Predicting randomness

oddiduro · Nov 6, 2005

Quote from nononsense:

That's I believe Jack's secret in attracting the weak and credulous in search of market handy tricks. They never really see the light at the end of the tunnel, but as "his writing is difficult to digest", they keep on believing convinced that they somehow missed to grasp the deeper truths. How else can you explain a sef-perpetuating monster-thread like: "Question for Grob/Hershey..." ? Absolute incoherence and rascality, never the slightest touch with reality.

I don't still know whether this is cynical calculation or otherwise some kind of messianic utopia perhaps not unrelated to NLP advocacy.

"I am very pro dopamine and anti adrenaline and cortisol in relationships." (Jack)
"Always check yourself to see if you are doing the dopamine thing rather that the adrenaline or cortisol thing." (Jack)
Sounds like he is saying something intelligent but it really amounts to pure nonsense.

Actually, what Jack is saying is that he is about producing exicitement rather than fear in a relationship. Always check to make sure that you are experiencing eustress rather than distress.

Hope that helps

Regards
Oddi...trader---and registered nurse.

oddiduro · Nov 6, 2005

Quote from traderNik:

I am now going to reveal my ignorance for all to see.

Aren't there literally hundreds of examples of markets wherein profit/loss outcomes eventually showed a non-normal distribution?

If you approach trading with the assumption that "all possible future profit/loss outcomes fall into a normal distribution, and... the center of the distribution (i.e., expected value) equals zero", does that fit with what we have actually observed about markets?

Didn't Neiderhoffer blow up because all possible future profit/loss outcomes did not fall into the normal distribution? That is to say, didn't he blow up because the markets turned out to be decidedly non-random?

I must be missing something here.

From Education of Speculator, Vic used math models to find anamolies in the market.

I think what happened is one his anamolies turned out to be a black swan for him. It worked every other time, but that time it didn't, and boom!:eek:

oddiduro · Nov 6, 2005

Quote from traderNik:

http://www.riskbook.com/link/rachev_menn_fabozzi_(2005).htm

That one seems like it's good for heavy quants. Here's one more that's a little more informal

http://perso.wanadoo.fr/pgreenfinch/bfglo/bfglo.fat_tails.htm

"It has long been recognized that time series of asset returns exhibit positive sample excess kurtosisâthey have "fat tails." This means that extreme market moves occur more frequently than would be expected with a normal distribution."

I too have started to wonder if we are all assuming the same definition of random.

Thanks, what is your definition of random, if I may ask?

kjkent1 · Nov 6, 2005

Quote from Julius:

This is all hypothetical. Or do you actually use this normal distribution model for your trading decisions? In that case we have nothing to discuss about, because I believe in an abnormal distribution for the reality of the stockmarket.

Someone asked for a definition of random -- so I gave my definition.

All of a sudden, everyone is asking how to defeat the randomness of the market, or stating that they don't find market outcomes to normally distributed.

I propose that you actually undertake to analyze and play the game that I set forth earlier in this thread. It is not at all hypothetical, and if you can't win the game, then you can't win in the market.

kjkent1 · Nov 6, 2005

Quote from traderNik:

I am now going to reveal my ignorance for all to see.

Aren't there literally hundreds of examples of markets wherein profit/loss outcomes eventually showed a non-normal distribution?

If you approach trading with the assumption that "all possible future profit/loss outcomes fall into a normal distribution, and... the center of the distribution (i.e., expected value) equals zero", does that fit with what we have actually observed about markets?

Didn't Neiderhoffer blow up because all possible future profit/loss outcomes did not fall into the normal distribution? That is to say, didn't he blow up because the markets turned out to be decidedly non-random?

I must be missing something here.

Same answer as above to Julius.

Charlie Dow · Nov 6, 2005

Quote from oddiduro:

FINALLY, I drew the post I was looking for out this band of merry traders. A synopsis of consistency out of chaos.

EDIT: After reading this again, I need to ask, do trends exist BEFORE they occur?

How do we know it is a trend until AFTER it occurs?

Great post Charlie Dow.

Trends do not exist before they occur, they are created in real-time. Once they are created, they exist until they change. We know a trend is in place by reading those extreme tops & bottoms in our confined trading environment.

Trends are established when 3 extreme points in that confined environment confirm; either 3 points confirming a Bull or a Bear. Prior to the creation of that trend, price is either in a corresponding Trend or transitioning. By tracking the sequential extreme tops and bottom we expect that existing trend will continue until it changes.

Charlie Dow · Nov 6, 2005

Quote from Equalizer:

Hmm...
Mr Dow, did you ever meet Mr Proflogic? That is almost Carbon Copy proflogic - with perfect now having been replaced by flawless in the text.

Nice bit of NLP.

Perfect Randomness perhaps?

My opinions on proflogic are the same as Jack's (Grob's).
I know what NLP is too but that has nothing to do with reading price. That's like implying that one must obtain a college degree to read USA Today.

Magna · Nov 6, 2005

Quote from Charlie Dow:

My opinions on proflogic are the same as Jack's (Grob's).

For those with any doubt, Charlie Dow is ProfLogic. One and the same person. Flawlessly.

FanOfFridays · Nov 6, 2005

Quote from oddiduro:

Thanks, what is your definition of random, if I may ask?

Random means unpatterned. If a series (of numbers, events) is random, there is no causal relationship between one element of the series and the next.

Now... At first I wrote

"If a series (of numbers, events) is random, we cannot predict the next element of the series, since all outcomes are equally likely"

However, I suppose there's nothing stopping you from predicting the next element. You can go ahead. The chance you have of being right is then related to the number of possible outcomes. For example, in Roulette, there are 38 numbers. The series which represents the consecutive results of the spinning of the roulette ball is random; however, there are only 38 possible outcomes (Roulette numbers go 0,00, and then 1-36, don't they?). So you have a fixed chance of being right when you guess at the result if any particular spin.

Now, if we consider the time series which is MSFT's closing price, what are the possible outcomes? Well, there is nothing to say that MSFT will not close at $4000 tomorrow morning. Intuition tells me that this is less likely than MSFT closing within +/- $4 of it's closing price today.

Doesn't that show in a crude way that the series which is the closing price of MSFT is not random?

Help - I am in way over my head here.

FanOfFridays · Nov 6, 2005

Quote from kjkent1:

All of a sudden, everyone is ... stating that they don't find market outcomes to normally distributed.

So market outcomes are normally distributed?

You wrote that

My definition of random for the purposes of the equities markets is, a condition wherein all possible future profit/loss outcomes fall into a normal distribution

I assume that you believe that market outcomes do fall into such a distribution.

I am not sure about that as a definition of randomness (see my previous post).

Predicting randomness

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