Falsifiability criteria for evaluating trading proficiency

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Sep 17, 2010, 6:05:39 AM9/17/10
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http://www.myfxbook.com/community/suggestion-box/amalgamate-oanda-sub-accounts/51765,1

Richard Dawkins chided people for their 'fallacy of incredulity' .
David Berlinski replied " .... In appealing to the animidversions of
others, he appeals to his own ability to believe almost anything ...."

The investing public like Dawkins also do believe anything they are
told which is why the Nasdaq hit 5000 points. Enron, Leahman , scams ,
hoaxes, UFO's etc. This inability to question things is why we have
thousands of people trading forex, wasting their money and time
ignoring the fact that 99% will eventually lose, only a few
individuals manage to time the markets consistently for 10 years or
more.

Most enter Forex catching a major trend like the Euro tanking from
1.50 to 1.18 and all they did was short based on Fibonacci, Elliot or
the temperature cycle on the North Pole thinking that they are now the
next good trader. But what really happened was that we had a trend
for a few months due to some historical event that won't repeat
itself, because history never repeats itself. Their methods just so
happened to coincide with the euro tanking because no matter what
parameters you used, if you kept on shorting the euro during its
strong down trend , the trade would eventually go in the money.

All exited they announce their entry to becoming full time forex
traders, then the crises blows over and the euro resumes a counter
trend with their Elliot, Fibonacci, Stochastic nonsense not working
this time around.

A trader must be able to go short and long during a trend and counter
trend, because usually one only realizes after the event that we were
in a trend like with the euro the last six trading sessions. In some
cases such a trend is announced with a huge break-out and thus any
form of trading must factor in the fact that 60% of the time we have a
counter trend, 30% a trend and 10% a break-out.

If one is thus so credulous as to actually believe the 100% or 200%
gains posted on myfxbook.com then such a person should seriously
consider whether he has the mental acumen to trade forex.

Note that my assertion isn't that nobody can trade forex, there are
people who do, they do exist. It is just that is very difficult to
evaluate claims of trading proficiency due to the fact that with off-
shore and fronting companies not even the IRS tax authority can deduce
whether the person has declared his net gain as percentage of net
equity risked. One should thus be very wary when reading a statement
claiming 1000% gain.

Which is why one must always place the falsifiability onus on the
person making the claim, he remains a fraud misrepresenting his
trading ability unless he can prove the converse with at least an
audited tax return from all his fronting and off-shore companies or a
single http://stocktwits.com/stephanusR account.

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Sep 17, 2010, 6:17:02 AM9/17/10
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stephanusR
http://www.myfxbook.com/community/trading-systems/bumbum-full-period/39120,1
"....How many sub accounts do you have with oanda ? Lets presume 1000,
thus out of 1000 there is nothing significant with having three
accounts show 400+ gains if they are each seeded with $10 traded of
the Oanda API . As per Popper's principle of falsification the burden
of proof is on you to clarify. With Oanda one could even have a $1 sub
account, my best bet is you are gaming the system ...."

myfxbook.com should provide a weighted average of all oanda sub
accounts and present us only with one Oanda account. For enough money
Oanda will allow a trader any number of sub accounts.

I understand and from the two negative votes one can presume that
people are exploiting this where they only tell us about their winning
real Oanda accounts and not their losing real Oanda accounts. In the
interest of transparency I would suggest that all Oanda accounts gets
flagged with a disclaimer for this purpose. Come to think about it one
could pay bribes to forex.com, alpari.com to allow hundreds of real
sub accounts with them. Presently it isn't allowed but at the right
price I am sure anything can be organized.

Thus any Oanda account must have a large equity say around $5000
before one could take it serious.

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Sep 17, 2010, 6:21:26 AM9/17/10
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http://www.myfxbook.com/community/suggestion-box/length-position-holding-vs-pips/47597,1

I think this may be key analysis to rate trading performance.
If you can show sort of chart with number of pips on Y [vertical] axis
and time of holding on X [horisontal] axis. Use of such statistics
would be to see if given trader holds his "scalps" for few hours or
days to get 5 pips profit or if one cuts his losses quickly. It would
be good to see scalps held only for 5-20 minutes or only 50+ pips
positions held for few hours or days [with occasional stops at BE here
or there].

Another factor is the pip win to draw-down ratio. If you made 20
pips , your drawdown should be no more than 20 pips. Express this as a
ratio and plot on a graph to quantify risk reward ratio. Having a 200
pip draw down isn't same as 20 . But it should take percentage of
equity into account with some scaling factor. having a 200 pip draw
down with one micro lot isn't the same as 1 standard lot.

http://www.myfxbook.com/community/suggestion-box/add-column-for-draw-down/52604,1
Add a column for draw down on each trade, there are 11 columns at
present. Each draw-down must be marked in pips or % of equity ,
whatever might be suitable

yes, one could do also do it graphically , it quantifies the risk/
reward ratio. As a general rule if you make 10pips profit your
drawdown should be no more than 10pips for a 1:1 profit ratio. Each
trade's pip:drawdown ratio is then weighted as a % of deposit or
equity. Every single weighted trade is then combined and then averaged
for a single parameter which we shall call

Weighted pips gain : weighted draw down (pip-gain-factor). Thus a
standard lot trade that employed 10% of equity for a gain of 10pips
for a draw down of 10 pips will have a higher positive pip-gain-factor
than a micro lot trade that generated 100 pips for a a draw down of 10
pips. One could take either the equity or initial deposit to generate
this pip-gain-factor, we must discuss this further. Thus one doesn't
have to manually read through pages of trades to find a winning
system, the (pip-gain-factor) allows a single number to quantify
whether random luck or true trading skill was demonstrated, and it can
easily be implemented in a spread sheet or script.

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Sep 17, 2010, 7:03:03 AM9/17/10
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Argument:
So basically unless people prove their authenticity through Stocktwits
they should be distrusted?

Counter:
Yes, either a single http://stocktwits.com/stephanusR account or your
audited tax return. The IRS wants to know about your net gain across
all 100 of your futures accounts. They won't tolerate games like
http://www.managed-forex-investing.com/forex-money-managers is
playing by only showing us five winning accounts out of 500. With
myfxbook.com we can play games by uploading only those real accounts
that made money, I don't think Steve, that one would want to play
games with the UK tax authority. The assumption must always be that a
person is a fraud and trying a scam until he can prove the converse.

