Do markets have to be inefficient for you to capitalize on them?
- Thread starter c_323_h
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If you can't tell what's going on, the market = random to you = no profit available. But does that mean the market is efficient?
From a different angle, why would anyone place any trade at all, if they did not think they could profit/avoid loss by that action? By definition, opening a trade is your claim that at the moment, the market is inefficiently priced, and needs to come around to your point of view. One can go so far to say each and every trade that goes by on the tape is a declaration that the current price is "inefficient" -- aka market as continuous discounting mechanism.
From a different angle, why would anyone place any trade at all, if they did not think they could profit/avoid loss by that action? By definition, opening a trade is your claim that at the moment, the market is inefficiently priced, and needs to come around to your point of view. One can go so far to say each and every trade that goes by on the tape is a declaration that the current price is "inefficient" -- aka market as continuous discounting mechanism.
The Efficient Market Hypothesis was first posited by Eugene Fama back in the 1960's. It would be covered in week 1 of Financial Market Theory 101, or chapter 1 of any related texts. If you've never heard of the EMH you cannot rightly claim to know anything amout markets.
The bottom line is that you can only make speculative profits over time by exploiting market inefficienies. Anything else is just luck. The corollary is that if markets were perfectly efficient they would be rendered superfluous and would therefore cease to exist.
You boys need to do your homework.
The bottom line is that you can only make speculative profits over time by exploiting market inefficienies. Anything else is just luck. The corollary is that if markets were perfectly efficient they would be rendered superfluous and would therefore cease to exist.
You boys need to do your homework.
scientist? far from it. I dont actually trade using this stuff as such, but I certainly find it useful to understand some of it. I actually believe that academics can get overly caught up in the 'academics' of what they're trying to achieve rather than continuing the search for what works.
For example in the book mentioned above (which is quite readable, not aimed at academics), Sherry sudgests that we should know the level of randomness in a market BEFORE we attempt to create a system because if the market is random any profit we see will be the result of curve fitting. But the problem I see with that is that there are very many statistical methods for testing every kind of inefficienc. Yet even when you are done there is no reason why you cant find a system which conventional statistics hasn't got a test for yet (partially because the existing tests weren't developed for markets so they've been adapted, most dont account for OHLCV info for example). So IMO mechanical system developement can be more powerful than mainstream statistics BUT, there are plenty of good lessons and ideas in mainstream statistics.
bolter thanks for advancing the cause, love your work
For example in the book mentioned above (which is quite readable, not aimed at academics), Sherry sudgests that we should know the level of randomness in a market BEFORE we attempt to create a system because if the market is random any profit we see will be the result of curve fitting. But the problem I see with that is that there are very many statistical methods for testing every kind of inefficienc. Yet even when you are done there is no reason why you cant find a system which conventional statistics hasn't got a test for yet (partially because the existing tests weren't developed for markets so they've been adapted, most dont account for OHLCV info for example). So IMO mechanical system developement can be more powerful than mainstream statistics BUT, there are plenty of good lessons and ideas in mainstream statistics.
bolter thanks for advancing the cause, love your work
no. you just need to be the house.
but don't worry, markets are imperfect. strictly efficient markets are a creature of theory, like gravity without friction. It doesn't exist.
but don't worry, markets are imperfect. strictly efficient markets are a creature of theory, like gravity without friction. It doesn't exist.
FredBloggs
Guest
academic clap trap.
intellectual debate on why folk cant make money imo.
intellectual debate on why folk cant make money imo.