The Sex Election

We all know it’s going to come down to the economy, but you have to enjoy the Republican attempt to make this election about sex. Democrats simply don’t have the guts to make these guys look as silly as they make themselves look, and for some reason there is no pro-sex PAC out there. The only way these guys really get to look like fools is to do it themselves.

What if we did have an election about sex? Choice A would be that sex was not allowed except for the purpose of procreation. Choice B would allow sex for pleasure. It’s a very simple choice, but let’s complicate it a little by making it binding. We all know that all of those sex for procreation only people feel kind of dirty just having neighbors who do it for fun. Let’s all agree to move to an area dominated by those who share our choice.

I’m sure the same kind of split is going on up in Canada and probably in Mexico too. Let’s see if we can fix the problem for the whole continent. We could have three choices in a whole continent election: the two choices above and a third choice which allowed sex for pleasure only unless you get a procreation permit. I could be wrong, but I think most people will go with Choice B even though that is by far the most complex option.

There are definitely people in category three, but they should be the smallest group because they are not breeding. They only grow by siphoning members from the other groups.

If we did a county by county color map of the results, the As would be red, the Bs would be blue, and the Cs would be green. I would have to bet that most of the map would be blue. The reds and the greens might find few places that would take them in, although the greens are growing all of the time as more and more people recognize the impact of a planet with seven billion people on it.

I suspect the red areas of the map would be far smaller than the red area displayed after a presidential election. I could be wrong, but I suspect that even most Republicans like sex. They’re just disgusted that other people are having a good time at it.

Of course this is silly. We don’t need to make this kind of separation because no one is forced to have sex with anyone else. However, when you try to define the election the way that Rick Santorum is, you’re really betting that you think the above map will be red. I welcome that vote. The rest of the world may think we are prudes, but I’m pretty sure that America loves sex. I could be wrong, but a few hundred billion dollars worth of advertising is on my side. They don’t spend that kind of money to turn peole off.

More comments exposing my fractured stream of consciousness can be found in my Twitter stream @alanbcorwin

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Open Letter to Sir Charles

Dear Charles Barkley,

I am a great fan of both your basketball career and your sports casting, not to mention that you seem like an all-around great guy. You deserve to have more fun playing golf.

Here is how to fix your swing. It will take some drudgery, but nothing is hard.

Theory:

All of your problems are caused by your right hand. The kinds of things that go wrong in your swing are not left-handed problems; they are right-handed problems. Take your right hand off the club, and even a big monster like you cannot stop the club halfway down. The right hand may be not be the cause of your problem, but it is certainly critical to the implementation of your problem. You would be better off not touching the club at all with the right hand than letting the rght hand dominate the swing the way you do.

For a right-handed golfer, the left hand swings the club and the right hand hits the ball. The swing must dominate the hit. That is, the effort of the right hand must mesh with the timing of the swing. The swing is a train that the hit jumps on board.

When you stop your swing, you are saying that you are simply going to hit it, that you don’t need no stinking swing. If that was really the case, the answer would be to start your swing at your pause point. Everything else goes to waste as soon as you stop anyway.

Clearly, however, you need to swing because that’s the way the game is designed. Therefore, let’s make your swing more natural.

The first drill you need to adopt is the three o’clock to nine o’clock drill, sometimes called the Thumbs Up drill. You can do it with any club, but most people use a wedge. Address the ball, swing smoothly back until you arms are parallel with the ground and your thumbs are pointed straight up. You can stop right here to check your position if you want. Swing down through the ball to where your arms are pointed right at the target and your thumbs are once again pointed to the sky. Concentrate on making a smooth swing. Do not worry about the position of the thumbs at impact.

Do this drill for 15 minutes every day. If your swing goes wacko on the course, retreat to this restrictive swing and simply take one more club. You’ll do fine. You can always be master of the little swing.

That’s easy, but I know you want to smash the ball. We all want to smash the ball. You feel like a more highly evolved being when that ball hangs in the air forever, and you can’t get that feeling with the little swing.

The drill I chose for that will take longer to assimilate, but it should be well worth the effort. It is based on one of Johnny Miller’s practice routines. He used to hit five irons at a target 150 yards away with only his left hand. Johnny ranks up there with Ben Hogan and Tiger in the annals of deadly iron players, and I think this drill was a key to that.

There is a lot of value in swinging with just the left hand. You have to swing the club along the proper path. You have to get to the proper position at the top. You have to use your feet and your weight correctly. You have to turn through the impact zone. You have to swing all the way to the target. We all struggle to do all of these things with two hands on the club, but they are natural enough so that we can instantly feel what is going wrong and correct with one hand on the club. It works so well that I often do this with the weighted practice club to magnify the sensation.