See this thread http://www.forexfactory.com/showthread.php?t=254552
"James16 is not credible" and http://www.forexfactory.com/showthread.php?t=27286
''Jacko's''

Argument:
Stephanus, I understand your concerns and I support the critics
against scammers but I don't agree with you in this case. A person
could have 5 accounts running 5 different strategies. If 4 of those
accounts are in loss and the 5-th is a long term winner that doesn't
make that person not credible. That's why there are different
strategies and different accounts.
I think a person with myfxbook verified account, reputable broker as
dbFX, CitiFX, FXCM, FxPro or else and quite large live account(a sign
that the person trusts his strategy) cannot be called scammer. As you
may see this ain't some 100$ account but it was rather a 40-50k
account. Scammers don't conduct experiments on 50k live account.

Counter:
Correct, they conduct it with other people's money at no risk to
themselves. The trader of this account is a Nigerian. He has many
accounts trading other people's money , taking 30% profit from the
winning accounts and none from the losing accounts. The fraud is that
he only uploaded a winning account and didn't show us his losing
accounts. He is running 100 EA's of which one worked, the one he
uploaded. The other 99 accounts he didn't take commission .

Now how do I know he is running 100 EA's? I don't of course, as
explained it isn't for me to prove or disprove anything he says but
for him to make his claims falsifiable. Look up falsifiability on
Google if you don't know what it means.

Some say I am making "accusations" . An accusation would be more in
line with saying somebody stole sweets at Walmart for which I would
then have to provide the proof or my accusation would remain
unfalsifiable , it could be true or not . I am not so much "accusing"
anybody as insisting on the person making the claims to have such
claims be possible to disprove.

If you are claiming trading proficiency then such claims must be able
to be disproven
as per the Karl Popper principle of falsifiability. In other words I
am not trying so much to prove my trading ability but rather for
independent observers to disprove my assertion that I can time the
futures and forex market.

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Sep 17, 2010, 7:08:12 AM9/17/10
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http://www.myfxbook.com/community/trading-systems/robox-01/41016,1

The broker is GDFX..
http://gdfx.org/en/contacts.html are from you won't believe this -
Kazakhstan - Central Asia! What more does one need to say ..... the
account is a fabrication , a fake that they edited on their server. It
creates free advertisement and undermines the credibility of myfxbook.
They should really put in a filter to filter out the brokers from
Asian banana republics . The broker is everything, first check the
broker (alpari, mbtrading) then the statement. Nothing from Russian
credit card hackers can be trusted.

Kazakhstan - Central Asia
Almaty, Dzheltoksan str. 104
Tel: ...

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Sep 17, 2010, 7:06:11 AM9/17/10
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On Sep 17, 2:03 pm, backspace <stephan...@gmail.com> wrote:
> Argument:
> Stephanus, I understand your concerns and I support the critics
> against scammers but I don't agree with you in this case. A person
> could have 5 accounts running 5 different strategies. If 4 of those
> accounts are in loss and the 5-th is a long term winner that doesn't
> make that person not credible. That's why there are different
> strategies and different accounts.
> I think a person with myfxbook verified account, reputable broker as
> dbFX, CitiFX, FXCM, FxPro or else and quite large live account(a sign
> that the person trusts his strategy) cannot be called scammer. As you
> may see this ain't some 100$ account but it was rather a 40-50k
> account. Scammers don't conduct experiments on 50k live account.

> Counter:
> Correct, they conduct it with other people's money at no risk to
> themselves. The trader of this account is a Nigerian.

http://www.myfxbook.com/community/trading-systems/jpcfx-ecn/51476,1#?pt=2&p=2&o=51476

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Sep 17, 2010, 7:13:05 AM9/17/10
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aladar posted:
@ Stephanus - "Instaforex is not a legit broker but a bucketshop
fabricating results."

Argument:
I'd like to know, why do you think that way. Do you have personal
experience with them or do you know anyone personally?

Counter:
If somebody claims to have a flock of flying dragons in his home, it
isn't for me to disprove he doesn't have them. The person making the
claim must provide a way for such claim to be falsified.

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Sep 17, 2010, 7:17:55 AM9/17/10
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http://www.myfxbook.com/community/trading-systems/mkingbeats/36079,1
kishorejoga posted:
"...good effort mkingbeat ,I am also leaning fores for last 2 years
I used to do ok with swing trade but i the middle i have become greedy
I have fallen pray to one of managed account guys
who showed me cents account as dollars and i gave my dollars account
in december last year
he has blown my fxdd and alapri accounts...."

I posted about your type of situation elsewhere. A trader sets up
hundreds of fake real accounts or even genuine real accounts seeding
them with $100, but then only reports on that one out of 100 accounts
that made money. Since he takes 30% cut of a winning account, he can't
lose. Even http://www.barclayhedge.com is in on a similar scam where
they list say 100 hedge funds, which is actually managed by the same
individual. With cloud servers and the Internet one can generate
profits by running many types of EA, out of 100 there will always be
one fund making money. Thus investors run from winning fund to winning
fund like a bunch of fools, not knowing it is the same individual
behind all 100 companies.

FXDD ran a trading contest a few weeks ago on myfxbook. Near the end
somebody from nowhere made five winning trades in a row for 1000%
profit, "winning" the contest. This is so improbable that one can only
assume a 007 Zombie got hold of Fxdd's servers and magically edited
his account.

But I could be wrong, if this trader who "won" the first prize is
actually trading then post please. Same with FXCM , they have a King
of the microlot contest every moth where you can win $40000 in first
prize money. Not one of those "winners" has ever posted anywhere on a
forex forum, it is FXCM themselves generating fiction. One of these
"traders" are being interviewed by FXCM, they are in other words
interviewing themselves, unless they can prove the converse. Since
they make the claims, they must provide a way for such claims to be
falsified.

