Intuition and Trading

There are numerous problems system designers face when tasked with developing IT Expert Based Systems. Such systems have to rely on a rule base from which inferences are made about a problem area(s), this is in a way the core idea behing an Expert System (ES). However the main problem is the acquirement of expertise or knowledge, if you like, into the rule base.

Numerous academic projects point out the fact that when traders were tasked with explaining some of their trading decision making processes, they were useless. The traders often explain that much of their decision making is based on intuition and that pin pointing explicitly, lhow they arrive to trading decisions is very difficult.

In a recent scientific experiment, two men with amnesia were asked to remember pairs of 8 objects (Nature July 28iss). Each man was shown the 8 pairs 5 times a day for numerous days. The man eventhought they could not remember why, learned to distibguish the pairs.

An excerpt follows:

When one of the men was asked if he picked an object because he remembered seeing it before, he said, "No. It just seems that's the one. It's here [pointing to his head] somehow or another and the hand goes for it."

Without being aware of it, the men learned the task after approximately 1,000 trials. This is about the same number of trials needed by monkeys with similar lesions in the medial temporal lobe. Normal monkeys take about 500 trials to learn the task.

The implication is that humans have an unconscious ability -- comparable to that in animals -- to mold our behavior in response to a consistent stimulus. "Habit learning is going on all the time. All of us are acquiring habits, " Squire said. "What this is showing is that habit learning is well-developed in humans, and that it works independent of consciousness."

This seems to indicate a strong relationship to intuitive learning, such knowledge that is acquired by traders via repetitive trading behaviour and performance feedback. In fact this is feedback learning and in IT terms it is synonymous with Unsupervised Learning, for cluster detection of patterns and inference. At least this is my interpretation, I am quite interested into past research of this kind... anybody who has a valuable opinion please bring your comments to the table :-)

Correlation

I just noticed today how good the wikipedia article on correlation is. This is worth a read, if not only for nice concise expressions, of the form such as "correlation or co-relation refers to the departure of two random variables from independence" and many others. Anyway, as we are talking statistics, do check out the highly related articles on Pearson's Correlation, and Standard Score.

CreditCard Industry - is it Rotten?!?

An amazing documentary I just watched yesterday - when I couldn't fall asleep! It explains what credit card industry really is about. The documentary is high profile, senators, top lobbyists and law academics are interviewed. Extremely well structured storyline illustrates the history and current problems with the industry.

please watch it in your free time, really CHECK IT OUT, it is EYE OPENING and comment and discuss (check out my customised adds as well :-) )

I will probably post more on the industry. Credit Card industry is fascinatingly interesting because it really applies to everyone but is a shady, and I meaaan, veeery shady industry! stay tuned...

Inglourious Basterds (2009)

I went to see this new movie (Inglourious Basterds (2009)) yesterday and I have to say I was impressed with the storyline. Set in the 2nd world war it follows a group of american nazi fighters and a jewish girl Shosanna on the run from the nazis, it paints a semi-fictional picture and shows what could have been an outcome in the world war.

The movie made me interested into possible war related scenarious and especially the controversial Munich agreement just before the war in 1939 that really triggered germany's power and fascinatingly enough, historians debate that the war (Blitz Krieg) might have had never been so successfull for Hitler.

what follows are experts from wikipedia article:

Czechoslovakia might have prevented the war

On August 4, 1938, a secret Army meeting was held at which Beck read his report. They agreed something had to be done to prevent certain disaster. Beck hoped they would all resign together but no one resigned except Beck. However his replacement, General Franz Halder, sympathised with Beck and together they conspired with several top generals, Admiral Wilhelm Canaris (Chief of German Intelligence), and Graf von Helldorf (Berlin's Police Chief) to arrest Hitler the moment he gave the invasion order. However the plan would only work if both Britain and France made it known to the world that they would fight to preserve Czechoslovakia. This would help to convince the German people that certain defeat awaited Germany. Agents were therefore sent to England to tell Chamberlain that an attack Czechoslovakia was planned and their intentions to overthrow Hitler if this occurred. However the messengers were not taken seriously by the British. In September, Chamberlain and Daladier decided not to threaten a war over Czechoslovakia and so the planned removal of Hitler could not be justified.^[153] The Munich Agreement therefore preserved Hitler in power.

Hitler has not enough Commodities for a war

Germany lacked sufficient supplies of oil and other crucial raw materials (the plants that would produce the synthetic oil for the German war effort were not in operation yet), and was highly dependent upon imports from abroad.^[175] The Kriegsmarine reported that should war come with Britain, it could not break a British blockade, and since Germany had hardly any oil stocks, Germany would be defeated for no other reason than a shortage of oil.^[176] The Economics Ministry told Hitler that Germany had only 2.6 million tons of oil at hand, and should war with Britain and France, would require 7.6 million tons of oil. Starting on 18 September 1938, the British refused to supply metals to Germany, and on 24 September the Admiralty forbade British ships to sail to Germany.

Czechoslovakia was Given away and Hitler got his Commodities and more armament

On 30 September 1938, a one-day conference was held in Munich attended by Hitler, Chamberlain, Daladier and Mussolini that led to the Munich Agreement, which gave to Hitler's ostensible demands by handing over the Sudetenland districts to Germany.^[179] Since London and Paris had already agreed to the idea of a transfer of the disputed territory in mid-September, the Munich Conference mostly comprised discussions in one day of talks on technical questions about how the transfer of the Sudetenland would take place, and featured the relatively minor concessions from Hitler that the transfer would take place over a ten day period in October, overseen by an international commission, and Germany would wait until Hungarian andPolish claims were settled.^[180] At the end of the conference, Chamberlain had Hitler sign a declaration of Anglo-German friendship, to which Chamberlain attached great importance and Hitler none at all.^[181] Though Chamberlain was well-satisfied with the Munich conference, leading to his infamous claim to have secured “peace in our time”, Hitler was privately furious about being “cheated” out of the war he was desperate to have in 1938.^[182][183] As a result of the summit, Hitler was TIME magazine's Man of the Year for 1938.