Step One:

Just swing any club with only the left hand. Swing smoothly back to where the club is pointing at the target. Accelerate smoothly through the impact area and release to the target. The right hand never touches the club. Repeat until tired or bored.

You should do this exercise with all of you clubs whenever you get a moment. You do not need to hit balls in this exercise, but be careful. You will have a much wider swing arc with only one hand on the club. Make sure you have plenty of clearance.

When You get so that you can consistently make a smooth swing with just your left hand, gradually begin to increase the power you apply by increasing your turn speed. After a few weeks, you should be able to whip that club though the impact area like a backhand from a left-handed tennis player who discovered an unguarded alley. It’s all just practice and timing.

Step Two:

Once you get to that point, you are ready to start hitting balls. The right hand is still not touching the club! Using just the left hand, hit shot after shot until you can consistently hit the ball square with just the left hand. Make sure you strike down on the ball.

Because you’re bigger than Johnny, You should have no trouble getting your six iron 150 yards with just the left hand. When you can hit eight out of ten six irons past the 150 yard marker, you are ready to go to the next step.

Step Three:

In the next step, you can put your right hand on the club, but you cannot close it. As a result, you are still doing the entire backswing with the left hand, but your right hand can participate in striking the ball if it can stay in synch with the left. The left hand cannot stop if the right cannot close on it.

What happens here is that you should still hit the ball pretty well if you continue to hit it with your left hand, and there is nothing to stop that. Getting the timing right when you apply the right hand will determine how much power you can add as the timing is far more important than the input power.

Step Four:

The right-hand may now close on the grip as lightly as possible. The right hand is a bit player here, providing gentle guidance to smooth the swing and a bit of extra acceleration at impact. This is still a swing done with the left hand, and the right hand is a friendly hitchhiker.

Completion:

The swing is still mentally left-handed, and the right had still grips very lightly. The right hand just rides along until the last possible moment, then it explodes into action at the ball. You can have a really good golf swing without that explosion and you can have that explosion in a poor golf swing, but what you want is the explosion at the right time in a good golf swing.

Your irons shots will be as good as you ever want them to be before you get to this stage. You really only have to master this stage if you want to hit the ball over the horizon.

A concerned fan,

Al Corwin

The Complete Cell Phone

Their cell phone is the only computer most people will ever need in the reasonably near future. For some people, it already is all the computer they ever want and more. More of us will join that group with every passing day.

Cell phones are already more powerful than the personal computers of the not too distant past. The barrier will not be the compute power that you can carry in your pocket. If you want to talk about the needed processing power or storage, any level you want to talk about will be in your computer someday.

There are three other hurdles that the cell phone needs to overcome to deliver all of the utility of the modern personal computer. The PC wins today for screen size, keyboard, and relative security, but cell phones already have options that show that these advantages are on the way out. The personal phone in a cell phone is almost on your doorstep in a package that will be hard to resist.

Projector Screens

You can already get a cell phone with a projector good enough to put on a quality presentation. It won’t be too long before we see a cell phone that can project a screen of almost any size that creates a clear, sharp image in full daylight. At this point, the cell phone will have display capabilities that at least rival the capabilities of a desktop PC.

Keyboards

Already lots of phones provide the capability to plug in a standard keyboard. The only barriers to be hurdled here are design problems with the keyboards themselves. So far, none of the keyboards that you can carry in your pocket can really deliver the feel of a quality keyboard. That will happen soon for those of us that cling to the need for a keyboard.

For those who are looking for another means of input, voice is coming of age. It works somewhat on Windows mobile phones, and it seems to work very well on Android phones. I haven’t seen this on iPhones, but I suspect they are better at voice recognition just like I assume that they are better at everything else. They all seem to be better at voice commands than voice text entry.

Security

The worst security feature of cell phones is how easy they are to lose. I don’t think we can fix that problem, but we can change the impact of a loss. First, we can have an automatic backup system where all of your data is kept on a secure server somewhere. I believe that Apple’s Mobile Me does that, and there have to be many competitors. These services will get better and better.

It seems like you also need the other side of the coin. That is, you need to be able to erase your phone remotely when it is lost. Some phones may have this already. It certain

Beyond Trading System Optimization

As anyone who has ever tried to do optimization on automated trading systems will tell you, there are many problems. The optimal numbers from the past almost certainly won’t be the optimal numbers for the future. In fact, every data set you test will produce different numbers. Why then would you do system optimization?

We believe that the most important output from these efforts is the discovery of relationships between decision factors. It’s not the price you pay when you buy or the price you get when you sell that determines profit, it’s the difference between the two.

