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Do you see patterns in Random Walks?
- Thread starter atlTrader666
- Start date
Quote from atlTrader666:
I'm interested in the more esoteric technical analysis and why people believe it (against all evidence)... Aside support and resistance and some momentum patterns, the rest of TA seems like nonsense. Academics have tested TA strategies for half a century and they all call it bullsh1t. There is vague proof of short-term momentum. Only Benoit Mandelbrot discovered something valid: volatility tends to cluster. You can't make money of that though since traders have intuitively known and incorporate higher premiums in their options trading when volatility increases.
My question: If you were to create a random walk in Excel do you think you would differentiate the chart from say a stock market chart?
Seriously guys Google image a random walk chart or create one in Excel and you will be amazed at the amount of double tops/bottoms, bull/bear flags, breakouts from consolidation areas, etc. that you will discover. Even Fibonacci lines will look like viable entry & exit points.
Why don't you generate a few ohlc random data charts. Post first half of chart and wait for responses. Then few days later tally responses. Do 30 charts. That should answer all your questions. Or you could continue your mental mastrubation.
Anything might as well be random if you have no accurate way to determine what it will do next. It's the same for flipping a coin, rolling a die, guessing what your wife wants for her birthday, stock prices, etc, etc.
So it doesn't matter if something is "truly" random or not. That's just an abstract concept. What does matter, and what does make something "practically random", is whether or not you have enough useful information, and whether or not you know how to use it to predict the future.
Do price and volume (and therefore TA) provide enough information to determine future prices? I don't have an answer. Just thought I could help clarify the question.
So it doesn't matter if something is "truly" random or not. That's just an abstract concept. What does matter, and what does make something "practically random", is whether or not you have enough useful information, and whether or not you know how to use it to predict the future.
Do price and volume (and therefore TA) provide enough information to determine future prices? I don't have an answer. Just thought I could help clarify the question.
How does an algorithm crack a 6 no. combination lock that keeps changing no.s...use a fixed set of 6no.s or also test randomly until they match, Or perhaps there is a quicker quasi-fixed/sorting method to test match?
it just seems random to us.. and therefore unless we have been able to find with statistical significance otherwise then we have to account for randomness.. sure its not random at all.. alot of reasons why things happen we will never know.. i think about it like.. how can my book stand me not knowing what i'm doing or whats going to happen.. but in life it pays to speculate well.. even a fair game with a 50/50 chance would be great if you could win 50.1 on wins and lose 49.9 when you miss.. its much harder to play a game where the odds are 100 to 1 you will lose.. and the payout is 200/1 all those losses hurt and you can easily over position and get killed on liquidity.. like betting on the mortgage implosion with credit default swaps and not having the money to pay the premium right before the cliff..
Again, if markets are non predictable then they are in common with a coin toss.
I know how hard it is to accept that. but wither we can predict them or we cant.
We are saying that it cant be predictable, fine.
So we look for setups and what have you.
A coin toss has set ups also.
every time you see heads bet heads again. Always bet the last result. Here we are no longer betting on heads or tails we are betting on how many times and how long a string of consistent results occur. There is no reason for this to be 50-50.
We can also bet that as soon as we have 10% more heads then tails in accumulation since the first toss. we can start to bet the opposite way.
Likely, we can even bet after a string of x similar results occure.
Im sure you can think of a million ways.
We can even back test the results by flipping a coin.
If this cant be hacked to a profit then neither can the market. It just that simple.
Add in fees and all of a sudden you have the same set up as the markets. Or for that matter the casino. i remember reading something about some one explaining how the market differs from betting and Ill keep an eye out. but if they are both random or unpredictable. Well a rose by any other name is just a rose.
I know how hard it is to accept that. but wither we can predict them or we cant.
We are saying that it cant be predictable, fine.
So we look for setups and what have you.
A coin toss has set ups also.
every time you see heads bet heads again. Always bet the last result. Here we are no longer betting on heads or tails we are betting on how many times and how long a string of consistent results occur. There is no reason for this to be 50-50.
We can also bet that as soon as we have 10% more heads then tails in accumulation since the first toss. we can start to bet the opposite way.
Likely, we can even bet after a string of x similar results occure.
Im sure you can think of a million ways.
We can even back test the results by flipping a coin.
If this cant be hacked to a profit then neither can the market. It just that simple.
Add in fees and all of a sudden you have the same set up as the markets. Or for that matter the casino. i remember reading something about some one explaining how the market differs from betting and Ill keep an eye out. but if they are both random or unpredictable. Well a rose by any other name is just a rose.
Is it better to chase randomly or aim at a fixed point to hit a moving target? For which, can you strike the target more frequently in a same timeframe?
so what is known to be ta does not work in as they are presented. useless. out of 500 trading ideas only 3-4 work. discretionary trading is gut trading and it is not science.
but the ideas that work in a systematic way on normal charts work the same on random charts .
my theory is that the markets are random and behave exactly like the random ones provided that they are chandlesticks.
if i were to demonstrate this what would be the testing parameters?
but the ideas that work in a systematic way on normal charts work the same on random charts .
my theory is that the markets are random and behave exactly like the random ones provided that they are chandlesticks.
if i were to demonstrate this what would be the testing parameters?
Quote from the1:
My entire Master's Degree -- Statistical Finance -- is based on the premise that the markets is one gigantic random number generator and 95% of the tools I use are statistical in nature but at the same time, I've stood toe to toe with traders who have come to the industry with backgrounds from the likes of Computer Science or Sociology and wouldn't recognize an Autocorrelation Process if they tripped over it but managed to trade the markets quite competently, nonetheless. To answer the question....does a true random number generator produce patterns? The answer is most definitely yes. I've designed many of them and they have all produced trends, patterns, and chaos. They even produce levels of support and resistance that you would swear are purely psychological if you didn't know better.
So are the markets random? No one will ever be able to answer the question without doubt but it's really not that important because trading profits are more strongly correlated to the talents of the traders, not the design of the system.
Brilliant