Quote from makosgu:
So here AGAIN is where your logic falls apart. You see the market as random. You back off of your statement a bit by saying SOMETIMES. By sometimes, do you mean it is random 50% of the time and not random the other 50% of the time??? The execution of trades are in fact RANDOM. This is the timing of WHEN trades hit the market (ie. mutual funds, Joe Smith, day traders, etc...). In other words, executions are done RANDOMLY. However, the effect of those executions are not random. So what time series components (ie. P, ticks, V, others) did you do your analysis on? For it to be random, you would have had to assesesed that the time series was "horizontally stable". Right??? Perhaps this is why you state sometimes as in sometimes (ie. 50%) of the time you assessed the time series to be "horizontally stable".
The point is those random entry of trades hitting the market do not randomly do things. They either hit the bidsize or hit the asksize and then appear on your T&S as a record. AGAIN, I see all that you talk about and the effects of those inputs as having very non random results. I threw up this chart many moons ago of how what you don't see works (ie. randomly entered trades producing NON RANDOM changes in PRICE). Maybe you missed this material which was buried in the 2000 or so pages of posts...
So in this chart you see P at your finite resolution BID/ASK pair change by BID/ASK pair change and tick. There is an even finer resolution that is BSIZE/ASIZE that fluctuates between ticks but you probably do not use that dataset. So here, mon ami, is where we get to looking at the road in front of you. There are two series of bars in the chart. The top series of bars, is the BID and ASK. You make or lose money when the pair move, although there is a way to make money when the pair do not move but perhaps you have already figured that out. So when the BID/ASK pair change, there are precursors. Those precursors appear on the bars you see plotted BELOW the BID/ASK bars. For the ENTIRE blue region, the DOM has not changed. So all the while while you are looking at P which in my world is the BID/ASK bars, I am looking at the bars below the BID/ASK pair. This BLUE ZONE is very special as you can see something has shifted within the BID/ASK pair that is a result of all those randomly arriving trades. What is next on this chart is imminent! NOTE VERY WELL how I am not looking at P to see where P is heading. This is the whole looking out in front of the car to see when the car should be turning. But how would you have known that just looking at P??? Mon ami, so the bottom line in this whole long winded thread is that if you choose to look at the markets randomly, then by default you have to resort to probabilities. Some see the market as a very orderly (ie. non-random) place. If you choose to look at the market as a random array of inputs and outputs, then you are in the van thorpe world. However, this is by your choice. The above picture, sees how the randomly executed (in realtime) trades hit the market. Long before the BID/ASK pair changes, you have had precursors that what is about to happen is not random. JUST LOOK at the region before the circled BLUE region. It happened there too... the movement of price being related to the previous changing non price conditions of the previous moment...