As can be seen, european powers wanted to avoid war at all cost, especially Britain. It is ironic of an opposite effect and commodities and armaments that were hence secured. The invasion of Czechoslovakia without fighting was a disgrace, what was more that Britain and France even found such an arrangement of europe acceptable without a twitch on their eyes.

YouTube and theyTube

Recently I had a number of academic publications accepted on my work with youtube in the financial markets. The results were highly encouraging and extremely interesting.

My paper prooves this wrong convincingly, however the question still often comes up, "...so can you take something like youtube really serriously?" Isn't it just a bunch of home PC camera amateurs trying to get attention on a silly website!!?

...the answer is no! I've come accross the Google History page today (i recommend a read of the timeline, certainly fascinating) and it might struck you that in December 2007 the Queen of England launched the Royal Channel on YouTube, to be the first monarch to establish a video presence this way. In January 2009 the Vatican launched a YouTube Channel to provide updates from the Pope and Catholic Church.

These are marked as milestones among top achievements of Google - certainly significance is carried here...

The Flu effect this Winter

Information is power, and power is information! We can extract patterns and insightfull features and make extrapolations about the future. We may not realise this but without breaking any terms of acceptable data use or data protection, Google inc. has access to aggregated dataset on search querries. Surprisingly this offers a lot more than one would imagine. Each querry can be associated with a geographical location, precise time, simillar querries made, previous pages the user was on before visiting google, the browser or even operating system used... and even much deeper demographicall knowledge based on user profiles (in case the user is logged into google-mail or for that matter any of the many google services).

Google inc. naturally realised this and started to make serrious use of aggregated search querries data. See this page for google's stand on this. They recently partnered up with U.S. Center for Disease Control and Prevention (CDC) to research influenza trend forecasting using their querry datasets. The website is available here, check it out.

On google.org an analysis for the future flu season is provided. What is interesting however is that the influenza season in Australia and New Zealand is not really that bad and when past flu seasons are incorporated into the overall picture one can gain the strong impression that this comming flu season will not be all that bad!!

and in the US:

See and judge for yourself

Web 2.0 Business Model

During my 'traditionally irregular' web surfing this morning, I came across a blog article that focussed on CRM (Customer Relationship Model) and how it will look under the use of web 2.0 concept.

The diagram above is self explanatory - hint, read from the top (customers form partnerships & and provide self-service) to the bottom right (community generated collective intelligence), and go back up on the left side of the diagram.

I like this diagram because it is simple illustration of not just customer intelligence but the general web 2.0 model (with a little imagination of-course). Youtube or flickr are basically based on this model. I am convinced that many more companies with these simple models will follow the example of illustratory stock start ups. Something to keep in mind in many ways when valuing businessess.

News Tweeting

I never really followed the Twitter.com phenomenon. I did join up thought and have had an account for some time now. I remember when twitter was still in its obscurity, not many people knew about it and I thought what a funny concept to share one line thoughts with random web surfers. 

Recently a study by Pear Analytics classified twitter talk and discovered, based on their statisticall classification that around 40% of all twitter posts is pointless blabber, they also found that the count of poststwhich could possibly be classed as news related was minimal (below 10%). 

Chris Matyszcyk submitted an interesting opinion. He suggests that the blabber itself is off value to many people and is actually quite usefull way of accumulating new knowledge. See for yourself, on his blog.

Interesting I thought... any opinions welcome, just drop me an email or comment!!

Recession RECOVERY is here!!!

French & German GDP figures for the second quarter show it clearly - black on white, finally the economic growth substantiated. Technically this means Germany and France are out of the recession, yuppiii, yep yey, you might think.

This is not quite the case thought. It seems most of the growth was spawned by govermental rescue packages and incentives that initiated good levels of consumer spending (i.e. old car exchange incentives). Export levels in germany have indeed increased, however imports have fallen which in fact inflates the GDP figure with a certain uncertainty.

Let us hope the largest shrinking of worldwide economies is over soon, but maybe getting too excited too quickly will be a mistake.

Web 2.0 and Mass Collaboration

Hey folks, its been a while since my last post! Today I would like to talk about web 2.0, it is a hype word most of you would have heared in the recent years, either used by your friends or somewhere in the media.

Web 2.0 is not a new version of the internet, it is rather a different paradigm, it basically stands for a web that is editable by everyone. In the past, a website administrator would be responsible for updating and editing a websites online content. However now it has become much more common for everyone to update online content, applications such as wikipedia, youtube, flickr or facebook are great examples of web 2.0 systems. 

The problem we are currently facing is to gain a better understanding of how this affects user behaviour on the internet, and for me especially, it is interesting to investigate ways in which content that resulted from a form of mass collaboration (that is; all users updating content with a certain goal in mind, this could be to inform, compete, or simply share) can be used to an advantage. In this regard, we just recently had a publication on the use of web 2.0 system youtube in financial news publication (http://www.ieee-sofa2009.org/). We found some interesting results and another two papers have recently been published on work stemming from this investigation.

To finish on an entertaining note, a recent study looked at facebook use and relationship jealousy. Seems like worth a read for all you out there with girlfriends/boyfriends and partners.