That means that the most important relationships we are looking for are the relationships between selection factors and exit factors. We like using response surface graphs to show these because they show the relationships clearly, and the general picture they show differs little when we try it on different data sets. This leads us to believe that the relationships are robust even though the optima are often simply coincidental.

Response surface graphs also show which settings are clearly dysfunctional. It becomes pretty clear after looking at just a few sets of results that there is a range of settings that might work, and a range that is clearly disastrous. This is true for both the individual factor settings and for the relationships between them. Note that findings of dysfunctional settings tend to be far more robust than findings of optima. Knowing what to avoid doesn’t tell you how to do the job right, but there is clearly value in avoiding known disaster area.

In addition to interactions between selection factors and exit factors, there are also clearly interactions between various selection factors and interactions between various exit factors. For example, an either OR rule for selection factors means that you get into more trades while an AND rule reduces the number of trades. We know that without performing any tests, but more trades or less trades is not the critical answer we need. We need to know whether an OR rule gives us a higher winning percentage and greater profit, and whether an AND rule gets us into more trades that lead to more profits.

The same is true with exit rules. Do they work well together or do they get in each other’s way? Generally speaking, there is a desired exit process and a set of fall-back exit processes. You don’t want the fall-back processes to unduly interfere with the desired process, but you can’t let your primary exit process to be so dominant that the backup plans don’t go into effect until it is too late. Response surface graphs show these relationships very clearly.

Not all of the critical interactions are two-factor. There can be three, four, or even more factors that are working together. The more complex an interaction, the less likely it is to be robust, but many three-factor reactions are robust. Showing three-factor interactions is a minor problems that we address currently with animations. Here is an example.

We show the most powerful factors on the axes. Here this is the critical selection factor and the primary exit factor, and that is generally the case. The third factor, the backup exit strategy, we show with the animation. The animation shows that the third factor changes the degree but not the nature of the reaction between the first two factors. This presents a fairly clear picture of what is going on in the trading system, and we can see that these pictures will look very similar if we apply them to a variety of data sets.

It is important to see whether the charts you get out of the data support or contradict your basic theories. The basic theory here is that a move in one direction is most likely to be reverse if it swings far enough, and most likely to make a solid profit when you are looking for the swing back to be half as large as the initial move. The size of the swings varies considerably, but the relationship between size of the initial swing and size of the secondary swing is pretty consistent.

The fallback exit factor is of less importance. By itself, it never determines whether the system will win or lose, but does affect how much it will win or lose.

What settings should we choose for our working system? It’s still something of a crap shoot, but we have a reasonable idea of the direction to shoot in. The chances of picking the best values is only slightly more than zero, but the chances of picking pretty good values is very high. There may be other response surfaces that you can look at like days in position or winning percentage that will push you in one direction or another, but you still are moving from analysis of the past to prediction of the future. The stock market will never be a chemistry problem.

Internal and External Risk Management

Internal risk management is about disaster aversion. External risk management is about the probability of loss.

External risk management is strictly about the relative size of your bet. Strictly, it is about the degree of affordability of the worst possible loss. A prudent external risk management plan ensures that each individual bet and each collection of correlated bets risks less than half of your available bankroll. The external risk management process should be the same for all bets. The primary question you should always be asking yourself is how much you can lose and how much you can afford to lose.

External risk management is far more important than internal risk management. Good external risk management keeps you in the game when things go wrong. Never forget that eventually things will go wrong.

Internal risk management is disaster identification and mitigation. It’s all about what can go wrong, and what can be done to prevent it. Internal risk management starts with a list a list of the possible disasters. A prevention and mitigation strategy is then developed for each risk. The process is simple and straight-forward. Just going through the process gets many of the risks under control, and it is essential to getting the risks solidly under control.

The quality of internal risk management is a factor in the execution of external risk management. The more the internal risks are kept under control, the less risky the overall bet is. Always consider the internal risk management when evaluating the probability of loss.

Research Time and High Frequency Trading

The primary cost of doing most trading system research is the cost of the time. Time is used to plan an experiment, to run an experiment, and to analyze an experiment. When you need answers in two days, you simply cannot use an experiment that takes six weeks to run.

In an ordinary research environment, the time to design an experiment uses a tiny fraction of the time. Analysis takes slightly longer. Time to set up and execute the experiment takes far more than ninety percent of the total time in the process. When a problem requires an answer in significantly shorter amount of time, the only hope is to reduce the time it takes to execute the tests. If you need an answer within two days, you need to reduce the execution time for each trial to about a minute or less.

