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===Backtesting, how how “hindsight is a wonderful thing”=== | ===Backtesting, how how “hindsight is a wonderful thing”=== | ||
[[Backtesting]] is | [[Backtesting]] is a naked way of trying to solve for the ''future'' by extrapolating from the past. | ||
It is ''so'' naked that only the | It is ''so'' naked that these days only the mendacious or the dense have any truck with it. Of course, the mendacious and dense tend to get on pretty well. | ||
The idea is this: collect and analyse years of market data — back through the last meltdown, ideally — and from it construct the optimal trading strategy, that, had one used it, would have returned the greatest profit, and have totally avoided the fallout of that meltdown. | |||
Of course | Of course no-one knew at the time how the meltdown would play out, so no-one used this brilliant strategy.<ref>Well, the odds are ''some'' bastard did, but not by design and not because he had any special knowledge or insight. He just happened to have his money on the horse that came in. In a random walk, among a big enough stable of runners and riders, ''someone'' will back the horse that wins.</ref> For had we known trading patterns would have been different, the data would have come out differently, thereby confounding the strategy. | ||
[[Backtesting]] is a preposterous idea. | |||
By the lights of history, the market’s course is now fixed. The data is dead. Inert. But when you are ''there'', in the moment, it is ''not''. It reacts to you, and you react to it. It is dynamic. Symbiotic. Contingent. Alive. | |||
But note the mode of discovery: static; historical; final; determinate. | A trading strategy derived from the fossil record of data that was once alive, but is now not, is similarly inert. It is cannot ride, or get swamped by, the symbiosis between market and participant. | ||
This is true of any [[algorithm]] that depends on data. Data is history. A photograph. It is good for answering questions to which there already is an answer. (Don’t scoff at this: many good questions are things for which there is already an answer; just one we don’t personally know. Hence: the value of Google. The value of a ''library''.) | |||
But note the mode of discovery: static; historical; final; determinate. Data can tell you how things ''were''. | |||
===Causal [[determinism]]=== | ===Causal [[determinism]]=== | ||
We accept “causal [[determinism|regularity]]” — that science yields truth: that one thing regularly leads to another — because the alternative seems to deny the apparent operation of the universe. | |||
But even here the fossil record flatters to deceive: the lattice of potential causes is far more complex than our wildest dreams — we form those just from what we see and hear — but that is an infinitesimal sliver of all possible events out there. Our histories are works of imaginative fiction. This is why historians do not agree. We make our histories; we do not ''find'' them. | |||
By looking at a unitary history (that we made up), in hindsight we miss the contingency from which it was fashioned. Once it is laid down, it looks | By looking at a unitary history (that we made up), in hindsight we miss the contingency from which it was fashioned. Once it is laid down, it looks inevitable. It looks pre-ordained. This is a curiously ''religious'' idea. | ||
In any case, if | In any case, even if there is but one past — whether or not we can know it — still there remains, from any given present, an ''infinity'' of futures. | ||
The temptation | The temptation, when we look at such a concrete past, is to see each of the points behind us on that timeline as having determined the remaining history to the present. The extrapolation is that they must determine the future, too. The further back in time a point is, the more momentous it has been in determining our path to here. This seems intuitive: the decisions I made ''yesterday'' had little bearing on where I am today: I was already here. The die was long since cast. | ||
But | But this is not true. | ||
Since that moment thirty-years ago, when you bought that plane ticket to America, you have had thousands of opportunities to buy a plane ticket home again. That you are still in America is nothing to do with that ticket you bought, and everything to do with the tickets home you haven’t bought since. | |||
We have, and our ancestors had, the ongoing ability to change things daily. ''Everyone'' makes bad decisions. The key is not to be ''defined'' by them. Everyone makes ''good'' decisions, too. Keep the good decisions, do what you can to correct for the bad ones. | |||
Our permanent aspiration: from here, make more ''good'' decisions than you do bad ones. Improve your ratio. You will not always know at the time. You will learn in hindsight. ''Iterate''. | |||
You | You can’t undo the decisions of the past, whether made by you or about you, or by your ancestors or about them. ''You can make different decisions now''. | ||
===Pragmatist’s prayer and the infinite game=== | |||
[[Finite and Infinite Games|Finite and infinite games]] is, as ever, a great [[metaphor]] for framing these battles of the past and present. For what is a “[[lived experience]]”, a “[[grievance]]” or a “[[standpoint]]”, if not an articulation of ''history''? | |||
The future contains ''unlived'' experiences. There ''are'' no ''grievances''. Our standpoints, the margins and their intersections are ''unknown''. | |||
Being historical, a lived experience is permanent, and set it stone. It cannot be moved. It cannot be removed. It cannot be compensated for. It cannot be denied. It becomes a monument. A shibboleth. A sacred prophecy. But it is our imaginative construction. We choose our significant events. We build our own memorials. We choose to live beneath their shadows. But our present is a function of every point in the past, not just the ones it's suits us to settle on. | Being historical, a lived experience is permanent, and set it stone. It cannot be moved. It cannot be removed. It cannot be compensated for. It cannot be denied. It becomes a monument. A shibboleth. A sacred prophecy. But it is our imaginative construction. We choose our significant events. We build our own memorials. We choose to live beneath their shadows. But our present is a function of every point in the past, not just the ones it's suits us to settle on. |