Traders are in the business of forecasting future price moves. The data they use to make these forecasts can be either fundamental (past performance) or technical (past prices) but the end result is a price. Superforecasting by Philip Tetlock and Dan Gardner details the art and science of forecasting.

The book is not full of maths and howtos rather it takes the reader through the process of what makes a superforecaster better than the rest of us. On this website I have already mentioned taking care when enlisting the "talents" of a tipster. Previous results alone are not enough when judging if you should use the wisdom of the crowd. It might be that your chosen tipster got lucky and only years of success and no regression to the mean is proof that they are as good as they say they are.

The book also points out that superforecasting is not just the domain of super-intellects. One of the author's of Superforecasting carried out a study using 2800 volunteers from the general public and got them to make thousands of predictions. The study found superforecasters through Wisdom of the Crowd

Some of these forecasters did regress to the mean because they made lucky guesses but there were some who remained consistently good at forecasting over time. Such superforecasters think through problems differently to the average person and do not allow personal feelings and beliefs to cloud their judgement. Compare a trader who diligently backtests a strategy and then tests again on future events before going live with their strategy to a "scalper" who chucks money in on a whim and believes they can trade out of any situation because they've done it once or twice before.

Too often people will use their instincts to make a decision. Our ancient ancestors used their "fight or flight" instincts successfully in their uncluttered worlds. All they had to worry about was avoiding lions in tall grass. Today's complex world often needs decisions made on deeper thought processes. Here is simple question from the book.

You are told that a bat and ball cost £1.10p together but that the bat costs £1 more than the ball. How much is the ball?

If your immediate thought was 10p then you are in good company. The wrong company but at least you are in the company of those using instinct rather than deep thought. If you analyse the problem carefully then you will come up with the answer of 5p because £1.05p plus 5p equals £1.10p and £1.05p is £1 more than 5p.

Too often impatient traders go with their instincts and make bad trades that may at first glance look good but which have negative edge. Such traders have a habit of starting with a conclusion rather than an hypothesis and looking solely for data to back up their conclusion. This book will certainly make you think more carefully about how to become a better forecaster (and therefore trader) or what to look for when enlisting the help of others.

Also - Who's #1?: The Science of Rating and Ranking - Teaches the sports trader how to rate and rank sports teams using a variety of mathematical techniques.

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