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Hi gosub283,
Thursday, March 27, 2003, 2:08:16 AM, you wrote:
g> When a human looks at a chart, he/she can immediately determine if
g> a market is in a TRENDING mode or a RANGING mode. It is a most
g> amazing feat of human visual data analysis that takes place in a
g> matter of seconds. Trying to get computers to "visually" analize
g> anything takes major computing power. Unfotunately computers and
g> trading system have a much more difficult time of determining
g> these market modes than us humans.
I am not so sure humans do a much better job of this analysis than do
computers. When we look at charts, we are looking at 100 percent
history. It is indeed rather easy to "segment" this history into
trending and ranging periods using analytical abilities. Yes, it
does happen in seconds, and seems almost effortless.
However, the most important time period for any trader is that period
of time which is NOT VISIBLE on the chart -- namely, the future. We
can "see" the ranging and trending periods, but only in retrospect,
where our minds make nice, neat visual categories for us based on
what we *see*. But at the "real time" turning points, when the
actual transition is in the future, out of sight, I doubt if either
human or computer can reliably identify these transitions in advance.
(Reliably to me would be with some statistical edge that clearly
beats random guessing.)
In hindsight, it is all so clear of course -- so clear that it is
tempting to believe that one can find some mathematical formula that
will reveal all. But this is a sect in the cult of "Holy Grail-ism"
in my opinion. To test my theory that human beings are not any better
at identifying the transitions in "real time" than computers, scroll
a chart very slowly (bar by bar) from left to right, with the future
always off the screen, just as in real life. Make sure the chart is
a completely unknown issue or index, and preferably one with the
dates entirely removed or obscured (to do this test correctly someone
else will probably need to set up a blind test for you, I don't think
you can truly set up a valid blind test yourself). Now see how "good"
your human brain is at identifying the transitions in "real time".
And good luck! ^_-
Yuki
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