Can linear regression analysis really predict the future?

Quote from MAESTRO:

Your comments are true for the traditional RTM techniques with a stationary mean. However, by using predictive interpolators (such as splines) you can see sometimes that the mean is moving faster than the deviations from it. That enables a trader to decide what to do: follow the mean or expect the retracement.
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Interesting, I never thought about that before, but I guess since one has a precise equation for the spline it is easy to determine the first derivative, and therefore 'speed' of the mean. But how does one determine the 'speed' of the deviations?

Edit: I suppose one could simply run a spline regression of the residuals...hmmm.
 
Quote from MAESTRO:

..... More so, if they were put back in time and live their lives again they would not become successful again. That is, unfortunately, the truth. So, no matter what your personal trading experience is it would not be applicable to anyone else. So enjoy it while it lasts. :)
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Livermore,and anyone else who went from broke to rich several times were flukes?.
The market is random,my ass. Gee, how am i ever gonna manipulate a market if it's all random?. Acting on insider info is random? So in a bull market,if we consistently make h/h that is just random,but if we kept going lower that wouldn't be a bear..just random.
As a trader you just press buy/sell randomly like a chimp and just rely on money management to fight the trend?
According to you,the 5 years i spent learning how to do this,were a complete waste of time,leaving me no better understanding than a newbie.No better understanding of probabilities?

Support becomes resistance in a downtrend- random,folks
resistance becomes support in an uptrend. yup random too

Intrinsically,the market cannot move in any other way,but i should believe it's random.

Well this is excellent news,isn't it? Anyone can trade the markets with money management skills,and every scrap of info you've ever learned about markets is a bunch of useless shit.

You'll have to 'scuse me now,i need to determine whether the 1090 pivot is going to remain support today,or whether it becomes resistance (again)

If it does remain support,stupidly,i wont buy this market on the probability that 'its going up. No,i'll just stick a pin in the chart,cos let's face it,it's just random anyway...
 
When asked how he did so well in the market, an old trader replied "I buy when you want to sell, and sell when you want to buy"...IMO Linear Regression and it's std deviations are the extremes of old trader's activity and identify his profit targets. I've also found std deviation bands of Average Volume At Price interesting.

It's profit motive that rules the market, not randomness. When GS and friends have bought or sold their limit, they will do whatever to turn(manipulate) the market. Look at the 1st 30m volume at price activity of CME on 10/16/2009.
 
Quote from Craig66:

Interesting, I never thought about that before, but I guess since one has a precise equation for the spline it is easy to determine the first derivative, and therefore 'speed' of the mean. But how does one determine the 'speed' of the deviations?

Edit: I suppose one could simply run a spline regression of the residuals...hmmm.
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Exactly
 
Quote from MAESTRO:

Please understand that the actual chart is only one path of million possible random walks. If you picked a number and won the lottery you wouldn't consider yourself a guru at picking numbers and you wouldn't write a book on how to win the lottery. The same it is with trading. If you run a random generator a few hundred times you will see that some of the random walks based on it would look very non-random! You could even apply your moving averages and see that they would work! Please try to see my point here. No single chart can be any proof of any statistical characteristics as it is just ONE occurrence of million different ways how the market could have played out. This is exactly what my point is. Many of us are not fit to comprehend that what is happening around us is only one path out of billions different possible outcomes. In earlier nineties I had an experiment in the audience of 150 + students. I asked them to try predicting the outcome of the coin tossing game. I would flip the coin and the students would guess the outcome. After 8 – 10 tosses there was a group of 2 – 3 students that happened to predict all the flips correctly. I would then ask them whether they consider themselves better than others in terms of their ability to predict the coin tossing game. They all said “YES”! I would then ask them whether they think that with training they could become even better at it? And they all said “YES” again. It is enormously difficult for people to understand that a person who succeeded in anything is just a fluke. It has nothing to do with this person’s abilities or his/her knowledge etc. I always laugh when famous entrepreneurs are invited to a TV studio to “share” with the masses their experience. Their “experience” is not applicable to nobody else. More so, if they were put back in time and live their lives again they would not become successful again. That is, unfortunately, the truth. So, no matter what your personal trading experience is it would not be applicable to anyone else. So enjoy it while it lasts. :)
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but my experience comes from the following:
for about 6 years I took 20-40 trades a day an traded millions of shares and made 100s of thousands of dollars.

My business partner went on tradingmarkets.com and boasted of his 400 percent plus returns for years. (and he was truthful.) we even got a surprise visit from a nasdaq auditor in the office. and two days later he shook our hand. never heard from them again.

