Short thread. I see some charlatans and especially one of most notorious, which I won't name, arguing for high probability of rebound tomorrow in stocks. I posted a backtest yesterday with results from shorting at close of Friday if larger than 2% drop.
https://twitter.com/mikeharrisNY/status/1464696599834251268?s=20
These backtests have small samples and particular one shows, as expected, there is higher frequency of rebounds on Mondays after a large drop on Fridays, of around 60%. Now, frequency in historical data hardly translates to probability and also even then, 60% probability is low.
If you're aren't going to repeat this trade for several decades, then you may experience a large drawdown until the expectation converges, if ever. These charlatans don't understand probability doesn't translate to expectation for the next move.
Even worse: those charlatans and especially those who don't exit the trade on Monday in backtests but hold it for a number of days have a confounding variable in their results, which is the positive upward drift of the market. Everyone knows that markets have been on an uptrend.
60% or 70% probability, even if it is that, is a terrible bias for the next trade alone, unless you are going to repeat the game for a long time and expectation is positive. It is surprising how many people think high probability of success is equal to high probability of profit.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
