Do you see patterns in Random Walks?

[etile]

This thread makes me want to brush off my Heidegger and Nietzsche books. The question that underlines all this is as much as a philosophical question of epistemology and existentialism as it is with hard science.

"What are man's truths ultimately? Merely his irrefutable errors."

- Nietzsche

 

[intradaybill]

Quote from HFStartup:

After tracking down terrorists for the FBI, developing statistical models for the financial markets, and predicting weather and analysing intelligence data for the military, I have to agree completely with Intradaybill. The systems I mentioned are often thought to be "random" systems, but that is entirely based on 1. perspective of the viewer, 2. awareness of one or multiple points of interralated data and 3. an ability to isolate the relationships shared by the data points.

However, this point should not be confused with the fact that often times, these relationships, due to lack of clarity concerning one or more of the above mentioned characteristics, are far too difficult to ascertain and therefore must be approached in a dynamic, careful manner as if they were random to some degree, even though they are not. Developing patterns of thought based on realistic probabilities, rather than rigid, absolute opinions, with the understanding that they will need to be further modified as new feedback is presented from the corresponding system is often the most prudent remedy.

NOTHING in this world is random.

+

 

[intradaybill]

Dear MAESTRO,

I am waiting an answer to this post, whenever you can of course:

http://www.elitetrader.com/vb/showthread.php?s=&postid=3272907#post3272907

 

[SrRuthenate]

Quote from intradaybill:

Only people with a very superficial knowledge of quantum mechanics through popular science books think it is a theory involving randomness. Quantum Mechanics is a deterministic theory. The evolution of the wave function is precisely known given the initial conditions.

Tonight, some big fund is maybe orchestrating a huge buy or a sell. Tomorrow, not knowing their actions in advance, you will call the market movement random. But to them it was not random. Ask MAESTRO this question to yourself: how can something be random and not random? The answer is simple: knoweldge makes things deterministic and lack of it random. It is so simple. Learn it before it escapes you.

You can take it one step further and ask: Would the move (that the big fund was maybe orchestrating) have happened without the big fund anyway?.

Was the move coming that way all along and you only noticed this morning or maybe yesterday, or maybe you could have known this move coming a whole week in advance?.:eek:

Furthermore, even if you knew it was coming a week in advance, could the relatively big interim fluctuations prevent you from exploiting it fully and properly and extracting a large amount of money from it?. I fully suspected this morning break and had planned for it all week, posted about it on the 15th, but only played it with a token position yesterday, for example.:eek:

My current belief is that there is very little "random" in the markets, but there is a huge lot of "noise" that I do not understand, that makes it very hard and risky to exploit even the clearest of predictions. Sort of a Cassandra's complex mixed with a Pandora's Box.

Now...off I go to my deterministic short term scalping...and playing with MAESTRO's splines...

 

[marketsurfer]

Quote from SrRuthenate:

You can take it one step further and ask: Would the move (that the big fund was maybe orchestrating) have happened without the big fund anyway?.

Was the move coming that way all along and you only noticed this morning or maybe yesterday, or maybe you could have known this move coming a whole week in advance?.:eek:

:

Of course the big move would not have happened without the fund moving. Mixing metaphysics with the financial markets is a dangerous trap--- one I was in for quite some time pre 2003--- markets are moved by actions, nothing else, knowing these drivers and how they interact is the key to understanding the market--- adding metaphysical layers is the wrong path.

surf

 

[SrRuthenate]

Quote from marketsurfer:

Of course the big move would not have happened without the fund moving. Mixing metaphysics with the financial markets is a dangerous trap--- one I was in for quite some time pre 2003--- markets are moved by actions, nothing else, knowing these drivers and how they interact is the key to understanding the market--- adding metaphysical layers is the wrong path.

surf

When your timing sucks as much as yours does, it is a good time to shut up, suspend judgment, suspend trading and open yourself up to learn from your elders.

 

[marketsurfer]

Quote from SrRuthenate:

When your timing sucks as much as yours does, it is a good time to shut up, suspend judgment, suspend trading and open yourself up to learn from your elders.

 

[intradaybill]

Quote from MAESTRO:

Randomness is not the measure of our ignorance, it is an expansion of our comprehension level.

To start with I never said that randomness is measure of ignorance or of anything for that matter.

Then, randomness in quantum mechanics arises only when quantum systems interact with classical objects, the notorious measurement problem. Quantum mechanics has many interpretations. The many-world interpretation for example is completely deterministic. It is the measurement problem that gives rise to randomness but this is more of a philosophical issue.

Evolution of quantum states is deterministic as described by the wave function. If interaction with a classicla objects occurs, there is state reduction and this leads to randomness. But in the many-worlds interpretation, state reduction does not occur.

This is to say that things are much more complicated than what people read in popular science books. Unless someone has a PhD in QM it is very hard to talk intelligently about these things. I don't although I took several graduate courses in this area so I will refrain from discussin this any more other than to say that the issue of randomness and what random means is very complicated and not a subject for superficial talk.

 

[MAESTRO]

Quote from Samsara:

Understood in full. I certainly do not mean to offend in my skepticism for the industry and the hubris of its players as a whole. Despite my apparent recent alias, I've actually been around for a while and know the sweat equity you've built up and earned, and that you're nothing like the fly-by-night quants I've experienced.

Besides that, you're providing an informed, even-headed dialog on a subject I find quite fascinating but could never contribute to, so I appreciate your willingness to discuss. It's quite edifying and a rarity for ET. So please don't take my occasional populist tone personally.

Not at all! I was just trying to illustrate that one of the measures that I consider somewhat objective is the results of actual trading; trading that is based on the models that have psychological origin. Although I cannot provide any details of our trading results I can only tell that we have experienced quite stable success over the past 10 years. That gives me the confidence to think that I have done something right and my models do hold water. The foundation of those models (we currently have more than 20 of them) is exactly what we are discussing in this thread. I shall continue to present arguments for Embedded Randomness here. Even if I could ignite 1 or 2 people to seriously consider this approach I would feel satisfied. After all, we are not forever on this Earth and I need to propagate my ideas while I can. I am 100% sure they will help!

 

[MAESTRO]

Quote from HFStartup:



NOTHING in this world is random.

Here we come to our main disagreement. All other discussions, of course, are derivatives of this corner stone notion.

statement #1

NOTHING in this world is random

statement #2

There is not a phenomenon in this universe that is not based on a RANDOM PROCESS

Now, I shall use the time that I have to compile enough evidence to prove statement #2 and will argue with statement #1. However, I will only engage myself in this very fruitful debate if all of the participants would exhibit respect to each other and refrain from childish insults that ET is famous for.

I believe that I can provide a conclusive set of arguments that shall illustrate the validity of statement #2 and I shall present evidence that disproves the statement #1. I will also try to encourage the participants of this discussion to research the subject from its origins despite some prior educational dogmas that they might have inherited.

Cheers,
MAESTRO