Arcsinus law: distinguishing trend from persistency of chance

Isn't the whole issue academic (in the derogatory sense) since in the stock market human psychology favors perpetuating trends in the first place? Without such "annoyances" as fundamental values, supply and demand, and the rest of economics -- wouldn't many things just keep trending if left alone?

Why does academia assume that the stock market can be analogous to coin flipping? If the market resembles anything in my book, it's just a long series of pyramid schemes that need to get deflated once in a while. :)
 
I just edit the end of the above thread : because they can't even if they knew it - and I know that they know but it's another subject :D - :

"If market's organisers and economists officially admit true trend the pilars of finance (notably CAPM, APT methods of portfolio management that are used by fund managers) would be shakened so they can't : it would be like a casino telling all the players "hey this roulette at this table is biased"



Quote from illiquid:

Isn't the whole issue academic (in the derogatory sense) since in the stock market human psychology favors perpetuating trends in the first place? Without such "annoyances" as fundamental values, supply and demand, and the rest of economics -- wouldn't many things just keep trending if left alone?

Why does academia assume that the stock market can be analogous to coin flipping? If the market resembles anything in my book, it's just a long series of pyramid schemes that need to get deflated once in a while. :)
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Quote from harrytrader:

Now don't dream because at long term the Central Theorem Limit will play against you. That's why for this to succeed the player must hurry up and don't stay too long and so not play too low a bet - since he also fears the risk of ruin. For example at roulette let's say you have a capital of 10000$ and will stop when you will win 1000$ (1/10th) by betting on red or black: the probability of success is more than 88% ! But remember that probability is not all since if you lose although the probability is low you will lose 10000$.

So let's say I play and the 88% comes true and I make $1000 and I stop. Can I ever play again? Will the table know I have stopped and start me over with 88% chance? Or after I get some drinks and some food and some whatever and sleep it off and come back the next day will the table set my odds right back where they were and now I will be pushing my luck?
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Quote from profitseer:

Quote from harrytrader:

So let's say I play and the 88% comes true and I make $1000 and I stop. Can I ever play again? Will the table know I have stopped and start me over with 88% chance? Or after I get some drinks and some food and some whatever and sleep it off and come back the next day will the table set my odds right back where they were and now I will be pushing my luck?
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I don't have my thinking cap on so let me know if I get it. You have 88% for a 10% gain, and 12% for 100% lose everytime you sit at the table. That doesn't look very favorable to me.
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It can never be favorable since whatever strategy (martingale) you can find the Expectancy (prob * gain - prob * loss) will be always negative. That doesn't say that strategy doesn't count it counts ... once you are OBLIGED or absolutly want to play. So strategy in casino game is never for winning for sure it is rather to optimise the rest of chance. In Stock market the probability will depend also on knowledge since not everybody is equal like in casino but for those who use pure martingale strategy in stock market like in Casino the effect will be the same: there will statistically some who will win big and some who will lose big. You will only hear those who will win big generally and that will entertain the myth that pure martingale strategies works. If you don't have an edge it can only work by chance ( Chance is not to be rejected of course when it comes but stay humble then). If you have neither edge nor strategy (money management) you will not put all the chance on your side.

Quote from missing-link:



I don't have my thinking cap on so let me know if I get it. You have 88% for a 10% gain, and 12% for 100% lose everytime you sit at the table. That doesn't look very favorable to me.
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Illustration:

<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=384396>

Quote from harrytrader:

At high school you could have learned statistics and probability but never heard about the Arc Sinus law because it was discovered by the statistician Levy only lately (even on search engine you would barely find a link). This law is different from more famous Laws from the same Levy which concerns no-mean and no-variance family of laws. Some statisticians have given to the Arc Sinus Law the metaphorical name of "Fundamental Injustice Law of Nature" - but leave the consequences to the Philosophes :) .

Why ? Because this law says for example that at a fair coin game between 2 players chance will have tendancy to ALWAYS favor CONSTANTLY the SAME PLAYER for a LONG TIME so that persistency of apparent trend of the fortune of this player is in fact totally due to chance since the two players here have no special advantage one above the other.

Some gurus have profited from that to show that some people could win at casino and stock market with only money management without specific knowledge of market (which is in this is case a soft word for martingale and pyramiding scheme). Yes some people could win but it doesn't change the fact that if they continue the game LONG TIME ENOUGH the chance will finally revert. That's why if you only count on chance and you make gain especially huge gains thanks to pyramiding the best decision is to STOP once you reach the fortune. If you make gain and have real knowledge of market's action you have more chance to escape ... this chance's law.

Some technical analysts even use this law to justify that trend exists in stock market whereas it cannot be used to justify the existence of trend from the statistical point of view and in a conference on Finance and Chaos Theory a Mathematician in the field has mocked precisely the abuse of that law to make a false justification by showing a chart from a technical analyst with a trendline and justifying - falsely - with arc sinus law.

P.S.: why is it called arc sinus law because the sinus is in the expression of the law but it is not important for the subject discussed here.
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Quote from harrytrader:

Illustration:

<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=384396>
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If you think that this guy has some special ability,
it's an illusion since the MULTIPLE equity curves are drawn from a fair coin toss. This illusion has been discovered only in 20th century from mathematician Levy and called commonly "persistency of chance", more metaphorically "Fundamental Injustice Law of Nature" and more technically arc sinus law. This law is NOT AT ALL INTUITIVE as one would expect that the number of curves below and above zero somehow counterbalance each other.

THAT'S WHY AN EQUITY CURVE ALONE DOESN'T ALLOW TO JUDGE A SYSTEM OR TRADER HAHA ! That's what snake oils sellers exploit.
 
Quote from harrytrader:

Illustration:

<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=384396>
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Now, there is a worthwhile chart. Can you spot all the trends, Harry? And, where's Waldo? Is he in there?
 
Quote from pspr:



Now, there is a worthwhile chart. Can you spot all the trends, Harry? And, where's Waldo? Is he in there?
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Va jouer au bac au sable, mon petit (go and play in the sand my little boy) :D or try to make some more intelligent comment than usual :

Quote from harrytrader:

Illustration:

<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=384396>
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If you think that this guy has some special ability,
it's an illusion since the MULTIPLE equity curves are drawn from a fair coin toss. This illusion has been discovered only in 20th century from mathematician Levy and called commonly "persistency of chance", more metaphorically "Fundamental Injustice Law of Nature" and more technically arc sinus law. This law is NOT AT ALL INTUITIVE as one would expect that the number of curves below and above zero somehow counterbalance each other.

THAT'S WHY AN EQUITY CURVE ALONE DOESN'T ALLOW TO JUDGE A SYSTEM OR TRADER HAHA ! That's what snake oils sellers exploit.
 
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