Predicting randomness

Well, as Taleb's argument states... black swans event has 3 properties, large impact, surprize effect, incomputable probability. So if you believe in black swans to a point of stubborness, you might as well believe in unicorns too..not to mention ghost and vampires, bigfoot, and of course Superman.. as they all have large impact, surprising effect and just incomputable probability, no? (think how everyone will react if they saw a real superman with real super physical and flying powers..or have vampires running around at night..that's real huge news man! )

An event like World Trade Center bombing on September 11, 2001 and the coincidence of USA's lottery pick-3 number happen to have 9-1-1 as the winning number on that same day should be an incomputable probability too.. in which case, this event might not happen in one's living life time (aka a span of less than 100 years) That being said, I don't even understand why Taleb bother to open up a hedge fund. He might as well just buy 20 bucks worth of lottery tickets or 100 dollars worth of mega million lottery tickets every week in hope of a incomputatable probability event to pay off his long strings of losses. Oh, I almost forgot.. hahah he opened a hedge fund so he can use other investors money! What a smart guy.. So the better rephrased question is.. why he bother with buying options with those money. He can just use those money to buy a bunch of lottery tickets every week. Both concepts are the same - payoff is huge..but with miniscule probability.

Note that I'm not arguing whether or not I believe in the black swan theory.. I'm just saying don't be an academic idiot to a point where we forget our common sense...as I know some phds do.. (I'm not ragging on all phds mind you). You must understand that the MAIN point of black swan is saying any sh-t can happen.. Not just in markets but in life.. and it can happen in your life time or your great grand kids lifetime.

The point is that most people who don't trade thinks that traders are thinking they can correctly call the markets direction when in reality, traders are just playing out probabilities. Even if you are a trend follower who doesn't trade actively are playing the probability game in that the market will have a good probability that a trend will occur sometime in the future.

Which then brings me immediately to another quick thought about predicting, probability and randomness and the black swan. Everyone seems to be talking about predicting the markets and the weather.. or how it's random. But this thing can apply to real life as simple as walking to your car in a public garage. Can you predict that you will get rob? No. Now is the act of getting mugged random? Well, if you happen to be in a dark area at 2 AM with the attendant sleeping and it's kinda quiet and the location of the garage is in an unsafe area.. you will increase your chances of getting mugged. This is probability. Are you predicting? well, you are not really predicting, because predicting is like saying it's going to happen 100%.. its like soothsaying. If you predict it's going to happen, you won't walk to your car and instead will call the cops beforehand. If you predict it's not going to happen, you can just walk to your car and on the way have a 100 dollar bill hanging out of your pocket. But I'm sure people usually will be more cautious and bring a weapon with them just in case. You bring a weapon with you walking to the car because you are thinking just in case something happens.. which means you are just living out on the probability of something might happen. Now If you believe too much on the black swan.. you should not even bring anything as someone with super powers or a vampire will destroy your weapon and you. We live our lives based on probabilistic decisions.

These examples might be weird but everyone can relate to it and it might get the point across.
 
Quote from oddiduro:

Yes, I know, but the discussion evolved in this direction, so I put up an informational article.

I think trends only exist after they have occurred. Sure I may have a bias towards being long or short, but just because the market has gone up for 5 days does not mean that that it will go up a 6th day.

And there is no way to tell if it will.
More...

I believe that what you may be missing is that the "market" is not an random undirected actor, like a hurricane, tornado, dice throw, roulette wheel spin, etc. Rather, the "market" is the consensus opinion of its participants, of the fair value of a particular security. So, while I would absolutely agree, that if we speak of the "market," as if it were a random act of nature, then a market trend cannot be predicted with any reliability.

However, what a mass of people will do in response to stimuli is "not" random, any more than what a herd of cattle will do in response to a gunshot. People who are placed in harm's way, will try to avoid harm. Similarly, people who are offered a generally positive opportunity, will attempt to exploit it.

Technical indicators that correlate well to human behavior patterns are useful to predicting market direction. Indicators that do not -- are not.

