Friday, 1 March 2019

Financial markets are anti-inductive

Many natural systems are inductive: they behave the same way tomorrow as they did yesterday. However, when you are up against an opponent in a game of strategy, your opponent reacts to you; you cannot assume they will behave the same way tomorrow. They will deliberately act differently, or add an element of randomness.

Financial markets are like an opponent. If you find a strategy that works, then other people will probably find it too, and then it will stop working.

Strategies that worked will stop working. Strategies that didn't work cannot be relied upon to work in future!

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