Is Daytrading a Random Event?

Sometimes people deny the truth because it is painful. It is painful for them to admit that some people make good money trading while they themselves don't. Some people shelter their egos/cherished beliefs by putting on blinders. Show them the truth and they turn their heads. The fragile human psyche,to protect itself, wants to see a picture distorted to it's own liking.

I've been guilty myself of this perceptual bias and it has cost me. I loved a stock once and it broke my heart. :(

Since then I've learned that to be a good trader one must face the painful truth and the fear of it, and ignore it. Not easy. But only when the mind is not governed by the fear of pain or the tease of hopeful wishes can it act rationally.

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"The pure and simple truth is rarely pure and never simple."
-Oscar Wilde
 
If you feel that markets are random, which they are not, and you still want to trade, you should not take outright postitions, but only do arbitrage trades, where market movement knowledge can be replaced by market inefficiency knowledge - and if you feel markets are random and efficient - perhaps its time to get a new hobby!

knowledge of one form or another is key to making a profit - if you dont have it - dont assume it does not exist

and dont let the simplicity of the mechanism of being able to take a position, blind you to the need for knowledge required to close a position in profit

 
Originally posted by darkhorse
the simplest definition of a chaotic system is one that follows a given set of rules but has too many internal variables redefining outcome to allow for future prediction.
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actually, the most characteristic trait of a chaotic system is not the great amount of variables/parameters (some chaotic systems are very simple), but the fact that very close initial conditions may produce vastly different outcomes. eg the classical "butterfly can cause a hurricane" example.

myself i'm not really sure that it is meaningful to assert that markets are chaotic as opposed to random. those features are not really mutually exclusive: i think there are setups occurring in the market that would qualify it as a chaotic system (eg 100 share order triggering a massive cascade of stoploss orders), and there most certainly are setups whose outcome is truly, 100% random.

- jaan
 
I tend to believe that the market is more random than individual issues. I have been trading the emini recently and I would definately say that the emini behaves more randomly than most individual stocks. I am coming to believe more and more that I would be more successful trading stocks using the emini as an indicator for scalping purposes. I guess the reason i've come to this conclusion is that one day my strategy will make a killing and the next day lose a killing and the next day break even and the strategy doesn't change from day to day.

However, if I go back and look at the charts of the stocks I follow and compare them to tick charts of the ES or NQ, I can see where I could profit off of trading the stocks regardless of the direction of the mini. Stocks will hold resistence/support much more firmly than the indexes do. I think buy/sell programs artificially generate support/resistence in the indexes that will not hold up over the longer term.

Savage
 
jaan is right about the definition of a chaotic system. The problem with chaos theory is that even though it seems to make sense and lots of phd's are into it, it is darn hard to use in real life.
 
Completely and totally random. Doesn't mean you can't profit from a random universe.
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Huh?

nitro:confused:

[I get confused a lot on this message board]
 
this thread has so many pages it's hard not to repeat things.
I don't care to know if markets are random or not. I do believe they are chaotic, which is not the same. Regardless, it is possible to make money in them, and I think that's the point, isn't it ?

It is very possible to deal with this chaotic nature. I find it specially true for NYSE stocks. Maybe because a guy, the specialist, is paid to deal with it, so of course it's possible.

Indices are more chaotic I think. But they have trends too, for those who like trends. And they have trendless periods too (which I like better).

they are so many examples of chaotic systems we can deal with. The better known is the weather, as mentioned earlier.
Planets orbits are chaotic too. In both case, we can make short term predictions about where they are going even though they are not 'intelligent' systems.
I don't understand why so many have difficulties to accept you can do the same with the markets, random, chaotic or not.

It does take knowledge, method and discipline and as little 'intelligence' as possible. To me, the more you analyze, the less likely you will make it. This is also why trading methods should be kept as simple as possible imho.

tntneo
 
Here's a simple proof of the existence of price trends:

- prices are driven by news;

- not all of news-driven price changes come in the form of gaps;
 
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