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Paraphrasing Richard Feynman on “Price” Importance

Trend followers trade the “price”. It’s the number that can’t be faked, the real indicator of the past, now and the future. Richard P. Feynman adds:

“You can know the name of a bird in all the languages of the world [think of all those so-called market fundamentals], but when you’re finished, you’ll know absolutely nothing whatever about the bird…So let’s look at the bird and see what it’s doing — that’s what counts.”

What is the market doing right now? That’s what counts. The price.

richard feynman

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Posted in Trading 101, Trend Following
2 comments on “Paraphrasing Richard Feynman on “Price” Importance
  1. Steve says:

    That’s interesting. Have you considered interviewing a blogger who specializes in the history of science? I’m not making a recommendation.

    In this case it would be interesting to get a historian’s opinion on whether or not Feynman could be convinced there is a small and persistent net betting edge using a constant algorithm that is better than savings interest in the very long run.

    If any indication, that blackboard behind Feynman is an analytic solution, not a numerical one. His most publicly famous work was figuring out how the independent failure rate of Space Shuttle system and components could be combined to predict an overall failure rate. Feynman certainly enjoyed breaking the sacred assumption – picking locks, bypassing security gates, etc.

    There main problem I think would be convincing Feynman of the assumption that trend following prior assumptions and methodology precisely as curated by Michael Covel are most directly causal of profits on the other side of the wall inside the hedge funds like Dunn and Winton.

    I’m not calling anything a “black box” here. The problem is these firms claim to have adjusted their systems in recent years. Therefore, “Trend Following” isn’t so black and white constant if the best performing firms are making adjustments to their algorithm.

    Dunn in particular now says they use a new sort of “expected beneficial volatility of economic environment” indicator (I paraphrase) which modulates the aggressiveness of their total portfolio. Great idea, but they could have made that change years ago. That disclosure also mentions other interesting nuggets like abandoning work on genetic algorithm search (presumably in the area of variable selection).

    In recent years it would probably also pay these firms to randomize their reported return numbers somewhat – so that adversaries cannot take exact numbers to estimate model theta trajectory and then torpedo the firm’s book at times near the edge of risk envelope. A big bank with Fed funds credit presumably could do this.

  2. From my perspective:

    1. Marketing always plays a role in winning client attention for those who manage assets.
    2. If someone, anyone, makes a “change” there is no way to know the true magnitude (was it big or small?). Which takes me back to point #1.
    3. I don’t see anything wrong with #1 or #2 in a world dominated by index investing and trusting the Fed.

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