Just finished watching the movie PI. There was an important distinction made in how the main character should use mathematics to discover patterns in the market and not numerology.
That got me thinking. There seems to be three main categories that trading systems fall into.
1. Mathematics based systems. These systems are mainly based upon the use statistical patterns. An example of this type of system would be statistical arbitrage pair trading. These system are usually developed by people with extensive backgrounds in physics and mathematics. The math for these systems is intense and those types of skills I gave up in favor of fewer brain cells through the consumption of Alcohol.
2. Psychology or systems based upon human behavior. These systems are based upon observations of the market. For instance support and resistance really are well know behaviors of a market. We know that people are afraid to be the first to move into new levels and refuse to go lower than past levels. This is something I can understand, fear and greed.
3. Numerological based systems or myths. Ok this could be a gray area, but candle patterns. What is the science behind them? Someone says that this bar followed by that bar indicates strength or weakness. There is nothing to support these assertions. If you look at the well known candle patterns, historically the results are as good as a coin flip.
Just curious about a couple things.
1. Do Fibonacci based systems fit into Mathematics or Numerology?
2. Why aren't their more models of human behavior in the market. I would think that with the computers I use an agent based model of several thousand entities could be built to model and understand maybe even predict a market, like EUR/USD.
That got me thinking. There seems to be three main categories that trading systems fall into.
1. Mathematics based systems. These systems are mainly based upon the use statistical patterns. An example of this type of system would be statistical arbitrage pair trading. These system are usually developed by people with extensive backgrounds in physics and mathematics. The math for these systems is intense and those types of skills I gave up in favor of fewer brain cells through the consumption of Alcohol.
2. Psychology or systems based upon human behavior. These systems are based upon observations of the market. For instance support and resistance really are well know behaviors of a market. We know that people are afraid to be the first to move into new levels and refuse to go lower than past levels. This is something I can understand, fear and greed.
3. Numerological based systems or myths. Ok this could be a gray area, but candle patterns. What is the science behind them? Someone says that this bar followed by that bar indicates strength or weakness. There is nothing to support these assertions. If you look at the well known candle patterns, historically the results are as good as a coin flip.
Just curious about a couple things.
1. Do Fibonacci based systems fit into Mathematics or Numerology?
2. Why aren't their more models of human behavior in the market. I would think that with the computers I use an agent based model of several thousand entities could be built to model and understand maybe even predict a market, like EUR/USD.
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