At times we had 8 - 10 profitable traders in our office all trading off technical analysis. Some trading our money. Most trading our techniques.

Using two moving averages and some support and resistance points we took millions out of the market trading off of 1 minute and 5 minute charts.

There were far too many trades and far to many successful traders to call us a random group of winners.

The two averages on the Dow chart were not just randomly selected. My method was detailed on tradingmarkets.com a decade ago by an ex business partner. he demonstrated it on one minute charts but the same concepts apply.

I took a short and closed out when the 50 period held. After a while you know when the markets are organized and thats when you trade well.

and by the way I am not a vendor. We closed the office when the intraday vol died in 2003.

i then

I lost a lot of money in real estate including most of my trading account.

I went back to my old business. Made a lot of money and now I am trading again.
 
I'd have plenty of things to say or to ask about in this conversation, but I have one question to you MAESTRO:

d'you happen to be Nassim Taleb, by any "chance"? (pun intended ^^)

If you aren't Taleb, then you must have read, re-read, and then read again his book "Fooled by Randomness".

The way you plainly affirm that success in life is entirely due to luck, being in trading or anything else really (entrepreneur, ...) is just too similar to what Taleb says in his book.

How can one be so certain of such an extreme statement? Puzzles me...
 
He isn't Taleb, but the resonance is definitely present.

Keep in mind, Taleb never said that your path is "entirely" determined by chance. Rather, he points out that it is a combination of luck and effort. Just as your fate is a combination of heredity and environment. By working harder at a goal, you put yourself at better odds to align with good luck, but there are no guarantees.

Think of his common analogy of a successful author. It would be impossible for the author to ever be successful at their venture without first making the effort to pen their idea, follow up with submissions, rejections, and the rest of the grueling work; all requiring tenacity and persistence. Luck is part of the equation-- not all.
Conversely, some lazy drunk could inherit enough to live a life of wasted debauchery... alas, such is lady luck.

I'm still not entirely convinced flytiger isn't Patrick Byrne though...:D
 
When you have an edge - and you apply it enough luck becomes a spectator.

If you want to do well in business and you have a product or service that is useful and profitable - you can do an end run around luck by figuring out how search engines run.

I saw an emerging opportunity laid the content foundation across a few sites and watched my cite get to number one for my search terms.

Now it is fading a bit because I am spending more time making money then creating content.. but that was not luck.

when I wanted to be a profitably trader - I read books - figured out which people were clowns and mentored with a profitable trader.

I spent some much time got so much experience and traded with a small percentage of my account in a non recourse llc account - I pretty much kept luck out of it.
 
Quote from cfd_trader:

I'd have plenty of things to say or to ask about in this conversation, but I have one question to you MAESTRO:

d'you happen to be Nassim Taleb, by any "chance"? (pun intended ^^)

If you aren't Taleb, then you must have read, re-read, and then read again his book "Fooled by Randomness".

The way you plainly affirm that success in life is entirely due to luck, being in trading or anything else really (entrepreneur, ...) is just too similar to what Taleb says in his book.

How can one be so certain of such an extreme statement? Puzzles me...
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No, I am not Taleb and I disagree with some of his statements in "Fooled by Randomness". However, I have expressed my beliefs 10 years prior to his book. My Ph.D. thesis dated 1985 on Mathematical Psychology has many experiments that back up my point of view. It just happened that Taleb popularized his thoughts way better than me. :)
 
Quote from jem:

When you have an edge - and you apply it enough luck becomes a spectator.

If you want to do well in business and you have a product or service that is useful and profitable - you can do an end run around luck by figuring out how search engines run.

I saw an emerging opportunity laid the content foundation across a few sites and watched my cite get to number one for my search terms.

Now it is fading a bit because I am spending more time making money then creating content.. but that was not luck.

when I wanted to be a profitably trader - I read books - figured out which people were clowns and mentored with a profitable trader.

I spent some much time got so much experience and traded with a small percentage of my account in a non recourse llc account - I pretty much kept luck out of it.
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You are mixing up again the randomness of the markets with one’s abilities to react and adapt to the market moves. When you drive the car from home to work you never know what the road will through at you (i.e. road conditions are random, somewhat unpredictable) however, your ability to react to sudden changes in the traffic situation gets you from point A to point B safely. Anticipation, intuition, experience etc. are our survival skills in the ever changing RANDOM world. Your success (as you shared with us) is the result of your adaptation abilities and not the non-randomness of the markets.
 
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