Most traders say that they have a knack for identifying patterns in market signals. It doesn't matter whether they look for those signals in price, volume, volatility, spreads or any other aspect of a market; traders have an internalized pattern recognition system that they say gives them a persistent edge. Most of them are wrong. Any trading strategy based on naive induction is certain to have zero edge. Naive induction refers to selecting a strategy based solely on the econometric fit of a time series data matrix to some market outcome like price change. It's a trading strategy that works because it works. There's no "why?" answered here, and as a result, the strategy is certain to be derivative, non-robust and arbitraged away. Whatever purely inductive trading strategy you think gives you an edge is already being used by thousands of non-human intelligences - powerful inference machines that fall under the rubric of Big Data - and they're using the strategy far more effectively. To the degree a naive induction strategy works at all, you're just tagging along behind the non-human intelligences, picking up their crumbs.
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