Today is the 30th year anniversary of the release of the film, Ferris Bueller's Day Off. I wouldn't have realised without seeing a plethora of tweets from @grodeau and many others on Twitter. It's one of those films, where the title, is wonderfully descriptive. It is literally about Ferris Bueller's Day Off. Rather than spending a day attending his high school, Ferris Bueller (Matthew Broderick) spends it with his girlfriend Sloane Peterson (Mia Sara) and best friend Cameron Frye (Alan Ruck) generally misbehaving in downtown Chicago and driving around in a classic Ferrari (which is quite spectacular: I've always been somewhat of a car enthusiast!). I'm not quite old enough to remember the film being a cinemas, although, I do recall seeing it on TV in my younger days. However, watching clips of the film back today, memories have come flooding back and I can somehow remember a lot more of the film, than I would have thought. The memories have lain there in my mind undisturbed for years, waiting to be triggered.
In a sense, we probably know a lot more than we think. This is just as true in markets. Our brains are overloaded by masses of market information and events. We might not always be able to recall these in full detail, like my Ferris Bueller example, but they nevertheless often leave an imprint on our mind, that can influence how we behave. One particular example might be how traders interpret Fed meetings. Very often, they will recall how markets might have traded in the past, when similar language was used. Obviously, we can "extend" our memory by doing research and using systematic methods to trade markets. Inevitably experience has a value, which cannot simply be "replicated" by doing number crunching to find patterns. I would argue that the combination of experience and using quantitative techniques does however add massive value.
Experience enhances our ability to see patterns related to past events and can help us understand, where quantitative analysis of markets can be useful. Furthermore, it aids us in splitting the spurious patterns from those which might be significant. Experience helps us prune our search space, and allocate our market research time in the best manner. We unfortunately only have finite time to research markets, so coming up with the right questions to ask is important, we need to be able to end up answering at least some of these questions.
The danger in markets is thinking we know *more* than we think. It's in that situation, that we are tempted to take too much risk. So perhaps from that perspective, thinking we know less than we think might be a good thing!
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 Meetup.com group for more details here (Thalesians calendar below)
16 June - New York - Tobias Adrian - Nonlinearity and Flight-to-Safety
29 June - London - Steve Hutt - Recent Advances in Deep Learning and Applications to Market Data
29 June - London - Steve Hutt - Recent Advances in Deep Learning and Applications to Market Data