Saturday, 22 August 2015

All along the watchtower

19:44 Posted by The Thalesians (@thalesians) 1 comment

In days past, I had compact discs (or even cassette tapes). I'd listen to albums from end to end. With the advent of music compression such as MP3 and subsequent innovations like Spotify and Apple Music, we digest our music in very different ways. I've noticed that I listen to a much more eclectic array of music genres with streaming. No longer do I simply restrict myself to listening to albums from end to end, by artists I already know. Instead, I dip into the unknown and hear whatever Apple Music might throw at me. At times, it fails (hey, Apple, I don't like teenage pop bands). However, other times, I stumble upon music that I actually like, helped along by some weird algo concoction.

Recently, I came across some of the music of Bob Dylan. I'm sure we've heard of a lot of his music, whether it's in the original or in the many covers of his works. What struck me, when you listen close to the lyrics of tracks such as All Across the Watchtowers, is that interpretation, very much depends on the listener. It's just often, sometimes the lyrics go over my head, because I tend to hear the music first and the lyrics later. Try Google-ing the lyrics, and you'll find many conflicting interpretations. It also depends at what level we seek to interpret a song. The same approach applies to images. Take the image above, we could either interpret as 5 hoops, or more likely, it is related to the Olympic movement and Hungary's place in it. One anonymous interpreter of the song noted, rather comically a quotation by James Joyce:

I've put in so many enigmas and puzzles that it will keep the professors busy for centuries arguing over what I meant, and that's the only way of insuring one's immortality.

The many ways we can interpret song lyrics and images more broadly, got me thinking about the market. The way in which we are always trying to read something into it. Unlike of course, songs, there is no writer of the market. Instead, we have traders individually "writing" to the market, with differing views (after all, without differing views, you would have no market) - each them interpreting the potential future in a differing ways and with different time horizons. When traders' views about the future coalesce, markets trend. When there is disagreement, we see markets without a clear direction. Show a chart to two technical analysts and you can often get different answers about what they think it might all mean.

So who is right? In a sense, it is not so much about having the "right" or "wrong" interpretation about markets. It is more about understanding which interpretation the market will have. Furthermore, we need to recognise that some strategies might well be wrong more than they are right.. is it the size of the winning trades that matter, which is the case with trend following strategies.

But hey, it's Saturday evening, as I'm writing this, time we are went to listen to some Bob Dylan.

If you're on the US East Coast, I'll be in Washington DC 27 Sep, NYC 29 Sep-3 Oct and Boston 5 Oct if you'd like to meet me and hear more about systematic trading! If you're in mainland Europe, I'll be in Frankfurt 7 Sep, Zurich 8 Sep and Paris 6-9 Oct.

Like my writing? Have a look at my book Trading Thalesians - What the ancient world can teach us about trading today is on Palgrave Macmillan. You can order the book on Amazon. Drop me a message if you're interested in me writing something for you or creating a systematic trading strategy for you! Please also come to our regular finance talks in London, New York, Budapest, Prague, Frankfurt, Zurich & San Francisco - join our group for more details here (Thalesians calendar below)

07 Sep - Frankfurt - Saeed Amen/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
08 Sep - Zurich - Saeed Amen - How to build a CTA? / interactive Python demo
10 Sep - San Francisco - Steven Pav - Portfolio Inference and Portfolio Overfit
23 Sep - London - Stephen Pulman - Multi-Dimensional Sentiment Analysis
01 Oct - New York - Saeed Amen - How to build a CTA? / interactive Python demo
21 Oct - London - Robert Carver - Lessons from systematic trading

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