Wednesday, 4 January 2017

No Nobel, Maybe Abel

A couple of comments, one from Trader 24/7 last year on the Biased Coin post:
The 18 that lost their entire bank in one toss were possibly bored, didn't take the study seriously or dim. The excuses for the outcomes - curiosity/questioning the facts/control illusion/gamblers fallacy/etc - may have some combined term, I call it being human. No matter how well a strategy people start out with, the effect of an unexpectedly high win or any loss will cause most to prematurely interfere with their plan as they are acting in the moment. It may be unsurprising to see me write that this gives good reason to why bots can and will out perform us.
Possibly bored? I'd agree if they weren't playing for real money, or if they were already wealthy individuals. Dumb? Maybe, but the study group was comprised of college age students in economics and finance and young professionals at finance firms, so for the sake of any of you investing in actively managed funds, I would hope not. 

I'd have thought for 30 minutes they might have stayed focused, although I admit that when I tried the experiment knowing there was no money to be won, boredom crept in. 

Being human means being undisciplined, and as Trader 24/7 says, the study is perhaps a good example of why emotionless bots will often have an edge over us emotional (six basic emotions of happiness, sadness, fear, anger, surprise and disgust) humans.

Second comment is from my old friend James, who has re-posted a very funny post that he deleted last month. First his comment:
New Year's resolution - Must hold tongue. Okay, enough of that. Mr Webb has often said on his website that he is not too hot at maths and academically he was a washout. His website is indeed a testament to those facts. Of course, any mention of The Tangled One often gets a visit from the Fan Boys. Their usual refrain is "Your (sic) sad/pathetic to say this about a great trader". What proof have they other than The Tangled One says he is a great trader? After I recommended to readers of my website that they use the WayBack Machine to see if a site has removed pages, I used it on my site to recover a certain page that I deleted, last month, out of kindness and the Christmas spirit. After receiving nothing in reciprocation, I shall pop it back. ;) 
And well worth a read it is too. Lest James remove it again, it is here in its entirety and in perpetuity:
A leading trader has made a shock discovery after 16 years of diligent work. The trader announced to the world this evening that the Martingale system might not be good for your wealth.

Staff at Betfair Pro Trader can confirm that the term "Martingale" has never been used before on the trader's news blog. The research paper, entitled  Loss recovery systems, yet to be published in Nature, gets off to a rambling start and loses the reader in the middle but finally hits the nail on the head when the last line states "Find an edge and don’t chase. Take your losses like a man!"

Why it has taken 16 years for the trader to discuss the mathematics of trading on such a deep level is not yet known. One theory is that the doctor has started to read the research of others rather than isolating himself and thought it was time he pulled his finger out. If this is the case then the trader community welcomes this recluse into open discussion.
Other ground breaking research from the trader in question includes "How to cheat at cards" and "Moving a mouse across a table in three easy lessons". Surely the Nobel committee can no longer overlook such genius.
I think James misspeaks when he talks of Nobel prizes, since there is no such prize for Mathematics. There is however the Fields Medal but unfortunately for Peter, it is awarded for outstanding mathematical achievement only every four years at the International Congress of the International Mathematical Union, and even more unfortunately for Peter at age 48, one has to be under the age of 40 to be eligible. To make that clear for any non-mathematicians out there, you have to be 39 or less. 

Peter's research paper, while yet to be peer reviewed, is actually full of useful information, with well phrased and clearly stated nuggets like these:
So you have to either win more, lose less or win more often than you lose in percentage terms. It’s nothing more complicated than that. Either in percentage or monetary terms you have to win more than you lose. If you have a higher strike rate it’s possible to end up positive in the long term even though you may lose more when you lose. But it’s because that happens less often.
Anyhow, putting the complexity aside. You have to win more than you lose, that’s how you make money.
Even if you have an edge, depending on how big that edge is, you may still lose money on a session but still make it profitable at the end of the week, month or year. This is somewhat dependant on how you have framed the opportunity.
So most of these processes start with a high probability trade. By that, we mean one that has a good chance of happening.
Apparently English wasn't a strong subject at school either, and a Nobel Prize for Literature appears unlikely. 

The Abel Prize is more likely, or at least theoretically possible, as it is awarded annually, and older gentlemen are eligible for this, but I fear the paper came too late for the 2017 award which will be in Barcelona later this month.

Last year's winner was the UK's Sir Andrew Wiles "for his stunning proof of Fermat's Last Theorem by way of the modularity conjecture for semi-stable elliptic curves, opening a new era in number theory".

