Predicting randomness

[QQQShort]

Quote from science_trader:

NO, READ MY LIPS : IT IS IMPOSSIBLE TO HAVE AN EDGE IN A RANDOM WALK MARKET USING RISK MANAGEMENT OR POSITION SIZING OR WHATEVER TOOL.

It's not a trader talking, it's a physicist / mathematician and believe me, we know that nobody will come and discover such a way in the future, even in a million years.

I'm giving the nod to Science on this one.

Risk management and position sizing do not create an edge, rather they help us to exploit one.

 

[science_trader]

Quote from NUTSNEAL:

You may expect you may think but you don't know.

Do you expect an answer ? I don't think so. This debate is over then.

 

[dont]

Quote from science_trader:

NO, READ MY LIPS : IT IS IMPOSSIBLE TO HAVE AN EDGE IN A RANDOM WALK MARKET USING RISK MANAGEMENT OR POSITION SIZING OR WHATEVER TOOL.

Quite right you need to have the edge first, and then use position sizing etc to ensure that you don't go bankrupt waiting for the edge to work.

Interestingly if you have a real edge, you should be able to take an enormous amount of money out of the market

 

[jaronimo]

When I started trading the markets looked very random. The more I learned, the less random they looked.

The more I learn, and understand, the more money I make. If the markets are all random, than does that mean I have only been lucky up till now?

Or is it that the more you learn and understand the more you can see the patterns in the so-called randomness? If I was able to see every input to the market, could it be predicted?

 

[dont]

Quote from jaronimo:

When I started trading the markets looked very random. The more I learned, the less random they looked.

The more I learn, and understand, the more money I make. If the markets are all random, than does that mean I have only been lucky up till now?

Or is it that the more you learn and understand the more you can see the patterns in the so-called randomness? If I was able to see every input to the market, could it be predicted?

Quite possibly you have an edge. A top ball player knows nothing of newtonian mechanics and wind speeds etc etc but can still catch a ball. For me the point is that the markets are Random does not mean you can't make money from them.

 

[jaronimo]

Quote from dont:

Quite possibly you have an edge. A top ball player knows nothing of newtonian mechanics and wind speeds etc etc but can still catch a ball. For me the point is that the markets are Random does not mean you can't make money from them.

Thats the part I don't understand, if its random, how can I have an edge? Wouldn't random mean that there were no patterns I could exploit for an edge?

It seems to me, the more you learn, the less random it is.

 

[dont]

Quote from jaronimo:

Thats the part I don't understand, if its random, how can I have an edge? Wouldn't random mean that there were no patterns I could exploit for an edge?

It seems to me, the more you learn, the less random it is.

Think of a card counter in BlackJack its random but the counter still has an edge think of the count as an indicator. I am fully prepared to belive that you notice something that allows you to trade so it feels non-random.

Randomness is a difficult concept, think of the decimal expansion of Pi, its a simple formula to calculate, yet there is no pattern??? Its not Random but sure as hell looks random

 

[jaronimo]

Quote from dont:

Think of a card counter in BlackJack its random but the counter still has an edge think of the count as an indicator. I am fully prepared to belive that you notice something that allows you to trade so it feels non-random.

Randomness is a difficult concept, think of the decimal expansion of Pi, its a simple formula to calculate, yet there is no pattern??? Its not Random but sure as hell looks random

"Its not random but sure as hell looks random"

I totally understand that. But then I never really believed it was random in the first place. Just realized I didn't understand it all yet. Still don't, but can see more patterns in the "randomness" every day.

 

[dont]

That made me smile thanks

 

[FanOfFridays]

Quote from dont:

Think of a card counter in BlackJack its random but the counter still has an edge think of the count as an indicator. I am fully prepared to belive that you notice something that allows you to trade so it feels non-random.

Randomness is a difficult concept, think of the decimal expansion of Pi, its a simple formula to calculate, yet there is no pattern??? Its not Random but sure as hell looks random

I'm probably in over my head here but - in blackjack, the probability that we will see a face card after 40 cards have already come out is related to the number of face cards that have come out prior to that. So the odds are not the same as when the deck was whole. Sometimes, randomly, a lot of small cards come out of the deck and the last 12 cards are made up of a disproportionate number of face cards. In this case we bet more because we know something about the possible combinations of cards which will appear at the end of the game. We have extracted information about the current state of the system by observing past behaviour of it. The outcomes of the deal at the end of the deck are not 'random' if you have been counting the cards and know something about the makeup of the deck. Let me be clear - what I mean is they are not random in terms of the probabilities we could calculate for any two card combination coming out at the beginning of the deal with a whole deck. (Of course they are random if you look for a moment only at those cards which remain). This is not the same thing as a coin flip, where the probabilities are 'reset' after every toss.

Wha are the odds that any 'randomly dealt' two card combination will be two face cards if you know that after 40 cards have been dealt, there are only face cards left in the deck?

It's amazing how many people here think that something as predictable as human behaviour could be random.