finished my last paper for the doctorate for this term and have a full 2 weeks off before the next round of torture begins. the good news is that i was really stretched mentally this term, and am really pleased with the progress i am making and the insights i am gathering
as part of the outside reading for this term i have been slogging my way thru some philosophy of science and examining the practical implications of unwarranted belief in the truth of your market beliefs. I am looking at the case study of Long Term Capital Mgt and contrasting the behavior of Scholes and Merton at LTCM with that of Ed Thorp, who independently derived the Black-Scholes equations for options pricing but didnt explode as a hedge fund manager, because he understood the limits of the model and had some sense of the market as a complex adaptive system which is regularly discontinuous and non-normally distributed.
That makes all the difference. Plus he made it a practice to field test his ideas under extreme conditions, like trying to beat the dealer in Vegas, and so he had a practical application of his theories in practice which gave him an appreciation for the human dimension of applied science. As a rule of thumb thats a pretty good validation check. It’s what Robert, our most experienced trader in the chat room, calls the “Trader Quality Number” which is what you get after you take a system with a high System Quality Number, and then actually trade it under live conditions to see what you get