I can see 2018 now, awarded to Professor Peter Webb "for his stunning observation that Martingale doesn't work by way of the poorly framed opportunity which happens less often in monetary terms although the percentage can mean you lose less than you win in monetary terms putting dependant (sic) complexity aside, opening a new era in horse-racing trading classes". 

Interestingly, back in 2011, Peter claimed in an interview to be paying the Premium Charge at the 60% rate, which means his win to loss ratio is actually very high, but he hasn't mentioned the Premium Charge on his vendor-blog for almost six years since, which is rather strange. I'm also not sure about the "plus" part of the 60%+ rate. It's 60% to the rounded penny. 
Q: What is your view on the new Premium Charge that was introduced by Betfair in July 2011? Taking away 40% of profits from big earners such as yourself. Is this the end of your time on Betfair?

A: I wish I was only on 40%, I’m on 60%+
My first thought on hearing the charge was disbelief, but once I’d taken it in I went through a quiet cathartic period. I realised at 60% there was no way to beat my previous year’s total net of commission so I just stopped trying and got a bit of my life back. I’ve worked so hard since I joined I’d been guilty of not taking enough time off so it was nice to do that.
The net effect of the charge is that it will take me 25 years to do what I just did in 10. So it boils down to whether I can increase my activity. I think this is unlikely given the rate of growth I currently see. So it will force me to change a few things.
I tend to pick and choose what I do now as a result, it’s not worth me doing some things anymore .It’s also made me want to automate my activity on Betfair and exploit opportunities in the market as this is less overhead to me. Pretty much the opposite of what Betfair would want I should imagine! A lot of prior activity was definitely 100% net accretive to the exchange. So the PC seems like a bit of a strategic error in my case.
Of course, for new users who are not facing similar charges, you have a limit of £250k before you pay the PC so there is still plenty of room left for you. I imagine lots of people would happily want £250k. If you know the right strategies you can now accrue that 2.5 times faster than I can using exactly the same strategy.
While the 60% was a shock it’s nice to get recognition that you are among a very small elite group of users.;)
Personally I'd be happy to go without the recognition of eliteness and get back to the days of 5% or even 20% commission! 

Moving on, and Aussie Steve has a new post on his betting fortunes (misfortunes) in the last part of the year, and things didn't get any better.
What a miserable end to the worst punting year of my life. With only the American sports in action, I still managed to bet $572,040.00 over the 2 months. Am I the only losing gambler on the entire internet? it seems that way if you ever have a look at twitter, apart from me everyone else is winning. They say 2% of gamblers win, but in social media land, it’s flipped on its head, with 99% winning and just me sitting in the 1% of losers. But hey, honesty doesn’t sell subscriptions or get likes.
We will have a much closer look at the 2016 loss next week when I do my yearly review, but 2016 will show a total loss of $168,620.00.
Stop being so honest Steve, or people are going to think betting isn't a viable full-time career option and will continue building their careers. 

I make that loss almost exactly £100,000, which may not be a lot to moneybags Steve, but would make a dent in the pockets of many of us. Stand by for his annual review and thoughts for the future which are always an interesting read.

Machine Betting also had an annual review, and a more positive one it was too. Going into 2016, Tobias (from Sweden) wrote:
“So what do I hope for 2016? It's not of any value to have financial goals, I will just try to improve the model, bot and risk management as much as possible and hope for the best… But walking into 2016 with much better starting point than in 2015, a reasonable guess would be to turn at least 4 MSEK, and reach a ROI of 1 %. If that’s the case it would mean a profit around 40000 SEK.”
A sensible goal and the actuals were impressive:
I managed to increase both turnover and ROI, instead of the prognosis to turn 4 MSEK I turned 6.1 MSEK and instead of 1 % yield I got 1.2%. Increasing both of them gave me a profit of 75 865 SEK (instead of the anticipated 40 000 SEK).
Good for Tobias!  It can be done, just maybe not by humans. 

And finally, what's going on with my hit count? Another five yesterday and it would have been a 1k day.

1 comment:

James said...

Trading firms take allsorts in The City. I've met history graduates and classicists who have worked on trading floors. They are usually Oxbridge types or they know someone who gave them a reference and a shoe in. They usually do the phone work, pushing rubbish upon high net-worth nincompoops.

High-frequency and quant trading again has no interest in economics or finance types, preferring intelligent people who can problem solve, such as maths, sciences and computing graduates.

What economics and finance graduates are actually for, I have yet to discover.