Predicting randomness
- Thread starter oddiduro
- Start date
Whether the market is or is not random is irrelevant to your ability to make money trading. The only thing that is required from the market is price movement. The more price movement there is, the more money you can make.
I'm probably gonna catch all sorts of flack for this post, but consider the following little game:
Take 10 persons and put them in a room. Give each person $100 and 100 stock certificates. Now tell them to trade with each other.
Each time a trade is made, the traders record the price and shares on a chalkboard in the room, so everyone can see what happened.
Now, the question is: how do you accumulate all of the money in this little trading game over the long run (i.e., without cheating)?
The answer to the above question is surprisingly simple. And although, there are a couple of ways to win this game without cheating, there's only "one" way to win by doing nothing other than trading with the nine other people in the room.
Figure out the answer, and you're a trader. Until then, you're a gambler.
I'm probably gonna catch all sorts of flack for this post, but consider the following little game:
Take 10 persons and put them in a room. Give each person $100 and 100 stock certificates. Now tell them to trade with each other.
Each time a trade is made, the traders record the price and shares on a chalkboard in the room, so everyone can see what happened.
Now, the question is: how do you accumulate all of the money in this little trading game over the long run (i.e., without cheating)?
The answer to the above question is surprisingly simple. And although, there are a couple of ways to win this game without cheating, there's only "one" way to win by doing nothing other than trading with the nine other people in the room.
Figure out the answer, and you're a trader. Until then, you're a gambler.
Forgive my math, I am not sure what exactly you meant by that +/- 1 % of tolerance. Let's say if one makes 100 predictions, do you expect at least 99 of them to become true? If so, that is quite a high standard, as I mentioned earlier, for a good trader an indicator with only a 60% success rate can be sufficient with good money management.
But if we go into technicality, we should realize that several times it is impossible to give an exact odds to a particular prediction. Let's say after the close I say, the Dow tomorrow will close up between 40 and 60 points. Can you give a probability to such a prediction? (you might, but not an exact one I assume)
But let's take it further. Let's suppose the Dow gaps down by 20 points, but you believe my prediction and go long and the Dow closes up by 30 points only. My prediction wasn't exactly right on the money, but I was still right with the direction and you made money by using my prediction.
The point here is twofold:
1. The odds for any particular prediction can not always be calculated correctly. This is not like throwing dice.
2. Lots of thing depends on just how exact and detailed is any particular prediction. (we will close up tomorrow vs. we will have a top around 1:15)
I assume, less detailed a prediction is, easier it is to calculate the odds. I know a few people who are able to give very detailed predictions with a very high success rate. That itself to me proves that the markets are predictable, but again, not all the time and not for everybody...
Quote from oddiduro:
I have concluded that there is no such thing as a trend. All patterns happen in hindsight. Taleb has something with his market views.
I am not marketsurfer
Seriously, my trading experience has shown me that trying to predict the direction is worse than flipping a coin and using good stops with risk management.
Let's talk yet again about whether we are not barking up the wrong tree with this prediction stuff.
Any pattern that can be shown to have worked in hindsight can also be shown to have NOT worked in hindsight, which means that the patterns we think we see have no predictive potential at all.
Regards
Oddi
Buying options is same as flipping a coin and allows finite risk management.
If one truly believes that is possible then options would be the only way to go.
John
Quote from murray t turtle:
===========
Thats fine you dont see any trends;
& as a precise use of the word, sure as shooting its
not about prediction, but probabilities.
And you may want to do exaxtly as N. Nickolas Talib;
options & t bills.
And to repeat a sentence;
thats fine you see no trends
We all see trends, but we only see them in hindsight. That is what I humbly submit to you. The future is a random event, the variables are impossible to calulate.
I assume all the traders here make money, and I presume that we all have different ways to view the market as well.
I see something starting to trend and if all my edges are in place I jump onboard. You can see the start of a trend as its happening. You can only see the entire trend in hindsight.
The probability of a small trend continuing is high. A trend in motion tends to stay in motion. Like everything else in the world, theres no guarantee, just a probability. We only trade probabilities.
Could you elaborate ?