This sentence in the following paper got me thinking:
"Some traders [...] trade every pattern whether proven or not, expecting
authentic ones to produce positive results, whilst the profits and losses of
fake patterns cancel each other out."
Then I got my hands on another paper - seemingly unrelated...: "The
evolution of superstitious and superstition-like behaviour":
The bottom line is that I can be rational to act irrational, or in other words there is a trade-off between being superstitious and being ignorant - and being superstitious (i.e. seeing patterns where there are none) can under certain circumstances be beneficial - this is why it survived evolution up until now.
Have you come across research that systematized this approach for the
trading arena, i.e.
first: what is the right confidence level to trade a signal and
second "opportunistic trading" as an approach of its own?
With "opportunistic trading" I mean a framework to trade every signal out of some class (with money and risk management attached for not going bust) in the hope that the false signals cancel each other out and the real ones make money.
Perhaps you have some thoughts how to backtest these ideas, too.