3 ms·

I do not see the connection, unless you are just talking at some useless-ly high level of "a trading strategy that isn't guaranteed to win" (though the way in w

by saurik 4y ago

I do not see the connection, unless you are just talking at some useless-ly high level of "a trading strategy that isn't guaranteed to win" (though the way in which it fails isn't at all the same: it isn't that you go insolvent but that you made the wrong bet about the correlation of the assets), but that's me being extremely uncharitable and so maybe you are seeing something I am not. The mechanism is essentially unrelated, the goal is somewhat different, who does it is certainly different (at this is the core of market making and portfolio diversification, so smart people do this all the time)... I just don't see why you are saying that unless you are just trying to trivialize the result (but again: this is me being extremely uncharitable, so please push back if you are onto something).

s1artibartfast 4y ago
I am trying to trivialize the result, although much of it is targeted at the broken and wrong example of the blog. It talks about rebalancing between two assets. For a gambler this could simply be the bet and the bankroll. (this is the example used in the blog). (ignoring the fact that the blog is playing a +EV game) what was described is "proportional betting". The short term outcome is a normal distribution with a mean of zero. Like the martingale, If you run it to infinity, you will always go broke. for proportional betting, the failure mode is a string of bad bets taking the bankroll below minimum bet size (the long tail on the normal distribution). When we talk about real world trading, the whole idea of "shannon's demon" is trivial. In the zero growth case, it assumes the mean value is known and constant so it just boils down to sell high, buy low.
- cyanydeez 4y ago
  In the absence of any "new information" the market is believed to be a random walk. And before the information age, the market likely did act like this. But now adays, the dark pools, random subreddit s, etc, almost guarantee that a ticket will fluctuate a price incoherently. So to find the mythic mean is probably impossible. But the demon could be generate via a novel method of analysis, which definitely wouldn't be presented here, as knowing the method would invalidate mythic mean.
noduerme 4y ago
I'm not a mathematician or a quant (but I did code an entire casino). I see this as a Martingale too, and the mechanism looks very similar. In the simplest terms presented in the blog post - rebalancing between one account of "cash" (bankroll, in gambling speak) and the other as a sequence of discrete, uncorrelated bets - what this does is increase the next bet when you lose and decrease the next bet when you win. That's the essence of the Martingale system. It's similar in effect as well, in that it reduces variance and borrows small winnings against a greater risk of ruin. The main difference I see, or innovation if it is one, is that the proportion by which you increase or reduce the bet in this system (1/2 the difference between your bankroll and your betting account) prevents you from outrunning your bankroll on any given bet.

by saurik 4y ago

s1artibartfast 4y ago

I am trying to trivialize the result, although much of it is targeted at the broken and wrong example of the blog. It talks about rebalancing between two assets. For a gambler this could simply be the bet and the bankroll. (this is the example used in the blog). (ignoring the fact that the blog is playing a +EV game) what was described is "proportional betting". The short term outcome is a normal distribution with a mean of zero. Like the martingale, If you run it to infinity, you will always go broke. for proportional betting, the failure mode is a string of bad bets taking the bankroll below minimum bet size (the long tail on the normal distribution). When we talk about real world trading, the whole idea of "shannon's demon" is trivial. In the zero growth case, it assumes the mean value is known and constant so it just boils down to sell high, buy low.

cyanydeez 4y ago
In the absence of any "new information" the market is believed to be a random walk. And before the information age, the market likely did act like this. But now adays, the dark pools, random subreddit s, etc, almost guarantee that a ticket will fluctuate a price incoherently. So to find the mythic mean is probably impossible. But the demon could be generate via a novel method of analysis, which definitely wouldn't be presented here, as knowing the method would invalidate mythic mean.

noduerme 4y ago

I'm not a mathematician or a quant (but I did code an entire casino). I see this as a Martingale too, and the mechanism looks very similar. In the simplest terms presented in the blog post - rebalancing between one account of "cash" (bankroll, in gambling speak) and the other as a sequence of discrete, uncorrelated bets - what this does is increase the next bet when you lose and decrease the next bet when you win. That's the essence of the Martingale system. It's similar in effect as well, in that it reduces variance and borrows small winnings against a greater risk of ruin. The main difference I see, or innovation if it is one, is that the proportion by which you increase or reduce the bet in this system (1/2 the difference between your bankroll and your betting account) prevents you from outrunning your bankroll on any given bet.