AIG, GS, Lehman were all in on a scam where AIG wrote nakek put
options, with the top brass collecting their "performance" bonuses.
The US government in the end had to act as the futures exchange paying
out GS. Lies, fraud, deceit and deception brought us to the brink of
global war, because if the US implodes, China and Russia will implode.
Our very lives were endangered by analysts and brokers gaming the
system.

The only way anybody could make 1000% on Forex is if their buddy's in
S&P tipped them of at 1.5 euro that Greece was toast, went short and
stayed short all the way down to 1.18 Euro. Unless of course he can
provide a single account such as http://stocktwits.com/stephanusR over
a long period.

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Sep 17, 2010, 7:19:52 AM9/17/10
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http://www.myfxbook.com/community/trading-systems/tradelikepro/9840,1
Fascinating how myfxbook.com basically shows that virtually nobody
makes money in forex over the long run. Every single account showing
gains over 50% on closer inspection is either

1) The broker themselves cooking the server a bit to generate free
advertisement, usually your Russian brokers with "Boris" his wife
"Doris" and brother "Boomer" posting in broken English.

2) Real $100 deposit accounts all by the same sock puppet spread over
100 accounts running an EA aligned with the Saros solar cycle. In the
casino , out of a hundred slot machines each with a paw-paw, banana
and monkey you will from time to time get three paw-paws in a row.

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Sep 17, 2010, 7:23:03 AM9/17/10
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Mike Baghdady WINNER! of the Live Trading World Championship Frankfurt
2009 but there is no such event held annually in Germany.

World trading championship.

World of trading , world champion 2009

http://www.knowledgetoaction.co.uk/ same scam

Where did the [url]http://www.trade2win.com/boards/showthread.php?
t=90530[/url] thread go?

SpyGlass - Mike Baghdady

The guy is a is claiming to have won a non-existent trading contest.

This trading contest that http://www.spyglasstrading.co.uk entered
don't exist. Only this one does
[url]http://www.robbinstrading.com/worldcup/standings.asp[/url] which
is run by NFA registered futures brokers such as pfgbest.


http://www.60minutetrader.com/toptraders.htm ''winner or 2002 , hosted
by whom? ''

http://www.ripoffreport.com/Brokerage-Companies/PROGRAM-TRADING-SOLU/program-trading-solutions-spyg-489am.htm

http://www.trustlink.org/Reviews/Spyglass-Equity-Systems-Inc-205965794

http://www.trade2win.com/boards/forex-strategies-systems/90530-spyglass-mike-baghdady-8.html#post1245378

http://www.spyglasstrading.co.uk/

http://www.programtradingsolutions.com

http://www.thetradetechinstitute.com and Spyglass Equity share the
same business address. Both also have the same unattributed Bloomberg
newsfeeds on their websites.

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Sep 17, 2010, 8:43:24 AM9/17/10
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http://www.forexfactory.com/showthread.php?t=254552

The bottom line is jim doesn't teach anything different than whats out
there from guys like alexander elder, pring, steve nison, raschke, or
any of the other trading gurus who also market pins, buob, beob, fibs,
confluence and such, the only difference is they market it as candles
and jim uses OHLC bars.

At the end of the day, all of these guys are so called 'teachers',
none provide any records of their own trading. Find me anyone in the
trading education business who provides a record, I know of no one.
Many times if a guru does a live trading setup they lose, I've seen
linda raschke do a live trade after it failed she kept chasing the
market like a sucker trying to show her methods work. Most importantly
IT DOESN'T MATTER WHAT THEIR TRADING RECORD IS. If the method works
you should be able to pick it up and make money but, most guys are
still losers just like the other 90-98% of retail with high turnover.

Instead of showing trading records, show evidence that the tools have
a statistical edge. Go to any traders expo, and the stuff sold to
retail is all the same, fibs, pa, candles, MA, oscillators, etc. Its
just a different face selling it. If retail is using these methods,
than how come so many lose? The reality is technical analysis and
chart reading have little scientific/statistical evidence of working.
Charts, bars, PA, fancy colors, new programs, technology, and gurus
provide false hope to the 90% who have dreams of making money.

Caveat: I started to work on finding quantitative and statistical
edges about 2 years ago, I analyzed trading pins the way the 'gurus'
teach and counter trading pins, there is no statistical difference
amongst them in currencies and a minor edge in equity index and
commodity futures, essentially pinbars are a 50-50 non edge. I point
this out because many 'gurus' sell the pinbar, hammer, reversal bar
like its some sort of magic tool.
------------------

Google "linda raschke" :
http://www.google.co.za/search?hl=en&as_q=&as_epq=linda+raschke&as_oq=&as_eq=&num=100&lr=&as_filetype=&ft=i&as_sitesearch=&as_qdr=all&as_rights=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images

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Sep 17, 2010, 8:46:39 AM9/17/10
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[TOP]Fooled by Randomness

http://www.forexfactory.com/showthread.php?p=3958422#post3958422

Here is another good book: "Fooled by Randomness"
http://www.amazon.com/Fooled-Randomness-Hidden-Chance-Markets/dp/1587990717

I would beg to differ though one can actually win the markets, the
trick is in proving it and not just asserting it can be done. My track
record at http://stocktwits.com/stephanusR is 28 winning trades out of
30, documented , time logged. My timezone is Cyprus time. This is far
better than a real trading statement because one could have hundreds
of real statements and only tell us about those that actually worked.

http://amzn.to/cI3M95 The Black Swan: Second Edition: The Impact of
the Highly Improbable: With a new section: "On Robustness and
Fragility" [Paperback]

Review of Black Swan by Chris Anderson is editor-in-chief of Wired
magazine and the author of The Long Tail: Why the Future of Business
Is Selling Less of More.

Four hundred years ago, Francis Bacon warned that our minds are wired
to deceive us. "Beware the fallacies into which undisciplined thinkers
most easily fall--they are the real distorting prisms of human
nature." Chief among them: "Assuming more order than exists in chaotic
nature." Now consider the typical stock market report: "Today
investors bid shares down out of concern over Iranian oil production."
Sigh. We're still doing it.

Our brains are wired for narrative, not statistical uncertainty. And
so we tell ourselves simple stories to explain complex thing we don't--
and, most importantly, can't--know. The truth is that we have no idea
why stock markets go up or down on any given day, and whatever reason
we give is sure to be grossly simplified, if not flat out wrong.