You can get incremental improvements in the speed of trading system tests by getting faster and faster computers, but the real secret of speeding up trials is to consider less data. Each piece of data requires processing, even if the process is simply to ignore that piece of information. Do you need or even want ten years of data if you are testing a system that will trade a thousand times a day? Do you need six months of test data? Can you find what you are looking for in the last week’s data?

A week is the shortest time frame that really makes sense in the context of the problems we have looked at, but your problem might allow even shorter time frames. If you are talking about tick data, even a common PC can process a week of tick data is less than a minute. While you might be able to find your answers with even less data than this, it is hard to see why you might want to.

Once you get the total execution time of an experiment down in the neighborhood of a single day, the dynamics change. If you are taking a couple of days to design the experiment and a week to analyze it, that becomes the place to save time. An experiment that takes six months to run demands two days of design and at least a week of analysis.

Any environment like high frequency trading that have severe enough time demands to drive the setup and execution time for experiments down to a scale of hours will also demand rapid design and analysis.

More rapid design is fairly easy to achieve. The painful and tedious cost of most experiment design is deciding on the compromises. You need to compromise because of the cost of executing each trial of an experiment. For a trading system, the cost of executing these trials is strictly the cost of the time. Once that problem is solved, additional trials do not impose additional costs. Actually generating a design once you have decided on the goals of the experiment only takes a few minutes with today’s tools.

Some research organizations devote weeks or months to analysis. This is entirely justified when an experiment takes six months to run because you are obligated to wring every possible bit of information from each experiment. Experiments using trials that have little or no costs to them generate far more data than experiment

However, everyone who has ever analyzed an experiment will tell you that some results are obvious at a glance and other results are only obvious after a particular perspective has been imposed on the data. Finding an answer to a particular question is usually not that time consuming. Primary analysis does not have to take days or weeks. Even the mountain of data generated by a high speed experiment can be parsed rapidly if that is done with a narrow focus.

Secondary analysis still can and should be done. Unexpected results are often only found in the secondary analysis, and discovery is all about unexpected results.

What is My Opponent Holding?

Having spent far more hours playing poker than sanity allows, I like to think that I have more than money to show for it. I hope that I have come away with lessons that apply to business, investment, and life in general. That may be a stretch, but I cling to that illusion.

I am constantly trying to figure out why the best players are that good. It’s easy enough to see why the bad players are so bad. They bluff too often, call too often, don’t raise to protect their hands, don’t control their emotions, and have no understanding of position. You can become a mediocre to good player simply by addressing these problems, but great players have something else. As a matter of fact, even the great players still have some of these problems on an occasional basis.

Something else makes them great. I don’t think it is that the best players have more heart, more brains, or more luck, though everything does go easier when you have more advantages on your side. I think what separates the great players is their awareness that poker is a relative game. The great players spend most of their attention focusing on what their opponent has. Bad players often don’t think at all about the opponent’s cards, good players think about them at the time of decision, and great players think about them even when they are not in the hand. Every time you show a hand down, you are giving a great player another weapon to beat you with.

The great player knows that there is no greater advantage in poker than knowing your opponent’s cards. We could all be poker millionaires if we knew what our opponents have and they don’t know what we have. One of the best examples of this was a couple of years ago in the main event at the World Series of Poker. Sammy Farhar called a massive pre-flop raise early on the first day with only a pair of deuces. He knew that the nervous amateur making the bet would not have made that bet with anything other than a pair of aces. When a deuce came on the flop, Sammy got the rest of the amateur’s chips. I’m don’t think that the implied odds that he got really justified Sammy’s call, but know just exactly where he stood was a powerful incentive that he could not resist. He made it pay off.

Daniel Negraneau is always talking about what his opponents have when he is heads-up in a hand. I am sure that he only refrains from discussing what other people have in their hands in other situations because that would be outside the etiquette of the game, but I am sure he is thinking about it all of the time. I find Daniel the most instructive of the leading pros to watch for just this reason. Listen to the questions that he asks himself.

Why did he bet that much? Why did he check? What did that card do for him? How likely is it that my opponent is bluffing? Is this a guy who only bets the nuts? How nervous is this person about this bet? How many chips does this opponent have left? What is this opponent likely to do if I raise?

Daniel doesn’t always come up with the right answers and he’s quick to notice when he is wrong, but he is always asking and answering the questions. That gives him many chances to be right than he would have if he never thought of those questions.

It’s just like that in business and investing. Asking all of the right questions doesn’t guarantee that you will win, but it does increase your chances dramatically. There are never any guarantees, but there are lots of edges if you look for them.

Just spend a few minutes thinking about the last few years at some companies disappeared.  They disappeared not because they came up with the wrong answers; many disappeared because they simply didn’t ask the right questions.