Bottom Line : Extraordinary Claims Require Extraordinary Proof

The title of this post condenses one of the most important phrases coined within the scientific community which deeply summarizes the way in which knowledge is built. People tend to view scientists as close minded people who are not “willing” to take new ideas but – on the contrary – scientists are  some of the most willing individuals to accept change and take into account new ideas as long as those ideas are shown to withstand experimentation and are based on sound evidence. Paradigm changes have happened in science when extraordinary claims have been made – for example the discovery of superconductivity was such a case – the claim contradicted many notions past science had built for centuries and for this reason extraordinary proof was needed to show that the phenomena was actually real, reproducible and the overall theory needed to change to account for this new discovery.

On today’s post I am going to talk about this concept in trading and why I – like many  “older” traders – are very open to new ideas as long as they are accompanied by the factual evidence that shows they are indeed worth persuing.

I have to say that I deeply understand the reasons why experienced traders “hate” to help people new to this field. New people are often very stubborn, they do not listen to advice and they are very willing to test and use ideas which have been time-tested failures. The usual excuse they pose to the experienced trader is that they are “innovating” and that the fact that it has never been done before doesn’t mean that it cannot be done. Then they normally point to examples about the Wright brothers flying after they had said it “couldn’t be done” for centuries and another myriad of similar historical references when people were able to achieve something incredible beyond what the general community believed “plausible”.

However this examples hold no validity here since the process of thought and development is not the same. Certainly many things have been done which were considered impossible in the past but such an approach required people to deeply study what had been done before in order not to do things that had shown before not to work. Sure, the Wright brothers achieved flight – which at the time seemed impossible – but their investigations included an in-depth analysis of what had been done, what hadn’t worked and what could be done to make it work. They analyzed what failed to give people who had previously attempted this success and they took note of the things others had done before to achieve some sort of positive result. The same goes for events like the moon landing and the invention of the computer, it is about looking at everything that has been done that doesn’t work and working forward taking into account what has already been done.

Of course in trading the fact that there is no “global knowledge base” which makes the learning experience very individual makes people think that they are attempting something totally new before really researching what has been done. With new traders this is always an up-hill almost futile battle since they will be very convinced that something can work despite the fact that it has been done a thousand times and showed that it doesn’t. A very good example of this is the development of Grid trading systems. I know at least 20 grid systems that have been developed and failed and I could develop tons of them that I can guarantee will fail in the longer term. Experience has shown the global trading community that such approaches never work (because of absolute assumptions over price) but people still want to develop the “grid that works” because the fact that many have been developed before doesn’t mean that the “good one” isn’t just around the corner.

The failure here comes when new traders fail to realize what made all those grids fail. When you analyze what kills systems that use grids and martingales you come to the conclusion that their failures are specific to the fact that they are grids and martingales not to other fine details of their trading logic. What new traders do is therefore alike building one thousand buildings on top of quicksand and blaming the construction materials. The inherent problem of all previous approaches was that they were being built on quicksand, not that the construction materials were not appropriate. The same thing happens time and time again with unreliable simulations on lower time frames in Metatrader 4, I get about 1 or 2 emails every month from people who have got the “holy grail” on a 5 or 15 minute time frame, a backtest that takes a system from 1 thousand dollars to 1 million in only a few years (or sometimes even months !). When I say that this has been done a thousand times and that these simulations do not work people are often very unwilling to listen to me because they want to believe that they “got it”.

These circumstances remind me of the discussion between psychics and scientists. Psychics often say that scientists are “close minded” and will not “accept new ideas” but as a matter of fact scientists are willing to hard-test any ideas presented and accept them if they hold true while psychics are unwilling to accept any testing that could prove that what they do is pure hokum. So in trading we have a similar situation, new traders are unwilling to accept the fact that what they want to do has been tried a thousand times and failed and they call the people who ask for evidence “close minded”.

As the title says, extraordinary claims require extraordinary proof. In order to accept that a system can turn 1 thousand dollars into 1 million in a year, in order to believe that profitable trading from martingales and grids are possible we need 10 years of testing on the real market showing this can be done. Why ? Because all previous attempts have failed, it is like attempting to disprove the second law of thermodynamics, the fact that all evidence points to the fact that it cannot be broken makes any claims about its breaking need extraordinary evidence. If you are a true innovator and you wish to contribute new ideas to the trading community then do a true in-depth research of all the trading techniques that have been used and shown not to work, then build upon those that have shown to work implementing truly innovating ideas. Attempting to reproduce the failures of the herd is certainly not worth the effort.

They say that the definition of insanity is to do the same thing over and over again expecting different results, nothing could be truer about the forex retail trading community as a whole. If you would like to learn more about system development and how you too can develop systems with sound trading techniques and reliable simulations please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this article ! :o)

Print Friendly
You can leave a response, or trackback from your own site.

2 Responses to “Bottom Line : Extraordinary Claims Require Extraordinary Proof”

  1. JT says:

    Great post Daniel.

    And one I can kind of relate to in regards to my blog. I have only been involved in the currency trading game for 4 years, but that has been a decent amount of time to learn and witness some of what will work and won’t work. And, my “I need proof” meter keeps on rising. In my blog I often like to take the most popular signal providers on Zulu and pick them apart. With Zulu it can be easy to be critical as no signal provider on there has a viable 10 year back test for their system as far as can be seen. I try to point people to the current available data and past available data, and to past failing signal provider accounts and I still get people thinking that the signal provider looks great. In fact I at times get comment basher’s saying I don’t know what I am talking about… Unfortunately, The signal providers they think are great, and typically have the most users using them, are the ones with high accuracy 99% or 100%, the signal providers don’t use a stop loss (which explains the high accuracy), and they typically have trades that have drawn down low and by some miracle have come back, so that means the signal provider obviously knows what they are doing, right? :)
    Anyway, good post.

    JT

    • admin says:

      Hello JT,

      Thank you very much for your comment :o) I am glad you liked the post ! Certainly there are many people who don’t want to listen or look at previous evidence since they believe (and want to believe) that the results they see are as good as they seem. As I said on the post the battle with newbies is always a very up-hill and almost futile one since the willingness to listen is often none. You need to happy about the fact that you’re helping and doing the best you can to inform others, there is not much else you can do. After all, those who do not know history are doomed to repeat it and this certainly shows through most people new in forex, when you refuse to learn from more experienced traders you have to get that experience (and lose that money) yourself. Thank you very much again for your comment :o)

      Best Regards,

      Daniel

Leave a Reply

Subscribe to RSS Feed Follow me on Twitter!
Show Buttons
Hide Buttons