Nothing like a controversy to make you closely review your philosophies on randomness. In thinking more about this presentation…… you can see where the free lunch of diversification lies in the ability through ensemble averaging of return streams to allow outliers to positively influence a random series.
When we boil our trading philosophies down to bare essentials we can classify our trading styles into two broad camps…..the price followers and the price predictors. When you compare and contrast these two broad styles, you quickly realise that they are almost the antithesis of each other.
Straight from the horses mouth. An excellent recap of systems trading by the very successful Nick Radge from the sunny shores of the Sunshine Coast in Queensland.
“Whereas “uncorrelated” random variables such as test scores splay out into the bell-shaped Gaussian distribution, interacting species, financial stocks and other “correlated” variables give rise to a more complicated statistical curve. Steeper on the left than the right, the curve has a shape that depends on N, the number of variables.”
It is the processes that matter. Not the things. Look for the relationships between things to identify processes at work. Sometimes the market will be noisy…….and sometimes the market will be coordinated. Explicate versus Implicate. Don’t predict it, just follow it.
May 2019 saw another positive performance result for the Commodity Trading Advisors as a group. This is the fourth consecutive month in a row for positive returns in the CTA Composite Index (12)….however despite the solid performance of the CTA’s as a whole, we saw a slight negative result for the Trend Following Global CTA’s.