Enduring edges and paradigm

A young woman was driving her new sports car very fast down a mountain road. The top of the car was down, and she was enjoying the wind through her hair. As she drove, she thought resentfully of her parents who had told her she was reckless in a car and would get killed one day if she wasn't careful.

Suddenly as she came up to a curve, an SUV with a male driver and six kids appeared in her lane. She swerved onto the shoulder and stopped, barely missing the SUV. The driver yelled at her through his open window, "Pig!" Thinking quickly, she yelled back, "Bull!"

As the SUV disappeared from sight, she at least felt contented that she had been able to respond to his insult. She stepped on the accelerator, and squealed her tires as she went around the curve. She crashed into the very large pig which was standing in the middle of the road.

A version of a joke told by the writer of the book Paradigms, Joel Barker in his seminar. That illustrates very well the reaction of people with hard wired existing paradigms to new set of information.

When I posted yesterday about the structural anomalies in market, I got couple of emails from people. Some asking for more details, some saying its all bull shit, if it worked why wouldn't hedge funds use it.

Your existing paradigms determine how you react to new information. If you believe that such anomalies exist and can be exploited profitably, you will search for them, you will notice many like them. I am aware of at least 20 of them and I know of people who have found 100 or more of them. Obviously many of them are not in public domain, there are hints of them but they are not spelled out.

A few are so well known and so well researched that if you do not know of them, it does not mean others do not use them. Some of the most sophisticated hedge funds and investors base their entire strategies on such things.

When I started data mining, I did not know many of these things , but I discovered them and then later when I discovered the works of some of the highly respected academics in this field, they had also found same thing.

It is a great pity that some of these books which have excellent profit making ideas do not sell on Amazon. What sells is books written by charlatans talking about technical analysis and waves and stuff like that. What is popular and conventional wisdom is not necessarily the right or the most profitable way to trade. Most of the hardcore technical analyst fans are like that young women in SUV, unable to see another paradigm.