vegas slot machinesSetups for indicies based on technicals will be correct just often enough to keep the players coming bask again and again using the same setup, similar to the biggest casino money makers, slots. The bells ring with small wins to draw the public in. Chartists always on TV and the internet showing the win based on some pattern are guaranteed to lose the next time.

William Weaver responds:

Mr. Miller makes a good point about only having to be right enough times to make the players come back for more. But I would argue that technical setups– whether they are or are not profitable– never have to be profitable for traders to attempt them. We all know that we as humans try to create patterns in all the data around us because pattern recognition in any type of data (reading for example) is how humans function, form memories, etc. Neuro-scientists feel free to attack me, but my point is not how the brain works but rather that we all show hindsight bias and recognizing a pattern in historical data is much different than recognizing one in real-time data. Even walk-forward practice is hindered by look ahead bias (we can all paint the past 20 or more years of SPX data) and a lack of emotional stress (endowment theory, prospect theory, loss aversion, disposition effect, etc.). What looks easy, coupled with success stories fueling hope, is always a trap.


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