

Rats trained to play the forex market - mjtokelly
http://www.artmarcovici.com/rat-traders

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patio11
Much like the monkey throwing darts at the stock market chart who clocks
professional money managers on average, this result proves nothing about rats
or markets. It provides further experimental proof for the worst kept secret
in history: professional money manager systematically destroy value.

~~~
yummyfajitas
While it is certainly true that professional money managers don't beat the
market on average, this does not imply that they destroy value.

Professional money managers and speculators in general, at least in principle,
more efficiently allocate capital as a result of their speculative activities.
This causes overall returns to increase. In a world without money
managers/other speculators, market returns would be lower overall.

The simple model: in a world without money managers/speculators, overall
returns might be 2%. In a world with 1 speculator, returns might be 2.1% and
that speculator might achieve returns of 4%. In a world with many speculators,
they might _all_ achieve returns of 4%, and none of them would be beating the
market. They are creating value, however.

(Another reason they don't beat the market is that many of them are not trying
to. The manager of my Vanguard Target Retirement 2050 fund is currently trying
to beat the market. In 2040 his goal will be to minimize risk.)

~~~
Retric
The stock market has little to do with allocating capital. The bond market
does, but the stock market is mostly about valuing short term and long term
risk with associated rewards.

~~~
chengas123
Huh? The stock market absolutely has to do with allocating capital. It,
together with the bond market, is the place where large companies go when they
need to raise funds.

Bond traders and stock traders alike both balance the risk and reward of a
company's offering in order to determine a fair value for that offering.
Valuing risk and reward is valuing the company and valuing the company is the
most critical part of a stock offering. Any post on here about raising money
from a VC will talk about the valuation of the startup.

~~~
Retric
A small percentage of stock market transactions are Company to Investor. Most
transactions are Investor A to Investor B which only indirectly impacts a
company’s value. Clearly they are related, but it's generally much better for
investors in healthy companies for that company to get money from the bond
market than the stock market.

PS: Consider a company with consistent revenue/dividends but zero transitions
on the stock market. Its value is going to be heavily influenced by stock
market conditions, but it's ability to raise money is going to be dominated by
the state of the bond market.

Edit: My point is what it means when a transaction between Invester A and
Invester B happens on the stock market at a given price.

~~~
chengas123
It is often better for a company to raise money from the bond market, but only
up to a point and only because of the tax implications.

[http://en.wikipedia.org/wiki/Trade-
off_theory_of_capital_str...](http://en.wikipedia.org/wiki/Trade-
off_theory_of_capital_structure)

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PaulJoslin
If you take 80 people and tell them to randomly play the stock market, buying
or selling - you will always have some that succeed and some that fail over
the short term.

The question is, if the same people who 'succeeded' are put back to the start
again and play randomly with a new batch of 80 people - would they still rise
to the top, or perhaps this time have worse luck.

Comparing this to the rats, the long term testing / new rounds with a new set
of 80 rats (including the elite) would help determine whether these rats are
the best, or if it was chance.

If I understand this correctly, the decision the rat makes is based solely on
hearing a certain frequency (pattern of trading emerge), unfortunately even if
this is the case - trading by patterns could be extremely risky without the
common sense / experience of a real trader to see what is really happening to
the market.

~~~
olefoo
What the rats are doing (if this is not a well done prank) is exactly
equivalent to what 'technical' traders and chartists do. As to why these
techniques work; they are reacting to the intentions of other traders signaled
in data. This may be a case where knowledge of the "underlying reality" that
the market is reacting too (supposedly) is a disadvantage because it prevents
noticing and reacting to the actual data.

That said, this whole thing reads like an elaborate practical joke.

~~~
PaulJoslin
You mean, like they're noticing a 'bearish gartley' pattern (in audio) and
acting appropriately?

My point was, that although these can be 'indicators', you still require a
human mind to determine whether the trade should be made. If it was as simple
as matching patterns and trading, anyone would be able to do it.

~~~
olefoo
Not necessarily, if (again taking this at face value) only a few rats are able
to pull this trick off, that's not too surprising. Of humans who trade forex,
only a certain percentage are relatively successful at it.

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motters
These rats clearly deserve $1000,000 bonuses. They are the indispensable
financial innovators which drive our economy. These rats are too big to fail.

~~~
asdf333
They are providing valuable liquidity to our financial markets. Is it too much
to ask that they be rewarded for their contribution to society.

Seriously, this is the most ingenious thing I have seen in a while.

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mustpax
Marcovici is a conceptual artist and this is satire. Wasn't sure if some
comments here thought this was for real.

Take a look at his satirical illustrations about BP here:

<http://sites.google.com/site/artmarcovici/>

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megamark16
This is the first thing I thought of when I read this:

[http://dilbert.com/strips/comic/2010-07-03/?CmtOrder=Rating&...](http://dilbert.com/strips/comic/2010-07-03/?CmtOrder=Rating&CmtDir=ASC)

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bobf
I wish he had compared the rats' performance to the current publicly available
"best of breed" programmatic approach that uses technical indicators. Other
than that, the interesting part of the experiment seems to be how it may
relate to training human traders more efficiently. Starting a fund based on
trading with rats seems a bit satirical indeed..

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tommynazareth
Perhaps there is an elaborate rat society running around mazes and pressing
switches somewhere in the bowels of Goldman Sachs?

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ig1
Dupe: <http://news.ycombinator.com/item?id=514798>

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cjg
Survivorship bias explains his results.

~~~
nerfhammer
He claims after selectively allowing the best performing rats to breed the
second generation of rats performed better than the first generation. If it
were survivorship bias the second generation should be no better than the
first.

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nerfhammer
How is this different than training a neural net on historical data?

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keyle
That is ratsome.

