Path Dependent

Programming, Complex Systems, Trading, and Introspection

Posts Tagged ‘swarming’

The Novelty of Women with Addiction Problems

November 17th, 2008

Amy Winehouse

I want to comment on Halloween. (I am a bit late.)

I spent Halloween night at the NYC parade and the surrounding bars. Usually, Halloween is the night where it is socially acceptable – almost socially required — for women to dress as slutty as the temporarily relaxed local “decency” laws allow (in NYC that means one-step shy of full frontal nudity). Given that I was expecting uber-slutty, I was surprised at the very large number of girls who dressed up as Amy Winehouse . I do not care how hot you are…crack whore is not sexy.

I do not think many women have repressed fantasies about being a crack whore (at least, I hope they do not). I do think that women are very good at identifying what is, and what is not, attractive. Adopted fads are usually attractive. I think girls who wear Uggs with a Northface jacket and leggings look ridiculous (IT’S A UNIFORM!), but that does not mean I don’t find them cute. There was nothing attractive about the Amy Winehouse contagion. Women simply were aware (by word of mouth or some beacon of fashion) that other women were going to dress up as Amy Winehouse and, apparently, this costume passed some internal mental test of novelty.

Novelty apparently allowed a bad idea to bypass rational filters (e.g. do I want people to associate me with a crack whore). I think this a very common mistake; I know I make this mistake often (I mean being seduced by novelty, not dressing up as a crack whore). Novelty encourages us to throw out common sense rules. We do not know the associated outcomes of adopting (or using or whatever) something novel and we don’t seem to care. We think novel is interesting. Somehow we forget that novel can be good or bad (Yes, that flame is pretty, but I remember when I tried to touch it, it hurt).

I do not think the average trader is more sophisticated than the girls in Amy Winehouse army. They (myself included) are captivated by novelty (Whoa; CDOs are SEXY). Novelty is dangerously seductive.

On the other hand, it was Halloween, so maybe I should STFU.

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Posted in Observation

Tags: fads fashion herding novelty swarming women

Momentum is Instinctual

August 29th, 2008

One of the earliest trading programs I wrote (circa sophomore year of high school), traded on momentum. It acted quiet naively which is a proper reflection of my mind at the time. If the slope of the price for an asset was greater than and less than some prespecified values the asset was bought until it was lower or greater than a terminal slope value; The inverse applied for shorting. My program then searched for the best combinations of entry and exit slopes over a range of different historic windows.

I was quite excited at first when I found some bots that did extremely well. Then I had the insight to try testing the bot on a different time period to confirm they did just as well; They did not. I am actually proud that I recognized the need for out of sample testing. I think at the time the math taught in my connections class (read: dorky kids) was trig/precalculus. I had no knowledge of statistics outside of averages.

The point to take away from this experience was my sixteen year old brain’s expectation of herding behaviour; It is instinctual. Behaviour finance expounds on this concept. At my young age I believed that if a stock was moving up, people would pile on; If a stock was moving down, people would abandon ship. Eventually, the fundamentalists would correct very large errors, but in the short term, I thought the technical traders set movements.

Currently, I believe that momentum is a huge factor for a certain class of trader; This class is not sophisticated. It may be possible to exploit their actions, or their likely actions, but since they probably dominate only over the short term, their is too much noise relative to signal.

Some people (in this case momentum traders) behave in a predictable way. This capacity for prediction does not mean profit. Predicting the movement of one fish in a school does not mean you know the school’s trajectory — although it might give a hint that is occasionally correct.