SUBJECTIVE LINEAR MODEL (TECHNICAL TRADER)
A Subjective Linear Model is a much more complex decision making process. It
starts with interviewing experts in a field and learning how they make decisions.
The researcher literally asks the expert how he or she makes decisions and they
respond by explaining how they make their predictions. Although these experts
are not using quantifiable data, they have enough experience and knowledge in
their field to be successful. This decision making process is then outlined by the
researcher.
For instance, a physician, highly experienced in treating cancer, probably has
become fairly adept at predicting the life expectancy of his patients, even without
using any objective data. The researcher interviewed the physician and attempted
to determine exactly how the physician made this assessment. Then the researcher
put this newly quantified data into a regression model and attempted to predict
the life expectancy of cancer patients.
This is very similar to how our technical trader makes decisions. He goes to
seminars and reads books to learn how the experts make decisions using technical
indicators. He then takes what he learns and attempts to trade like the experts. In
a sense, he does his own regression model of the expert’s process to make trading
decisions.