Quant opinion: Trading as Game (Man against Machine)
Ever played this PS3 game Call of Duty or any other first person shooter against kids 13 to 18 year old? they will kick your ass.
They are very accurate and behave in certain patterns that gives them an edge in aiming, walking sprinting hiding crawling, choice of primary and secondary weapon, weapon add-on, … even though the game is very complex in terms of inputs and expected outputs, more complex than looking at price action as a single dimensional brownian motion.
They have a game plan, very similar to trading systems we develop, they move from game to game and adapt in few days through trial and error until the game inputs and outputs are mapped in their minds and they can choose the optimum decisions that make them win.
If we convert price action, equity and risk into a visual game challenges, then introduce such challenges into current games out there, so the challenge will be dependent on a live price stream, I bet if we record the professional winning players actions that they can beat any algo trading the same asset in the same time period.
Then add the collective decisions of thousands of professional players, I bet the average result will outperform quants.
Human have been able to create amazing things using their five senses, cultural traditions attach an action of festivity to any occasion in order to involve all senses, because we feel most that way.
But in trading the whole thing is a matter of numbers, and we are very bad about calculating complex probabilities using our brains, so we invented mathematics so we can write it down and reuse variables, so we created equations. Computers helped speed things up especially analysing large amounts of data in short periods of time.
Yet no matter how sophisticated your quant may think they are, their outcome is pretty linear if we compare it with what humans deal with on a daily basis from situations of complex probabilities like driving a car and making a cup of coffee, those actions seem simple to us but the fact is that our daily life is way too complex, yet we are too advanced and accurate when we are allowed to use all senses.
If price data is translated properly into an engaging visual game challenge like what the makers of COD did, those kids will take your money and call you a Noob!
You probably can learn from the trading patterns generated by advance players in response to price action.
Great insight into crowdsourcing. They’re already doing this with protein foldinghttp://fold.it/portal/ (abet proteins are much easier to represent visually). I think what you’re trying to find is a bijection function which makes the finance IO data more palatable to humans. There’s research along the same lines in encoding problems chemically to have bacterial evolution solve them but the hurdles for any practical application is far off.
Developers for the last 10 years have created so many interactive visual engines like ATARI, Nintendo, XBox, PS3 and PSP and endless number of amazingly engaging games from strategy from Age of Ampires to Call of Duty and Battlefield, but the finance world is stuck with OHLC charts and all types of Moving Averages, the learning curve to feel probabilities from such rough indicators is steep and requires years of observation, which is why personally I can’t sit on my PC and trade, just like 90%+ of humans I am lousy at calculating in my mind.
The application of price movement to game console is doable, of course it may not replace research but such application are way superior to charts and other visual indicators.
Maybe it is time to convert market to game and give the masses of loser daytraders a chance, but thinking again, maybe I don’t want those vicious focused 15 year old mother ******* on the other side of my trades, few weeks ago I was leaving work and I played COD at the cafe near my house, I couldn’t even get a 12 kill streak, other than the feeling of being a grown man wearing a tie playing game.
Anyway I revert back to the forex market maker story, those guys take almost all the other side of client trades in a zero sum, their only sort of risk management is hedging against large client positions few times a year, their clients do all the trading and eventually lose to them. This is amazing because if you look at all the trading happening from the market maker point of view, this is a real trading system just like any other we discuss here, only it is built on patterns of human psychology which makes us bad traders, the owners of such forex shops know very well how clients lose, but they have no idea why, yet they have been making 80%+ for years, their books are almost completely hidden from the finance world due to their loose regulations and bad rep.
I have had a thorough insider look into two of them, when we analysed client trades we found that it is not simply a matter of inverting losing positions into profitable ones, the pattern we saw was very similar to trades generated by trend following systems, clients make money in sideways and lose it all and more in trends, therefore market maker lose money in sideways and make it all back in trends.
Other characteristic is that clients account naturally vary, majority are between $1000 to $15,000 and lesser with larger sums, clients with $1000 trade smaller timeframes than clients with $100,000, this is all happening naturally, now look at this from the market maker point of view, you can see clearly that trading is happening at deferent time frames at the same time as traders use hourly charts while others use daily charts of the same security. This is diversification accross time frames, just like in trading systems.
Just to differentiate between forex market maker and exchange market maker, a lot of fx market makers are not even connected to any exchange, they only have price feeds that pour into MT4 servers with virtual accounts for clients, client money is in another bank, they are licensed usually from DFSA or FSA(UK), or some shady american license but operate elsewhere as a call center.
More facts, those guys have no idea about technical analysis, nor they care about fundementals, they lowered their spreads to a fixed 2 pips and removed swaps for Islamic accounts, they give their brokers pip rebate on each trade and liquidation fee when clients lose, that means they enter on a loss at the start of each trade, but they don’t care because their main source of income is liquidation.
The price they are trading against is the same price we all trade against for GOLD, EUR/USD, … so this is exactly outright trading. catch my drift?
If you know anyone working as a dealer for such forex shop, ask them.
I personally have no objection in using unorthodox means to pull money out the market and no moral issues within the limits allowed by law.
Try this Jumping Monkey game, maybe a game needs to be more creative to translate price movement in the background, but you get a feel how you respond to the monkey more than a chart.
HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>NOTE
I now post my TRADING ALERTS
into my personal FACEBOOK ACCOUNT
. Don't worry as I don't post stupid cat videos or what I eat!