Nassim Nicholas Taleb first made this argument in Fooled by
Randomness, an engaging look at the history and reasons for our
predilection for self-deception when it comes to statistics. Now, in
The Black Swan: the Impact of the Highly Improbable, he focuses on
that most dismal of sciences, predicting the future. Forecasting is
not just at the heart of Wall Street, but it’s something each of us
does every time we make an insurance payment or strap on a seat belt.

The problem, Nassim explains, is that we place too much weight on the
odds that past events will repeat (diligently trying to follow the
path of the "millionaire next door," when unrepeatable chance is a
better explanation). Instead, the really important events are rare and
unpredictable. He calls them Black Swans, which is a reference to a
17th century philosophical thought experiment. In Europe all anyone
had ever seen were white swans; indeed, "all swans are white" had long
been used as the standard example of a scientific truth. So what was
the chance of seeing a black one? Impossible to calculate, or at least
they were until 1697, when explorers found Cygnus atratus in
Australia.

Nassim argues that most of the really big events in our world are rare
and unpredictable, and thus trying to extract generalizable stories to
explain them may be emotionally satisfying, but it's practically
useless. September 11th is one such example, and stock market crashes
are another. Or, as he puts it, "History does not crawl, it jumps."
Our assumptions grow out of the bell-curve predictability of what he
calls "Mediocristan," while our world is really shaped by the wild
powerlaw swings of "Extremistan."

In full disclosure, I'm a long admirer of Taleb's work and a few of my
comments on drafts found their way into the book. I, too, look at the
world through the powerlaw lens, and I too find that it reveals how
many of our assumptions are wrong. But Taleb takes this to a new level
with a delightful romp through history, economics, and the frailties
of human nature.

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Sep 17, 2010, 8:47:33 AM9/17/10
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Murray math trading:

http://www.forexfactory.com/showthread.php?p=3896663&posted=1#post3896663

Murray the inventor of murray math devised an arbitrary set of
parameters , then looked for equities that so happened to coincide
with them, discarding those equities that didn't during a sampling
period. In other words out of 100 equities he would send an email
informing us about the 5 that his his arbitrary SR lines, failing to
tell us about the 95 that didn't work as predicted by his theory. This
is known as data-snooping bias, look it up on wikipedia

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Sep 17, 2010, 8:49:21 AM9/17/10
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Sep 17, 2010, 8:50:38 AM9/17/10
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http://www.myfxbook.com/community/suggestion-box/flaw-charts-we-need-pips/2070#?pt=2&p=1&o=2070

I have noticed a great many of the accounts on myfxbook are demo
accounts, testing strategies and robots and there overall performance.

any true trader would not be too concerned with equity growth, why?
example:~ a scalper robot that uses large lot sizes can easily grab
$100 for a 1 pip scalp trade, it is widely known that scalpers have a
very, very, very high risk/reward ratio, one loosing trade can blow
all the winning trades for the past week or more in one fale swoop,
not good trading practice and very poor money management. second
example, my own testing account, i'm actually -800 pips from account
opening, but im in profit, why? high risk scalping to recover the
account, this demonstrates why we all need the charts modified.

we have 2 charts outlaying balance and growth, both based purely on
profit/equity and effectiviely show the same information. what should
be present instead is one charting account equity growth and the
second charting pip growth, this is the only way one can fully
determine the efficiency and stablility of a manual strategy/automated
trading robot.

this way, when we look at a traders performance chart, we can see not
just the equity growth in percentage but also the pip growth in
comparision to equity percentage, if both are following the same
direction then your doing well , if your in profit but are still
lossing pips( due to lot sizes) then that line will be going in the
opposite direction. if we see big dippers(drawdown) in the chart we
know your scalping with wide stoplosses or trade with poor money
management i.e no stoploss and close the trade manually after you
finally except defeat, your secret's out to public scrutiny lol.

but on a serious note, this is what i'd be more interested in, as we
all often use differing lot sizes which capture varying amounts of
profit/losses, equity growth is really a very poor representation of
the true growth of your account, please change the equity growth chart
to pip growth or have equity balance + equity growth + pip growth for
a fuller picture.

this of course could mean tweaking your systems page coding, as the
true pips v. balance should equate to who's doing the best, on the
systems page we see accounts with +600%m but with 50% drawdown, high
risk! but what would be better is that the systems page works out
which account has the most pips+balance for that month, we'll know the
pip value too.

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Sep 17, 2010, 8:51:09 AM9/17/10
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Sep 17, 2010, 9:00:21 AM9/17/10
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http://www.myfxbook.com/members/boriskvc/boriskvc/19249

Of course it will be free, how could they charge you for editing an
Excel spreadsheet after the event on MT4 server. The account is an
obvious fake from Alpari, it is meant to generate the illusion that
somebody out there generated 220 winners out of 223. This "Boris"
person for example hasn't posted a single live real-time trade on his
stocktwits.com account.

Gambling houses do the same, rig the machines so that the owners ,
brother's half sister "wins" a million dollars, draws in all the
gamblers. The forex trading houses view their clients as naive
simpletons for actually thinking they can beat the market. The
lifespan of a retail forex trader like a gambler running through his
last $50000 is around two years. During this time the increasingly
frustrated trader attends Oliver Velez courses or listens to
"legendary" trader Larry Williams who was fined by the NFA for
fraudulent misrepresentation. He lost a couple of million in a fund he
managed, which is why he turned to "teaching".

http://www.jurikres.com/snake/lawsuits.htm "...NFA fines Larry
Williams for not reporting to potential clients that, while his
personal account in a promotional 1987 contest was very profitable ( a
gain of + $902,599 ), his managed accounts for clients lost
substantial funds ( - $6,122,281 ). This constituted deceptive and
unbalanced promotional material and disclosure statements. Details in
William Gallacher's book Winner Take All.

