Monday, July 20, 2009

Trading Rules - CXO Advisory

I love this post from CXO Advisory - a summary of their 'Eight Simple Rules from Financial Markets Research' follows...

#1. Broad financial market hypotheses explain what we have seen rather than predict what we will see.

#2. The more sources you consult, the less likely you are to be wrong, or right. The average of all opinions is approximately no opinion.

#3. If you track enough indicators, you can come to any conclusion you want.

#4. Short-term indicators offer returns that are small compared to variability. Noise swamps the signal.

#5. Some long-term indicators offer returns that are large compared to variability. It takes a patient lifetime with just a few trades to capture these returns, as a triumph of optimism.

#6. Sentiment indicators lag the market. Most people invest in the past.

#7. It will take 100 years to verify reliably the forecasting accuracy of your favorite apocalyptic oracle.

#8. The [fill in the blank] effect tends to disappear when researchers announce its existence.

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