Predicting randomness
- Thread starter oddiduro
- Start date
IMHO, i think you may have it back to front.
I think that the markets are *not* random, and yet are not (in general) predictable.
Again time frame makes huge difference to the argument.
Also are you talking about trading 1 instrument against another ie multivariate strategies or univariate??
I think that the markets are *not* random, and yet are not (in general) predictable.
Again time frame makes huge difference to the argument.
Also are you talking about trading 1 instrument against another ie multivariate strategies or univariate??
Correct, like someone who makes a trade that moves the market because he is drunk like a skunk. But, tell me, even though the reason is "the pratt is drunk - or - he wants to get this trade in quickly, in order to get a cheeky shag from the bimbette he just picked-up", does this appear as a random event or as a deterministic phenomenon to the outside observer unaware of the inebriated(/shag) state of some Joe_NQ_drunk_Trader?
Read that again...
...outside observer...
If you think that some spike like the one described above is not random, then you must be smoking some exquisite stuff. If you were a HF trader and that spike took out your stops, then you got shagged. Random, or deterministic? Hmm... Perhaps deterministic to take out your stops... or wait, was the pratt drunk?
Of course, in the scheme of things, such a trade in isolation (regardless of its size) would probably (though not always) have little effect on the longer term price trajectory.
Read that again...
...longer term price trajectory...
So I guess it all comes down to this:
- Are prices deterministic or random - to the outside observer - accross ALL TIMEFRAMES OF OBSERVATION?
- What is is random?
- What is deterministic?
- Are some timeframes better than others?
Hmm...
A. There is a reason for every single trade ever made - regardless of how silly the reason might be - i.e. not all trades are ...ahem... "rational" events.
A2. You have no hope of knowing the reason behind every trade.
A3. There is no way you can know this a-priori, unless of course you are afflicted with an acute case of Crystal Balliitis.
Q. Given A, A2, and A3, can you still profit from the market?
A. Yes.
A2. Shhh, you are giving too much away!
A3. OK.
Chill-out.
PS. ...and my glass is empty, so I need a refill of Jim Beam...
PPS. I am amazed I can even produce such a Deterministically-Random-Rant given my inebriated state
oops... that seems dangerously close to thinking that you know better than the markets.
Don't get me wrong, you may well know better than the markets on this or that occasion, but to say that there is no rational basis for any market movement based on one presumably irrational movement might be dangerous, no?
Sure, there have been plenty of examples of irrational exuberance on both the bull and bear sides.
You asked if there's a rational basis to supply and demand. Suffice it to say that Ayn Rand is a hero of mine. I don't agree with everything she says but she's got it right re: supply and demand. To me, it's one of the most rational things there is.
Anyway oddi, I wish you luck in your trading approaches, even if they are predicated on beliefs which are irrational to me
As you said, your trade management is (just as?) (way more?) important than any of this.You don't need to predict whats going to happen next to make money consistently.
Consistent profitability comes from having a definite set of trading rules that recognizes a scenario that is PROBABLY going to transpire.
Flawless execution of well thought out (but simple) trading plan should be every traders goal, not prediction.
Combined with the mindset of a professional speculator that whether that one individual trade makes money or not is irrelevant.
All you need is a simple edge or scenario that you believe occurs often, you don't need to predict.
I see it all the time, new traders ty to predict whats going to happen next, during the trades it doesn't, they refuse to admit it.......... they are trading to prove their predictions correct........instead of trading to make money.
If you don't believe me, listen to yourself or another trader who makes a trade and when it moves against them say "this can't be happening", they are placing a trade and telling the market to prove them right. Which is not necessary.
Consistent profitability comes from having a definite set of trading rules that recognizes a scenario that is PROBABLY going to transpire.
Flawless execution of well thought out (but simple) trading plan should be every traders goal, not prediction.
Combined with the mindset of a professional speculator that whether that one individual trade makes money or not is irrelevant.
All you need is a simple edge or scenario that you believe occurs often, you don't need to predict.
I see it all the time, new traders ty to predict whats going to happen next, during the trades it doesn't, they refuse to admit it.......... they are trading to prove their predictions correct........instead of trading to make money.
If you don't believe me, listen to yourself or another trader who makes a trade and when it moves against them say "this can't be happening", they are placing a trade and telling the market to prove them right. Which is not necessary.
Notice he says predicting the future is not rational. A particular , buyer or seller may be rational, but on aggregate the markets are way to volatile for me to belive that everybody knows all the relevant information and further what the impact of that information will be, and hence make then rational. The nett effect of all of those actions is a Random walk!
Just look at all the comments on REFCO from 12 Oct.
I don't think you needed to make a prediction there, the risk of keeping your money there, was just too great, bankrupt or not!
I think most debate about the predictability or otherwise of market direction - on any time frame - is apt to confuse abstract with real and cause with effect.
There is one thing that is 100% predictable: Price moves up or down dependant upon the balance between buyers and sellers at a particular price and the volumes they trade. So the key to successful trading is to understand what triggers trading decisions for these people and how they are likely to effect price on the timeframe you are trading.
EW, S/R, TL's pivots, oscillators MA's and all the other mathematical/charting gizmos are not the primary cause of market directional movement, they are measures of the the effect of traders/investors actions.
Most 'market direction influencers' use feedback from some combination of the gizmos to inform/trigger their decisions. There will usually be a least a few points in any trading day when a high proportion of those gizmos line up. When they do, a lot of traders are going to act on them all at once and price will move accordingly.
If the EW crowd, the S/R crowd, the FT pivots crowd, the Gann crowd, the Mars is in allignment with Venus crowd, the 'Old uncle Tom Cobbly and all' crowd - If they are all watching the same potential 'price reversal level' - or whatever, then you stand a damned good chance of scalping a few points by anticipating their actions. It's not a question of complex mathematical forecasting, just bloody hard work staying on top of all those 'influences' - All IM ever so HO of course - and taking strict account of the liquidity of the market traded.
Having said all that, 'dont's' random walk observation based on the complexity of all those influences does have considerable merit. I personally rate Taleb's 'Fooled by Randomness' as my top read this year to date - doesn't stop me scratching a living from futures trading though
There is one thing that is 100% predictable: Price moves up or down dependant upon the balance between buyers and sellers at a particular price and the volumes they trade. So the key to successful trading is to understand what triggers trading decisions for these people and how they are likely to effect price on the timeframe you are trading.
EW, S/R, TL's pivots, oscillators MA's and all the other mathematical/charting gizmos are not the primary cause of market directional movement, they are measures of the the effect of traders/investors actions.
Most 'market direction influencers' use feedback from some combination of the gizmos to inform/trigger their decisions. There will usually be a least a few points in any trading day when a high proportion of those gizmos line up. When they do, a lot of traders are going to act on them all at once and price will move accordingly.
If the EW crowd, the S/R crowd, the FT pivots crowd, the Gann crowd, the Mars is in allignment with Venus crowd, the 'Old uncle Tom Cobbly and all' crowd - If they are all watching the same potential 'price reversal level' - or whatever, then you stand a damned good chance of scalping a few points by anticipating their actions. It's not a question of complex mathematical forecasting, just bloody hard work staying on top of all those 'influences' - All IM ever so HO of course - and taking strict account of the liquidity of the market traded.
Having said all that, 'dont's' random walk observation based on the complexity of all those influences does have considerable merit. I personally rate Taleb's 'Fooled by Randomness' as my top read this year to date - doesn't stop me scratching a living from futures trading though
