Over Analysis

Tony Stephens is becoming quite a regular contributor to this blog, contributions always appreciated of course. He responds to my last post where I clarified my thoughts on what technical analysis means in regard to my public systems.

Tony writes:

Yes you have already calculated the historic prices were not correct as your system is looking at historic win / loss % v historic implied probabilities. So you continue to do this or you wouldn't know when to stop following it. If the current market structure was such that there was £5bn available to back and less than a £1k available to lay your system could still be telling you to back. Would technical data not relate more to what's actually happening in the current market, in terms of prices and volumes etc, and what chance of success you might have when similar market structures have occurred previously?

Tony's first sentence is correct - a technical analysis of the historical prices have indicated an area where a market may be inefficient. Tony is also correct that knowing the inefficiency will correct itself probably sooner rather than later, it is important to keep tracking results.

I think Tony is suggesting in his next sentences that I perform this further analysis each time a system throws up a new selection, which is incorrect.

I do not look at the 'current market structure' at all. I have no idea, and no interest, in how much money is available to back or lay, because I don't use the exchanges as the source for my selections. My system simply tells me which selection to back. There is no additional analysis performed, of either a technical nature (weight of money, volume, price movement etc.) or fundamental (team line-ups, weather, injury reports etc.).

The approach Tony describes certainly falls under the heading of 'technical analysis', but technical analysis can be as simple as looking at historical prices. It's still technical analysis, just not very sophisticated technical analysis to put it mildly, but time is precious. 

This quick and unsophisticated approach isn't yet paying dividends in the MLB post-season, where all four favourites have won so far. Backing the underdog in the 'best of one' Wild Card games is historically not a profitable exercise, but we're into the best of five Division Series now.