HORSE RACE HANDICAP STORY

Some time ago a psychologist named Slavic decided to find out the accuracy of the predictions made by handicap pickers on horse races. He put together the relevant pieces of information about every horse and other items and then tested it on the experts.

In the first race he gave them 5 pieces of information. In the second he gave 10 pieces of information and then increased it to 20 pieces and finally to 40 pieces of information by the fourth race. Based on the information made available, he asked the experts to pick the winners of the race and also the level of confidence in that forecast.

Since there were about 10 horses in each race, the random chance of winning forecast was about 10%. A random choice has the same level of confidence for each of the forecasts. The experts, armed with some additional information, were able to eke out a 17% hit rate for winners and their confidence in their forecasts ranged between 15-20%. This was not bad because the hit rate improved by 70% over random.

By the time of the fourth race, Slavic found that the hit rate of the experts continued to be around 17-18% but the confidence level had moved to between35-40%. This is an interesting finding.

What it meant was that with more information, people feel much more confident about their forecasts even though their accuracy of the forecast has not changed much!

How this translates into trading is that when you have more information, you end up taking a Larger Position in the trade. Since your accuracy is not really improved by information, the larger position has actually induced a much greater level of risk!

Understanding this is very important aspect of trading. What you really need is not something that gives you more information but a method that improves your accuracy of the forecast. When that improves and you increase your bet size, then you end up winning big!

When we have more information, we tend to go towards Confirmation Bias- we look and accept information from the environment compared to conflicting information. This is how we end up ignoring important information and get into a belief that can work against us. This often leads to bad investment decisions.

Neotrader is designed to increase your accuracy by weeding out the noise in the market and helping you focus on the stocks that have the high probability of succeeding.

Neotrader users are able to use the Processed information part to get totally focused on the probability of success rather than chase down additional information.

It is easy to put together the information on Neotrader because it focuses on a few important elements. Users are taught to correctly combine elements so that they can come up with high reliability forecasts.

At Neotrader we have put the theory to work. We are happy to bring it to the market to help traders and investors to do so too.

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