Footnote -- In July 1988, the Larry Williams Financial Strategy Fund
was launched, followed in March 1989 by the World Cup Championship
Fund, managed by Larry Williams, Jake Bernstein and two others. The
1988 fund lost more than 50% of its clients' equity in barely one
year, as reported in the October 1989 issue of Futures magazine. The
1989 fund also lost more than half of its original equity by May
1990. ..."

http://www.amazon.com/gp/product/1557385335 Winner Take All: A Top
Commodity Trader Tells It Like It is [Hardcover]

With a penetrating intelligence and a sharp wit, Bill Gallacher
dissects many of the industry's leading lights, exposing the frauds,
deflating the pompous and poking fun at the seers who believe they can
predict the future. Along the way, he demonstrates why most traders
lose and, most importantly, what it takes to win.

Like me you might well be wondering why all these "competitive Retail
Forex businesses" would want to get into the brokerage business in the
first place. Helpfully Boston Technologies also provide an answer to
that very question. If you download the "Detailed Business Plan
Framework" from that page you will discover all sorts of interesting
snippets of information about how forex brokers make money. Various
business models are outlined. For "straight through processing" it
seems as though:

http://trading-gurus.com/start-your-own-brokerage-for-dummies/ Rule of
thumb calculations show that if [a customer] deposits $10,000 then the
broker will make about $1000 in profit over a month if he is active.
For an inactive trader he will make $100. In the "closed loop dealing
desk" model however, the broker takes on more risk, but makes bigger
profits: Most small retail customers have no experience and 95% of
them WILL lose money. Here, most customers act like gamblers and your
job is to act as the "house". This is a "non-recurring" customer model
in that most customers lose their cash, and do not come back with
additional investments. Ongoing customer acquisition is therefore very
important. So there you have it. You now know how the over the counter
brokers make their money from forex. The obvious question to ask next
is how can you make money from forex?

Oliver Velez selectively picks only those stocks which so happen to
match his trading theories, leaving out the losing trades. He is
selling people a pipe dream and can't produce a real or demo trading
statement from a reputable firm like mbtrading.com. Demo trading
results are fine as long as the broker is reputable.

Then we have another set of vultures: Trading Psychologists. Imagine
you are delusional thinking you are forex-wonderwomen and jump of your
roof in red cape every morning , spraining your ankle. The more you
trade , the more you lose. You can't sleep, your pulse racing. Trapped
in your delusion you can't accept the obvious: The trading methods
don't work. Like a Scientologist e-meter facilitator the "Trading
Psychologist" swoops down on the hapless trader: "Stick to your
methods!" Which is like a Psychologist telling somebody who thinks he
is Harry Potter that he must twist his broom to the left a bit, maybe
now you will get airborne. Everything but the truth is told, only 1%
eventually make it in Forex and 99.99% of trading methods don't work
as described in the thread "Technical analysis fallacy" on
forexfactor.com. Fibonacci retracements, support and resistance lines,
above 200ma or below, are all colorful hogwash on a chart.

Forex dealers are generating fake statements and using Myfxbook.com as
an advertising platform to generate profit hallucinations , like
gambling houses create the illusion that you could also strike the
bigtime. Fact is that the eurusd follows a random walk, there are only
a few individuals in this universe who can trade forex.

Closer inspection of the Alpari account revealed that "Boris" and his
brother "Boomer" weren't scalping, they made 10, 15pips consistently.
Given that the chances are something like 1 out of 10bil somebody
could actually make 220 winning trades out of 223, we can only
conclude that some "Gremlin" got hold of Alpari's server. me is 6%

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Sep 17, 2010, 9:01:25 AM9/17/10
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http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393315290

A RANDOM WALK DOWN WALL STREET, by Malkiel.

A Mathematician Plays the Stock Market ,John Allen Paulos

The accounting scandals involving ?WorldCom, Enron, and others derived
from the data being selected, spun, and filtered. A scam I first
discussed in my book Innumeracy derives instead from the recipients of
the data being selected, spun, and filtered. It goes like this.
Someone claiming to be the publisher of a stock newsletter rents a
mailbox in a fancy neighborhood, has expensive stationery made up, and
sends out letters to 68 John Allen Paulos potential subscribers
boasting of his sophisticated stockpicking software, financial acumen,
and Wall Street connections. He writes also of his amazing track
record, but notes that the recipients of his letters needn't take his
word for it. Assume you are one of these recipients and for the next
six weeks you receive correct predictions about a certain common stock
index. Would you subscribe to the newsletter? What if you received ten
consecutive correct predictions? Here's the scam. The newsletter
publisher sends out 64,000 letters to potential subscribers. (Using
email would save postage, but might appear to be a "spam scam" and
hence be less credible.) To 32,000 of the recipients, he predicts the
index in question will rise the following week and to the other
32,000, he predicts it will decline. No matter what happens to the
index the next week, he will have made a correct prediction to 32,000
people. To 16,000 of them he sends another letter predicting a rise in
the index for the following week, and to the other 16,000 he predicts
a decline. Again, no matter what happens to the index the next week,
he will have made correct predictions for two consecutive weeks to
16,000 people. To 8,000 of them he sends a third letter predicting a
rise for the third week and to the other 8,000 he predicts a decline.
Focusing at each stage on the people to whom he's made only correct
predictions and winnowing out the rest, he iterates this procedure a
few more times until there are 1,000 people left to whom he's made six
straight correct "predictions." To these he sends a different sort of
follow-up letter, pointing out his successes and saying that they can
continue to receive these oracular pronouncements if they pay the
$1,000 subscription price to the newsletter. If they all pay, that's a
million dollars for someone who need know nothing about stock,
indices, trends, or dividends. If this is done knowingly, it is
illegal. But what if it's done unknowingly by earnest, confident, and
ignorant newsletter publishers? (Compare the faithhealer who takes
credit for any accidental improvements.)

