A message to some day traders.

tommcginnis said:
The truth of the markets is as simple as a series of data where the value of obs{n} = obs{n-1} + [N(µ,σ)random_component]... If you graph that on a spreadsheet, you'll come out with something that looks much like a financial market.
• notice that the starting value is yesterday's actual.
• notice that the adder is a symmetric Normally-Distributed value with a Central Tendency to µ ±σ.

If the markets were "totally random" as you've heard (and read in this very thread), they would indeed be a mass of disconnected price points, and you are 100% correct and have just voiced "wisdom" beyond a sadly-large number of traders, ET-members, and market-opiners-at-large.

Our job in seeking any available "edge" is to try to milk that random component for any excess of systematic, NON-random content that happened to get lumped in there. (For example, "trend.") A convenient and wide-spread summary of this idea is termed "time-series decomposition" and would appear in pretty much any first-exposure stat book.

Lastly, to really have this sink in, learn/know the Gauss/Markov Conditions, and recognize how they are routinely violated in financial-series data. And the next time that somebody mumbles "...but the markets are random..." -- you will find yourself rising out of your seat, .......
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Tom. Thank you for that explanation. I have got to admit, that is one of the most in-depth well written answers I’ve seen in a post.
 
remogul92 said:
I have a question that may have already been asked and answered in this really long thread but I couldn’t find it.

How can trends (uptrend, downtrend, sideways) exist at all in price movement regardless of short term or long term if market movement were totally random?

Wouldn’t price charts just be a jumble of disconnected price points if it were totally random?
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Bingo! Markets are not random, never have been, and never will be. In addition, there is no such thing a noise. If the market moves 1tick there was a reason why it did so. That sends the guru’s into a diving tail spin.
 
volpri said:
Bingo! Markets are not random, never have been, and never will be. In addition, there is no such thing a noise. If the market moves 1tick there was a reason why it did so. That sends the guru’s into a diving tail spin.
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:thumbsdown::thumbsdown::thumbsdown:
Tosh!
 
volpri said:
Bingo! Markets are not random, never have been, and never will be. In addition, there is no such thing a noise. If the market moves 1tick there was a reason why it did so. That sends the guru’s into a diving tail spin.
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You missed the point. I’d love to clarify but you seem to not give a damn so what’s the point, right?

P.S. I understand exactly what you’re saying. We are talking about very different things.
 
The stock market is a Complex Adaptive System. Examples of Complex Systems are... evolution, society, traffic control systems, highway system, ant colonies, nature, climate, amongst other things.

Even if someone had full transparency of all the layers of a complex adaptive system, it will still be impossible to predict direction in such a system. A small input will have nonlinear, unpredictable effects on the output of the system. It’s always in a state of unpredictability. Just because predictable things may happen in the system, does not make the system predictable.



The key is #1 surviving #2 redundancy(one must pay for redundancy, it’s what will keep you alive). Nature is good at this... we have 2 kidneys but can survive on one. Predicting the next state is impossible, literally. It’s random in this sense.

Another example.. the sum of all human interaction emerges as a society. But random, unpredictable things happen in our society that completely changes its course into a direction we wouldn’t never thought it could go... such as the emergence of the internet. Absolutely unpredictable to people few hundred years ago and look at the direction it’s taken humans as a result. This is Randomness; incomplete information within the system.

Another example... 9/11 few planes, few buildings, thousands of deaths that day. Now we’re in multi trillion dollar wars, millions of lives impacted, million+ deaths, completely changed the course of history. Random event, highly unpredictable, with high impact on history and direction of society in ways no one would’ve ever imagined.

Again, even if you had full transparency of all layer, you’d still be dealing with the phenomena of randomness.

Me and you are talking about it in different contexts hence our miscommunication.

The activities that take place are real people, real activities, but that’s all we know for certain. In this sense, the activities aren’t “random”. It’s real activity by real people... I get that.

But randomness is trying to interpret the information and only* use data to predict future course. Now you’re dealing with randomness aka incomplete information. My whole point is that once people realize that predicting the future state of the system is just not going to happen.... then they can have a better chance at adapting to the system, surviving, and growing. They can embrace randomness. Make it your friend. Someone you’d love to meet more often.

So that is why I say that day traders who use technical analysis in a way where they believe it’ll help them predict the future state of the system with reasonable accuracy, is just bullsh*t. It is random. The direction is random. And don’t fall for this “trends” shenanigans.

Serious traders should learn about what they’re dealing with...
 
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t/a is very secondary in importance compared to the math (position sizing & tiny stops)

t/a which while helpful to identify high-probability setups is Much less critical x10 than trade management
 
Amahrix said:
You missed the point. I’d love to clarify but you seem to not give a damn so what’s the point, right?

P.S. I understand exactly what you’re saying. We are talking about very different things.
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When you make the right argument I will agree. So far you haven’t that I can see. Maybe I missed it? I am getting old you know.

I will repeat: Price movement is NEVER random and there is no such thing as noise. They can appear to be but that is deceptive. False concepts they be. Have been, are, and will be. But all guru’s ...well most all...promote push the concepts as it justifies low win rate and losing trades...even black buzzard events can be capitalized upon and $$$ made by nimble discretionary traders. It is the investors who will lose their ass when the black buzzard flies in because they don’t know “what” to do. So, you do have that right the investors should probably hedge for such events that may or may not happen in 500 years. It is the buy and hold or sell and hold investor who assumes the risks of the black buzzard and who can be hurt drastically by the buzzard. Not the smart..nimble..turn on a dime...discretionary day trader. When the buzzard craps....a good trader will know what to do.....while the investor can’t get the broker to even answer his phone...
 
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