Thread by @KatariyaPran

My mind is still reeling from the possible lessons from the Book 'The Rebel Allocator' by Jacob Taylor that I finished reading over a single session yesterday. The killer revelation comes in the last Chapter and here it is

Quantitative Models provide a ceiling, which us humans subtract from, not a floor on which we build upon. Actually this concept forms the core of Michael Lewis's bestseller 'The Moneyball' where a simple Mathematical model handily outperformed a score of Professional selectors

There are similar studies where simple Models have outperformed Doctors, Judges, CEO's...in a multitude of critical areas where one would have thought that skills honed thru years of study and practice would have yielded superior results

A group of Doctors were asked what the 4 most important factors in determining whether an ulcer was benign or not and a simple Model was created from their answers. Then the Doctors were shown 100 Tumors and asked to rank each. 20 odd duplicate cases figure in the list

The study found that the simple Model outperformed the Doctors by a wide Margin. The Doctors could not agree with each other, and not even with themselves, as they gave different responses when shown the same Tumour in random order! So how does this apply in Trading?

I Trade Options and the Option Chain along with Probabilities provides the Simple Model. I have found that I underperform when I try to add an additional layer of 'knowledge' to this Model- such as having a bias on Market Direction.

I'm sure that the same holds True in whatever System we may Trade. This is probably why great Traders like Linda Raschke follow ridiculously simple Systems with only a few simple Rules and Trade them with great success. Simplicity and Consistency- keys to the Magic Kingdom

Oops Sorry. The Doctors model was built on 7 not 4factors. Simple things like Size, Shape, Location etc. Google has also done a study where they say that they are actually able to predict specific ailments with great accuracy based on searches an individual has done on the web

Simple Models thrive when
The Problem is ill structured and complex
Information is incomplete, ambiguous and changing
The goals are ill defined, shifting or competing
Stress is high, due to time constraints and/or high stakes
Decisions rely upon interaction with others
Familar?