Similar to the newsletter scam, but with a slightly different twist,
is a story related to me by an acquaintance who described his father's
business and its sad demise. He claimed that his father, years before,
had run a large college-preparation service in a South American
country whose identity I've forgotten. My friend's father advertised
that he knew how to drastically improve applicants' chances of getting
into the elite national university. Hinting at inside contacts and
claiming knowledge of the various forms, deadlines, and procedures, he
charged an exorbitant fee for his service, which he justified by
offering a money-back guarantee to students who were not accepted. One
day, the secret of his business model came to light. All the material
that prospective students had sent him over the years was found
unopened in a trash dump. Upon investigation it turned out that he had
simply been collecting the students' money (or rather their parents'
money) and doing nothing for it. The trick was that his fees were so
high and his marketing so focused that only the children of affluent
parents subscribed to his service, and almost all of them were
admitted to the university anyway. He refunded the fees of those few
who were not admitted. He was also sent to prison for his efforts. Are
stock brokers in the same business as my acquaintance's father? Are
stock analysts in the same business as the newsletter publisher? Not
exactly, but there is scant evidence that they possess any unusual
predictive powers. That's why I thought news stories in November 2002
recounting New York Attorney General Eliot Spitzer's criticism of
Institutional Investor magazine's analyst awards were a tad
superfluous. Spitzer noted that the stock-picking performances of

most of the winning analysts were, in fact, quite mediocre. Maybe
Donald Trump will hold a press conference pointing out that the
country's top gamblers don't do particularly well at roulette.

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Sep 17, 2010, 9:02:47 AM9/17/10
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http://www.evidencebasedta.com/

Evidence based technical analysis (EBTA) is dedicated to the
proposition that technical analysis should be approached in a
scientific manner. This implies several things. First, it is
restricted to objective methods that can be simulated on historical
data. Second, the historical performance statistics produced by such
back-testing are then evaluated in a statistically rigorous fashion.
In other words, profitable past performance is not taken at face value
but rather evaluated in light of the possibility that back-test
profits can occur by sheer luck. The problem of lucky performance is
especially pronounced when many methods are back-tested and a best
method is selected. This activity is called data mining. Though data
mining is a promising approach for finding predictive patterns in data
produced by largely random complex processes such as financial
markets, its findings are upwardly biased. This is the data mining
bias. Thus, the profitability of methods discovered by data mining
must be evaluated with specialized statistical tests designed to cope
with the data mining bias. EBTA employs such methods.

EBTA rejects all subjective, interpretive methods of Technical
Analysis as worse than wrong, because they are untestable. Thus
classical chart patterns, Fibonacci based analysis, Elliott Waves and
a host of other ill defined methods are rejected by EBTA. Yet there
are numerous practitioners who believe strongly that these methods are
not only real but effective. How can this be? Here, EBTA relies on the
findings of cognitive psychology to explain how erroneous beliefs
arise and thrive despite the lack of valid evidence or even in the
face of contrary evidence. Cognitive psychologists have identified
various illusions and biases, such as the confirmation bias, illusory
correlations, hindsight bias, etc. that explain these erroneous
beliefs.

Thus EBTA relies on computerized methods for identifying patterns, and
combining evidence into useful trading signals. Due to recent advances
in computing and data mining algorithms it becomes possible for the
modern technical analyst to amplify their research efforts and find
the real gold. In other words, EBTA advocates a synergistic
partnership between technical analysts and data mining computers to
expand the valid base of knowledge called technical analysis. The
union of humans and intelligent machines makes sense because the two
entities have different but complimentary information processing
abilities. Whereas human intelligence has a limited ability to engage
in complex configural reasoning, which is required to identify valid
predictive variables and combine them into a mathematical function, it
can pose questions and proposed candidate variables. Whereas computer
intelligence is ill equipped to pose questions and propose variables
it has enormous capacities to identify relevant predictors and derive
optimal combining functions.

However, this new approach to technical analysis will require that
human technicians abandon some tasks they now do and learn a new set
of analytical skills. While they will no longer try to subjectively
evaluate complex information patterns, they will need to learn about
the kinds of data transformations that produce variables that are most
digestible to data mining computers. They will also need to learn
which data mining approaches are most viable and which types of
problems are most amenable to data mining.

David Aronson is the author of "Evidence Based Technical
Analysis" (John Wiley & Son's 200

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Sep 17, 2010, 9:10:16 AM9/17/10
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Look again at the equity curve from http://www.barclayhedge.com/research/indices/cta/sub/curr.html

Note how the curve makes new highs, year upon year. Bur they wrote:
"...To see historical data on the number of programs included in the
Barclay Currency Traders Index, click here..."

In other words only those currency funds they wished to include to
reflect a good equity return was included, what about the currency
funds that didn't make money- where are they? Thus their system
suffers from data-snooping bias , a form of misrepresentation fraud.
The market follows a random walk, very few traders would be able to
have such an equity curve after 5 years. Unless of course they can
prove the converse by making trades to single signaling service such
as http://stocktwits.com/stephanusR and not hide behind hundreds of
offshore companies.

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Sep 17, 2010, 11:38:00 AM9/17/10
to futures trading
Argument:
"...From your own statement here I dont get what your shtick is. You
claim people should show you statements by using myfxbook and then you
say that myfxbook is easily manipulated.
So once someone does show you results, then what? Accuse them of
uploading false statements?
........"

Counter:
If you claim to have a flock of flying dragons in your home, it is not
for me to prove or disprove anything. Anything can be fabricated on a
PC, the person claiming to trade must provide a means of such claims
to be disproven or falsified. Google for Karel Popper and
falsification on wikipedia.

http://www.stocktwits.com is probably the only means of bringing in
transparency. http://www.robbinstrading.com/worldcup/standings.asp is
hosting the pfgbest futures trading contest. One needs minimum $15000
to participate. The scam is that they allow a trader to have any
number of accounts of $15000. This is not fair to a trader who only
has $15000 to enter and can only have one account thus.

With http://www.stocktwits.com you as an individual are only allowed
one alias, they won't tolerate spamming of their board by sock
puppets.

Andrea Unger is the winner of the 2009 contest and presently having
two accounts in second and third place, is "sock puppeting" in a
sense. His other 100 futures accounts of $15000 each running at steep
losses he isn't telling us about.

Andrea Unger is gaming the system like a Russian hacker games
myfxbook.com by selling worhtless EA's just at a much more
sophisticated level using a futures account. It at least indicates
that he really is making 113% gain on two out of his 100 simultaneous
futures accounts.

