Boris Schlossberg Blog | Let Plato Design The Perfect Trading System for You | Talkmarkets
Managing Director at BK Asset Management
Contributor's Links: BK Forex

Managing Partner of BKForex. Day Trader Extraordinaire. Master EA Developer. Author of Technical Analysis for the Forex Market. And a Pretty Damn Good Cook.

Let Plato Design The Perfect Trading System for You

Date: Sunday, July 1, 2018 9:09 AM EDT

Plato’s cave is one of the greatest philosophical fictions ever invented. The idea that we don’t truly see the real world but only the mere shadows of things, that our perception of reality is limited by our own flawed senses is such a powerful concept that it remains a topic of debate and discussion 2500 years later, just as Plato’s work, the Republic continues to be the foundation of the Western intellectual canon.

In writing about Plato, Robephiles notes that “Plato was distrustful of the senses when it came to the ability to perceive knowledge. Plato knew that our senses could be fooled and he placed an emphasis on our abilities to think and reason rather than the knowledge gained from the study of the physical world.

This leads us to another famous metaphysical idea, The Theory of the Forms. Plato was fascinated by the problems of universals. An example would be as if I told you I had a dog. If I told you this you might picture a poodle or you might picture a mastiff or a chow or a border collie. These are all dogs yet each one is so different in its particulars. What makes a dog have its essential ‘dogness’? “

In an age of data science, Monte Carlo simulations and million backtests per second, the empirical model -- so successful in the physical sciences -- now completely dominates our world of social science of which finance and trading are a part.

But what if I were to say to you that maybe we have it all wrong? What if I were to argue that the endless data mining we all do -- the search for the perfect indicator, the perfect Fib level, the perfect volatility envelope are all just a giant waste of time. Ironically enough, empiricism would prove me right. Almost every trading system ever invented fails miserably under real-life conditions despite often showing perfect statistical accuracy often to the 99% confidence level. The irony of trading is that we put all our faith in an empirical model that empirically fail us.

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