“If past history was all that is needed to play the game of money, the richest people would be librarians.”-Warren Buffet
Nowadays, the image of the Wall Street traders is making tectonic shifts in our minds. Gone are the days when we used to picture experienced professionals working their way up to the top. Most of them trading positions through utter ruthlessness. Rather, we now see young, fresh-out-of-college professionals get to break into industry with nothing but just math skills.
Their trick-of-the-trade completely seems to be based on the in-depth statistical (theoretical) analysis knowledge. As per them, the analysis helps detect the probabilities and makes it easy to act upon strategically, thereafter. This is, as per the experts the supposed best way to success.
In other words the young Wall Street traders seem to take over the stock market with sheer academia prowess. Now the question is, can mathematics really decode the essence of the stock market?
Although there’s a perception among some that those who depend on mathematics in markets , tend to manipulate the system to a certain extent. But let’s not conclude to anything just yet. Also, there’s no concrete proof that mathematics cannot assist in analyzing market strategies, effectively. However, any mathematical approach doesn’t mean guaranteeing flawless trading. Rather, it means stacking probabilities in any trader’s favor.
Statisticians has pointed out an important clear distinction which states that no mathematical model can predict the future. No matter if it’s framed by the most intellectual mathematicians. But again, a well-framed mathematical model may help in assessment and prediction of risks. This is where all the mathematically inclined professionals or traders gain a productive advantage.
It is a fact that when a person uses mathematics to analyze a real-world situation there is always some kind of assumption behind it. One can rarely guarantee the parameters within which his expectations and mathematical model can and will work. This implies that even the most advanced mathematical model relies on hope. Or that the things will act as expected.
Mathematics cannot beat the markets for sure. But it certainly can improve one’s chances of success as a trader. A majority of the people are playing the markets with huge numbers of strategies and investments, so no mathematical model can completely assure one correct strategy.
Future is impossible to predict with foolproof surety. But this doesn’t discredit the idea of a good mathematical model predicting the likeliness of a trend.
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