It thus generates the illusion that Andrea Unger can actually trade,
he can't unless he can prove the opposite. Note the principle of
falsifiability, I don't have to prove anything, he makes the claim, he
must provide the evidence, like for example his tax return.

The trading contest thus generates hype creating a false impression
leading naive investors investing with Andrea Unger. Lets presume he
has 30 real futures accounts and all of them are positive. The only
way to prove this is to provide his tax return . If he won't take a
chance lying to on his income tax he probably won't lie to an
investor. The onus is on him to make his claims falsifiable.

Asafyigal is the founder of http://www.currensee.com which has the
same problem as http://www.robbinstrading.com/worldcup/standings.asp ,
https://www.worldcupadvisor.com/ and
http://www.worldcupadvisor.com/worldcupchampionships/default_nwcc2.aspx

they allow hundreds of real accounts but only publish the winning
accounts. What you are supposed to do is publish all your 300 real
accounts and provide the net gain as % of net equity employed.

It is true that one can game http://stocktwits.com/stephanusR and
create hundreds of aliases but would be very difficult and pretty much
pointless. On a balance of probabilities I think most would agree that
I Stephanus Rensburg from South Africa only have one stocktwits.com
account.

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Sep 17, 2010, 4:36:47 PM9/17/10
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Originally Posted by trading100 View Post
I am talking about http://www.spyglasstrading.co.uk , would you
clarify what K2A means?
Got an email from mike baghdady today Friday

"....The Online Trade Planning Session with Mike Baghdady Mike is a
professional trader with over 33 years experience and is the and is
the Current Live World Trading Champion! ....."

Lets see now he keeps on changing the details
Here are the versions from few days ago from his site and previous
emails:
1) World trading championship.
2) World of trading , world champion 2009
3) Live Trading World Championship Frankfurt 2009

Why did they say world champ 2009 a few days ago and not mention that
he is the present champ ? Or was this mystery contest held in
"Frankfurt" of all places just recently completed. The only contest
worth registering for would be a NFA regulated contest such as the
http://www.worldcupadvisor.com/worldcupchampionships/default_nwcc2.aspx
held in the USA. If the "world of trading" world contest was held in
Germany , did they trade Dax futures.

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Nov 12, 2010, 5:30:01 PM11/12/10
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http://www.wanderings.net/notebook/Main/FooledByRandomnessNassimNicholasTaleb

Fooled by Randomness by Nassim Taleb - Nassim Nicholas Taleb has
written a mind-blowing book! Totally contrarian and terrifically clear
in explaining the fallacies followed by journalist, investors, traders
and, sadly, many scientists.

Example: Failing to notice the difference between probability and
expectation, famous commodity trader/investor Jim Rogers made this
astounding statement.
"I don't buy options....90 percent of all long options lost money." ~
Jim Rogers

Rogers confused probability with expectation.

By itself, the 90 percent number means very little. What you need to
know before making a decision is the expectation. If that winning 10
percent of options yielded a lot of money, then options might actually
carry a VERY good expectation of making money. See chart below:
Event Probability Outcome Expectation
Option Lost $ 90% -$1 -$0.90
Option Gain $ 10% $100 +$10.00
TOTAL +$9.90

But don't let the numbers delude you into thinking such a scenario can
be predicted. The chart illustrates the idea. Does the idea exactly
match reality? Never. So what is one to do?

The best description of my lifelong business in the market is "skewed
bets," that is, I try to benefit from rare events, events that do not
tend to repeat themselves frequently, but, accordingly, present a
large payoff when they occur.

I try to make money infrequently, as infrequently as possible, simply
because I believe that rare events are not fairly valued, and that the
rarer the event, the more undervalued it will be in price."

~ Nassim Taleb, FBR, p.103

So Taleb goes beyond defending himself against negative Black Swan
events. Instead, he actually tries to benefit from the rare events by
placing bets with a large payoff when those rare event occur. But how?
He's not very specific, but it almost certainly (pun?) involves
derivative options.

In the book he illustrated the point by describing a meeting he
attended where they asked him where the market was going. Though he
generally doesn't answer such questions, he ultimately said he
believed it was going up--that the probability it would go up was
high. But the traders countered that he placed bets that would only
payoff if the market went down (put options on S&P 500); how can you
say it's going up yet bet it's going down?

Because of expectation. Yes, at that time, most estimates
(meaningless?) would declare high probability of the market going up.
But IF it went down--if that rare event occurred--Taleb's bet would
payoff big. So while he may have thought the market would probably go
up, he placed bets to benefit huge if it went down. That's betting on
expectation and not probabilities.

This bet, presumably, took the form of some long-term derivatives (put
options). With such an investment(?), the potential (and likely)
losses are relatively small (the cost of the option) but the payoff
potentially huge. The idea is that you expect to lose most of the
time, but when you win, you expect to win big.

So as long as your numerous losses are small, and the unexpected event
does in fact occur, you can get win big. Of course, there are no
guarantees. You could bleed to death (hold lots of expired options)
while waiting for the black swan, which is why Taleb stresses to keep
most of you money in the safest investments possible (Government
securities?).

Only use a small portion of your nest egg for chasing black swans.

So Nassim Taleb's best investment advice is to keep most of your money
absolutely safe, but for a small percentage, chase black swans.

Nassim Nicholas Taleb - Investment Advice

In Fooled by Randomness, Nassim Taleb offers some compelling, counter-
intuitive ideas on what action to take. Absolutely riveting.
Fooled by Randomness - Amazon Reviews

I really liked these reviews I found on Amazon. Hits the book's
highlights.

If the prescriptions for getting rich that are outlined in books such
as The Millionaire Next Door and Rich Dad Poor Dad are successful
enough to make the books bestsellers, then one must ask, Why aren't
there more millionaires?

In Fooled by Randomness, Nassim Nicholas Taleb, a professional trader
and mathematics professor, examines what randomness means in business
and in life and why human beings are so prone to mistake dumb luck for
consummate skill.

This eccentric and highly personal exploration of the nature of
randomness meanders from the court of Croesus and trading rooms in New
York and London to Russian roulette, Monte Carlo engines, and the
philosophy of Karl Popper.

