Oh my God.
Predicting randomness
- Thread starter oddiduro
- Start date
Oh my God.
The answer is actually pretty simple to that question and here it goes:
People are going to believe eventually what they want to believe and not facts. And up to a point, that is just fine. If you want to believe in Santa, so be it as long as you don't harm others with your beliefs.
Now, going back to the topic, there are 2 groups here. The ones who know it better and think and use trends and predictions for their trades. And the random walkers, who might or might not making money.
If you are a random walker and you are making money, then it doesn't matter if the market is predictable or not, because you are making money anyway. Then the question to you is purely philosophical. And if you are a random walker not making money, you need an excuse (the markets are unpredictable!!) so you can blame your failure on something else.
I could have offered a very simple proof (as I indicated earlier) that the markets are predictable but I haven't done so for 2 reasons. First, the burden of proof is clearly on the predictable side (since they made the positive statement), but random walkers are so illogical I guess that they haven't even asked for proof, they just wanted to argue. When I mentioned a prediction journal with high correctness ratio, nobody asked me about it.
Second, have you ever seen the face of a child when he/she is told that there is no Santa? Well, I sure don't want to see that face on fellow ET random walkers' faces, so if they are happy in their beliefs, why remove the myth?
So as far as I am concerned, this thread has ran its course, and let everybody believe in whatever they want. Santa needs to have a job at Christmas time...
I do not think that it is pertinent to someone who is an experienced trader. As I stated in my previous post âRandom Walkâ is an academic theory that actual trading experience has shown me to be false. It is a topic we respond to in an effort to share our experience, in a basic way, knowing that the markets are not random, and here is why.
An experienced trader knows from trading that trends, patterns, etc. exist. We know this from trading the market, and observing this on a daily basis.
Here is the root answer to why the markets can never be random. Equities, and commodities are manipulated, and influenced by humans, legally and illegally. Think about that very simple fact. If stocks for instance are manipulated and influenced by humans, then the markets they are a part of are as well; therefore, they can not be random.
If you flip a coin and every 4th flip you turn it up heads regardless of what it actually turns out to be, the results are not random.
I offer the above example just to try and show why I know that the markets are not random. You can learn a lot of valuable information from University and the printed word. How to be a consistently successful trader and understanding how markets actually move, are not learned within a class or a book; however, you can find interesting debates there.
Actually flipping a coin can be NOT random especially if EVERYTIME you place the coin with the head facing up at the same position and have a machine that will apply the same constant flip force over and over again.. in a controlled ventilated surrounding or maybe a vacuum like surrounding.
if this was true it just means that the dow is distributed binomially.
but i think the confusion is: a random variable can be distributed in many types of distributions. if and only if the market was random, it can be distributed with any type of distribution.
thus the argument is not really how the market's returns/pirce movements, etc are distributed, but if they are random.
Here is so solid, simple and mathematical proof that the market is not random.
a good definition of a random variable is here:
http://en.wikipedia.org/wiki/Random_variable
for those who are too lazy to click on the link, each observation (ie price) is iindependant from the last, and thus you cannot predict the next price whatsoever from the previous.
However, if you do a lag 1 regression on 2 time series of prices, you can see that you can in fact predict fairly accuratley that prices in fact are autocorrelated/serial correlated.
here is a link :
http://www.itl.nist.gov/div898/handbook/eda/section3/eda35c.htm
the presence of such autocorrelation...
GASP GASP
OH MY GOD
THE SKY IS FALLING
PIGS ARE FLYING
means that prices are not random.
random walkers, any last rites?
Quote from nicholaf:
if this was true it just means that the dow is distributed binomially.
but i think the confusion is: a random variable can be distributed in many types of distributions. if and only if the market was random, it can be distributed with any type of distribution.
thus the argument is not really how the market's returns/pirce movements, etc are distributed, but if they are random.
Here is so solid, simple and mathematical proof that the market is not random.
a good definition of a random variable is here:
http://en.wikipedia.org/wiki/Random_variable
for those who are too lazy to click on the link, each observation (ie price) is iindependant from the last, and thus you cannot predict the next price whatsoever from the previous.
However, if you do a lag 1 regression on 2 time series of prices, you can see that you can in fact predict fairly accuratley that prices in fact are autocorrelated/serial correlated.
here is a link :
http://www.itl.nist.gov/div898/handbook/eda/section3/eda35c.htm
the presence of such autocorrelation...
GASP GASP
OH MY GOD
THE SKY IS FALLING
PIGS ARE FLYING
means that prices are not random.
random walkers, any last rites?
Although I do not find that the markets are random, I cannot agree with your proffered proof. The autocorrelation formula that you provide is just another name for what is commonly known in mathematics as the linear coefficient correlation function. The mathematical "proof" of this function, depends on the axiom that "All input data points are located between the data endpoints." To state it simply, the mathematical proof specifically denies the possibility that any regression function can be used, by itself, to predict future behavior.
The function merely shows how non random the observed and input data is, as compared to completely random input data.
My contention is that the markets are non random because they are manipulated by people with money, and that if you "follow the money," you can do better than the average person.
However, no one who routinely depends upon a regression function can make more money in the long run, than the average buy and hold investor. If someone "is" making money using such regression functions, then they are adding something else into the mix that is permitting them to defeat what would otherwise be a breakeven proposition.