Archives of “signal processing” tag

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Don't Be Fooled By Stock Market Noise

  
  Education
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  • The volume of market and economic information is increasing exponentially, but the amount of useful information certainly isn’t.
  • Most of it is just noise, and the noise is increasing faster than the signal; hence, the higher the noise-to-signal ratio.
  • The “signal” is the truth and needs to be taken seriously; the “noise” is what distracts us from the truth and needs to be ignored.
  • This is why the higher the noise-to-signal ratio, the more difficult it becomes to make intelligent investment decisions.
  • Investors must use “filters” to separate the signal from the noise – this will improve their decision-making and investment performance.
 

 

Trading Against the Elephant

  
  Education
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Once upon a time, there were six blind men. The blind men wished toknow what an elephant looked like. They took a trip to the forest and with the help of their guide found a tame elephant. The first blind man walked into the broadside of the elephant and bumped his head. He declared that the elephant was like a wall. The second one grabbed the elephant’s tusk and said it felt like a spear. The next blind man felt the trunk of the elephant and was sure that elephants were similar to snakes. The fourth blind man hugged the elephant’s leg and declared the elephant was like a tree. The next one caught the ear and said this is definitely like a fan. The last blind man felt the tail and said this sure feels like a rope. Thus the six blind men all perceived one aspect of the elephant and were each right in their own way, but none of them knew what the whole elephant really looked like.

Oftentimes, the market poses itself as the elephant. There are people who say that predicting the market is like predicting the weather, because you can do well in the short term, but where the market will be in the long run is anybody’s guess. (more…)

Life Lessons from Trading

  
  Education
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In trading, we can all agree that fewer conditions or filters results in better conclusions, better understanding, and less curve fitting. Conditions or filters block information. Too filters can result in less new insight and fewer opportunities.

Here is where trading is a good lesson for life. As we grow older our tendency is to filter out information, people, paths. It’s partly a necessity to avoid the bad or overload, but good things can be missed. Our experience tends to specialize our knowledge and narrow our focus. Though this has some benefit in expertise what opportunities or knowledge or growth may be missed. Ignoring, filtering or refusing to hear or listen to ideas we disagree with or that are different than our own may lead to narrow mindedness, missed opportunity to change and important information. For younger people it might be seen as closing doors. Meeting new people, hearing new ideas, going to new places. Nobel laureates advise not to tighten parameters too tightly as the surprise result may reveal itself. I recommend opening up parameters, let the fresh air in. Let’s not become grumpy old men. We’ve seen closed small minded people and don’t look on them with respect. Broad vision is necessary to see above and beyond the noise. You really need to force yourself against the tendency to close the mind.

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