Proof and Circumstantial Evidence in Trading
In the court of law, there is often discussion of proof versus circumstantial evidence with a notable trader once saying that circumstantial evidence would firmly place some cases beyond the benefit of the doubt in conviction while lawyers will say the best feature of the American court system is circumstantial evidence is rejected and only proof is accepted. Generally speaking, traders react to information by updating their probabilities of all states of the world with each new piece of information but if these information pieces are not proven but are just circumstantial, the probabilities could be brought further from the truth and not closer to the truth. Circumstantial evidence refers to guessing in general at what must have happened based on what is observed in my view. Proof is showing what must have happened based on what is observed. While it is fine to subjectively guess and keep updating one’s guesses about what will happen, that is all circumstantial evidence based and will ultimately fall apart simply because there is no convergence to an absolute reality while proof pulls you towards this reality. People who lack faith essentially spend their whole lives guessing and adjust their lives so that their guesses are more likely to be true. People with faith tend to look for proof and live their lives consciously. In trading we want to look to proof when we speculate just like in religion we look to proof, not circumstantial evidence. When proof is unavailable, we don’t discard the entire religion but try to reason based on the proofs that we have. For example, if we reason out that all outstanding issues with the United Kingdom have been resolved but then more issues pop up, we could have a crisis in faith, but there is no concrete proof that anything is wrong. Instead we see that it has proceeded according to plan and that if there remain troubles, these troubles remain with Canada and imposter United Kingdom which is Quebec. One would think Quebec is French but that would be relying on circumstantial evidence. Quebec is British as it goes. They remained loyal during the American revolution. And they don’t think they are Canadian. And they rule Canada. Of course Quebec is French not British so we say Quebec is playing the role of the British balancing people like me badmouthing them from the behind the skirts of the Fair Yankee Doodless. I didn’t like On the Road! I think Kerouac is not a gentleman! And I think we should settle this once and for all with a Trojan War again as I took off with a French Jewish girl from Canada at a party with British people and now the Canadians are after me but I told them I can’t fight because I stink at sports so I am a bad trader but I am a great investor which means nothing in a trading firm culture but I am also a good archer so I am good at writing code for quantitative trading. So we will upload code for that next. Helen of Troy doesn’t have a British accent she is just French and Slavic and possibly Jewish. I am appealing to Hector of Troy who is southern Virginia gentleman to save me from this nonsense and the honor of the firm we share as we know I am smart but can I make money? No, we all know I can do global macro but can I do exotic beta? Global macro pairs well with equities trading. But if I were to pull that I would be Hector of Troy again as it’s considered illegal to use a falchion in the times of the Illiad. And if I were to do quantitative trading for real I would be sailing on land so I would be Aeneas of Troy and we would probably lose. So I am Paris of Troy who mans the archers and is good with women, and I’m using exotic beta now so after we finish stock market coverage which applies to both global macro and exotic beta, we will be doing some fancy accounting studies of companies and we will be deferring the quantitative statistical studies of the stock market for Aeneas of Troy. Troy is a hedge fund known for legendary resistance to volatility and returns that are okay except for one year when we marked to market when I told them we should be marking to model and so that was anomaly. The Greeks who pursue this Helen of Troy are the Canadian Olympic hockey team who think they found Stephen Hawking’s hotel room to trash, instead they found Bryan Berard with both eyes and he has defended this house! Lay off the Brits, Superman is near broke you know from all this trouble.