Another Way to be Fooled by Randomness (Part 2)

Disclaimer: except for the title, this post has nothing to do with the last one.

About one year ago, I saw this in a trading forum:

> Hey guys,
>
> We’re giving away 5 free subscriptions to Born To Sell’s
> covered call screener on Feb 22. One of them will be
> based on skill and the other 4 are random drawings.
>
> To win the skill-based contest, you have to guess the
> closing value of the DJIA on Feb’s option expiration
> day (Feb 21). The other 4 prizes will be chosen at
> random from among the submissions.
>
> Enter on or before Feb 1 here…

This post captured my eye because of its flawed differentiation between “random drawings” and “based on skill.” How could we possibly tell if guessing the DJIA on a particular date was a matter of skill or a matter of random luck? Based on one instance we absolutely could never do so.

Statistically speaking, in order to demonstrate “skill” that is significantly better than chance (randomness) we would need a sufficiently large sample size of correct predictions. The winner may certainly make claims about his/her prowess based on one prediction but these claims would be premature. To truly be a skill, the requisite sample of correct predictions must not be retrospective and must not make use of hindsight. Predictions made in advance must be verifiable, too. To be sure, con artists have historically used any and all of these means to dupe unsuspecting customers.

I make no claims about the reliability or accuracy of the “Born to Sell” service because I know nothing about it. I do not, in any way, shape, or form, endorse the product. I only mean to provide a brief commentary on “skill” vs. “luck/randomness:” two concepts that are often confused, sometimes deliberately, for the sake of advertising and marketing.

Be on guard for optionScam.com!