Part of what makes this book so good is Taleb's ability to make
seemingly arcane mathematical concepts (at least to this reviewer)
entirely relevant in evaluating and understanding everything from the
stock market to the success of those millionaires cited in the
aforementioned bestsellers.

Here's an articulate, wise, and humorous meditation on the nature of
success and failure that anyone who wants a little more of the former
would do well to consider. Highly recommended. ~ Harry C. Edwards

This one is wonderfully critical of Taleb's approach. I found it quite
enlightening.

Read the other reviews to get the flavour of the book. I'll only add a
few points that haven't been mentioned.

1) There is good advice on avoiding some common mistakes that lead to
"blowing up", which will prove useful to inexperienced market
practitioners.

2) Taleb's own (claimed) trading methodology (buying OTM options)
could easily fall victim to the "black swan" problem. A regime change
to persistently higher implied than actual volatility would result in
extended losses for his fund (unless he is bluffing us about its
methodology).

3) Taleb only focuses on cases where volatility is underpriced - but
some of the best opportunities come when it is overpriced, during
market panics. Yet according to what he says in the book, one should
continue buying such overpriced volatility! As someone whose bread and
butter trade is fading market panics, I can confirm that premium
selling can be highly profitable - the trick is to sell at the right
time, and to employ risk control. Just because some practitioners are
incapable of this, does not invalidate the method, any more than OTM
options buying is invalidated because many naive speculators buy in a
panic just before the VIX is about to collapse.

4) Taleb lumps MBA and businessmen types into the "fool" category.
This misses the point. 99% of business is not about risk-assessment,
dazzling insight, or grand strategic thought, but about successful
*execution* of obvious ideas, and hard work. How many eggheads have
had great ideas, but never done anything to put them into action?
There is no point knowing that a beach bar in the Bahamas might be
destroyed every 10 years by a hurricane, if you aren't even capable of
raising capital, employing people, or working 16 hour days getting it
off the ground. Good MBAs and CEOs will in any case employ people like
Taleb to assess risk for them.

5) Taleb ignores the possiblity of using praxeological analysis (i.e.
taking a set of demonstrable a priori truths, then using a logical
train of deduction to discover what those truths necessarily imply
about reality) to avoid the survivorship bias & noise problems. E.g.
you can predict the effect of supply and demand on price without
having to test it in the real world. This technique has been used by
Murray Rothbard in economics (which has an even greater "non-
falsifiability" problem than trading), and Warren Buffett in
investing. As an example, you *can* judge if a good track record is
"skill" or "luck", by examining the methodology of the trader/
investor. If they operated solely during a period favourable to their
style, it is probably luck e.g. if they made money buying emerging
market bonds from 1994-1998. If they made a bucketload trading a style
that was *against* the market regime, then it is almost certainly
skill e.g. someone who made good returns as a shortseller of tech
stocks from 1997-2000; or someone who has successfully sold premium
during market panics. Since Taleb is a follower of Popper, and a
hardened quant, it should come as no surprise that he is ignorant of
praxeology, but it is a huge oversight all the same.

6) Taleb's scorning of Buffett as a lucky fool is ignorant in the
extreme. Buffett clearly did *not* use naive analysis of past data to
make his investment decisions, or rely on luck (he did well from
1969-82, a terrible period for equities). Rather he deduced highly
probably consequences from demonstrable truths about investment (i.e.
firms with pricing power, high barriers to entry, and low working
capital requirements are likely to perform very well), and then saw
that the market was not pricing these factors efficiently. Anyone
reading his writings can see this. And Buffett's approach is
ironically more rigorous and less dependent on luck than Taleb's
professed trading methods. To elaborate - Taleb is relying on "black
swan" events happening more often than people think. Therefore EITHER
a reduction in the frequency of these events, OR an increase in
people's expectation of them, would be enough to invalidate Taleb's
approach - clearly neither can be ruled out. Taleb thinks he is
betting on black swan events occuring, whilst ignoring the possibility
of the "black swan" of major regime change making his own system
unprofitable. Whereas with Buffet, the laws of supply and demand, and
basic investment/economics, ensure that certain business methods will
*always* work better than others.

To conclude - Taleb thinks he has a great idea, but it was already
well known by most experienced market practitioners (see the Market
Wizards books etc where multiple traders continually bang on about
rare event risk and fat tailed probability distributions). He then
goes on as if this idea is the only important thing, which is clearly
not the case. Finally, he critiques some people, such as Buffett, who
use totally rigorous methodologies, whilst himself employing a
strategy that is by no means foolproof, and relies largely on past
observation (data-mining!) to form its conclusions. All I can say is
that he better watch out for the black swan of long-term declining
volatility over the next decade!

Finally, I would just say that I found the book enjoyable, it's just
that (luckily for future my P&L) Taleb hasn't got everything worked
out just yet :) Looking forward to the follow-up Nassim!

Nassim Nicholas Taleb - On Human Memory
Fooled by Randomness: The Hidden Role of Chance in Life and in the
Markets by Nassim Nicholas Taleb
The Black Swan: The Impact of the Highly Improbable by Nassim
Nicholas Taleb
Related Posts

* Absence of Evidence? - Or Evidence of Absence?
* Black Swan - by Nassim Nicholas Taleb
* Nassim Nicholas Taleb
* Nassim Nicholas Taleb - IBM Talk
* Nassim Nicholas Taleb - Interview by Russ Roberts
* Nassim Nicholas Taleb - Investment Advice
* Nassim Nicholas Taleb - Links
* Nassim Nicholas Taleb - On Human Memory
* Nassim Nicholas Taleb - Website is a Mess
* Nassim Taleb Nature Debt And Redundancy
* Prime Numbers Infinite - Euclid Proof

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Nov 12, 2010, 5:55:55 PM11/12/10
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On Nov 13, 12:30 am, backspace <stephan...@gmail.com> wrote:
> http://www.wanderings.net/notebook/Main/FooledByRandomnessNassimNicho...
>
> Fooled by Randomness by Nassim Taleb - Nassim Nicholas Taleb has
> written a mind-blowing book! Totally contrarian and terrifically clear
> in explaining the fallacies followed by journalist, investors, traders
> and, sadly, many scientists.

http://www.fooledbyrandomness.com/
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