Just my opinion, of course.
 
Quote from kjkent1:

I believe that what you may be missing is that the "market" is not an random undirected actor, like a hurricane, tornado, dice throw, roulette wheel spin, etc. Rather, the "market" is the consensus opinion of its participants, of the fair value of a particular security. So, while I would absolutely agree, that if we speak of the "market," as if it were a random act of nature, then a market trend cannot be predicted with any reliability.

However, what a mass of people will do in response to stimuli is "not" random, any more than what a herd of cattle will do in response to a gunshot. People who are placed in harm's way, will try to avoid harm. Similarly, people who are offered a generally positive opportunity, will attempt to exploit it.

Technical indicators that correlate well to human behavior patterns are useful to predicting market direction. Indicators that do not -- are not.

Just my opinion, of course.
More...

A voice of reason is heard.
 
Quote from kjkent1:

I believe that what you may be missing is that the "market" is not an random undirected actor, like a hurricane, tornado, dice throw, roulette wheel spin, etc. Rather, the "market" is the consensus opinion of its participants, of the fair value of a particular security. So, while I would absolutely agree, that if we speak of the "market," as if it were a random act of nature, then a market trend cannot be predicted with any reliability.

However, what a mass of people will do in response to stimuli is "not" random, any more than what a herd of cattle will do in response to a gunshot. People who are placed in harm's way, will try to avoid harm. Similarly, people who are offered a generally positive opportunity, will attempt to exploit it.

Technical indicators that correlate well to human behavior patterns are useful to predicting market direction. Indicators that do not -- are not.

Just my opinion, of course.
More...

Well put, and therein lies the difference between philosophy, and reality.

In the LTCM show I saw on NOVA, there was a man who a trader will recognize as a Gann trader. He was an older gentleman, and had hand drawn charts that I recognized as the squaring of price and time. He had his hand drawn charts and a calculator.

Merton, and the rest of the geniuses at LTCM came on next, with all their maths and degrees. The old man looked silly, and old.

At the end of the show, the old man was planning his next trade. LTCM was planning on how to explain that they nearly destroyed the economic foundation of the western world.
 
One last question to the readers and participants of this thread. There were 10000 views, 43 pages, and 200+ replies. As one poster put it, this discussion is as polarized as abortion or God.

Why do you suppose this issue is so pertinent among traders?
 
Quote from oddiduro:

Why do you suppose this issue is so pertinent among traders?
More...

Because the traders that use TA insist that their system is not random. But if this was true they would make millions, and no trader has ever posted live trades that were consistant winners. Their threads end up totally off topic and then disappear.

Trading profits/losses are in fact random.
 
Quote from oddiduro:

One last question to the readers and participants of this thread. There were 10000 views, 43 pages, and 200+ replies. As one poster put it, this discussion is as polarized as abortion or God.

Why do you suppose this issue is so pertinent among traders?
More...

I think that uninvited_guest has just answered your question as to why there is a controversy.
 
Either they confuse successful trading with the notion of consistency viz-a-viz the markets (when in fact the nature of markets is anything but), or they just feel more comfortable about their own failure by using randomness as a scapegoat; most likely a bit of both. But again in the end it's just a matter of laziness/resignation to refuse to admit that the game just might be far more complex than one had previously imagined.

It's funny how so many turn to trading to escape from the humdrum of a 9 to 5 existence, only to find themselves desperately seeking comfort in monotony from the markets. If it's consistency in rewards you seek, go back to punching the clock.
 
Quote from uninvited_guest:

Because the traders that use TA insist that their system is not random. But if this was true they would make millions, and no trader has ever posted live trades that were consistent winners. Their threads end up totally off topic and then disappear.

Trading profits/losses are in fact random.
More...
There is another explanation for what you observed: most of the posters you referred to wanted to sell their services, and this was because they couldn't make money from trading. "Those who can do, those who can't teach".

PS: Obviously there are also teachers who know, but usually the most flamboyant and vociferous ones are incompetent.
 
You must log in or register to reply here.
Back
Top