In the example with 60 white/40 black marbles in a jar, most traders will agree that it does not make any sense to hesitate pulling the marbles out (provided, the bet on each trade/marble is small enough). Each time there is a signal, it must be taken, being excited that it slowly but surely increases one’s profits.
In “marble jar” trading system the signal is very simple:
- See the jar – take the marble
- Replace the marble, mix the jar
Very high frequency trading – as fast as can be done manually.
In any real trading system the signals are understandably complex. However, anyone trading a system is assumed to know that it has an edge. It is assumed that the system has been tested and proved to be working.
No matter how complex the signal is, it must be defined clearly enough to be identified consistently, without question. After it is identified, it must be taken.
Why would anyone want to dismiss the trading signal? The reason is very simple – not having any idea if the system has any edge.
We know that the marble jar has a clear edge – we know exactly how many black and white marbles there are. But in your real system you might not have done your homework well enough in order to identify your edge.
Now imagine that you are given a non-transparent jar with marbles. There is no way for you to know how many black and white marbles there are in the jar. In addition, you’ve no idea what is the profit upon grabbing white marble or the cost upon choosing the black one.
Would you trade this system with the same amount of confidence? Probably not. One could go as far as saying that it would be stupid even approach such literal “black box”. What if all the marbles are black? What if the cost of taking a black marble is all your life savings?
And yet, in essence it is exactly what majority of traders are doing every single day. They have no idea where the next trade is coming from, what odds are attached to it and what is their worst case scenario.
No wonder they hesitate to reach out for a marble!