it was close to the dot-com bust and the 2008 crash, so even if you sold a little early, you'd have been reasonably happy with your decision to follow the cycle.
The truth is that we use cycle analysis in our live trading models. However, it is a lot more rigorous and scientific than the Benner Cycle. The trick is figuring out what to focus on—and what to ignore.
Just as humans are good at seeing patterns where there are none ... they tend to see cycles that aren't anything but coincidences.
This is a reminder that just because an AI chat service recommends something, it doesn't make it a good recommendation. Those models do some things well. Making scientific or mathematically rigorous market predictions probably isn't the area to trust ChatGPT or one of its rivals ... yet.
We're seeing bots improve at running businesses and writing code, but off-the-shelf tools like ChatGPT are still known for generating hallucinations and overconfidence.
Be careful out there.
When Worlds Collide: Timeless Wisdom & Evolutionary Technology in Trading with Matthew Piepenburg
Back in 2020, I had a Zoom meeting with Matthew Piepenburg of Signals Matter. Of course, being the height of the Pandemic, it was over Zoom. Even though it was a private discussion, there was so much value in our discussion that we decided to share parts of it here.
While Matt's understanding of markets is based on Macro/Value investing, we use advanced AI and quantitative methods for our approach.
As you might expect, there are a lot of differences in how we view the world, decision-making, and the current market environment. Nonetheless, we share a lot of common beliefs as well.
Our talk explores several interesting areas and concepts. I encourage you to watch it below.
Via YouTube.
To summarize a couple of the key points, markets are not the economy, and normal market dynamics have been out the window for a long time. In addition, part of why you're seeing increased volatility and noise is that there are so many interventions and artificial inputs to our market system.
While Matt and I may approach the world with very different lenses, we both believe in "timeless wisdom".
Ask yourself, What was true yesterday, today, and will stay true tomorrow?
That is part of the reason we focus on emerging technologies and constant innovation ... they remain relevant.
Something we can both agree on is that if you don't know what your edge is ... you don't have one.
Hope you enjoyed the video.
Let me know what other topics you'd like to hear more about.
Onwards!
Posted at 04:57 PM in Business, Current Affairs, Film, Ideas, Just for Fun, Market Commentary, Personal Development, Science, Trading, Trading Tools, Web/Tech | Permalink | Comments (0)
Reblog (0)