Predicting randomness

[FanOfFridays]

Quote from Perseus:


Human behavior is not predictable, i disagree.
the events that drive human behavior are not predictable, nor is the exact response to those events.
hurricane Katrina and 9/11 are examples. your own response to a given event may differ depending on all circumstances.

This discussion, although interesting, seems to have devolved a bit, with each side just stating the same points over and over again.

In other words, the random walkers simply refuse to accept the multiple proofs that have been placed before them. They can't admit that it's about probabilities and that market action can be predicted within this framework. The funny thing is, the people who think the markets are random can still come up with disclaimers like the one above about the corn market, which is the only argument that most of us non-random- walkers are making. (Not saying that Perseus is a random walker - I don't know if he is or isn't).

Also, there hasn't been much discussion about predicting market movements using funnymentals. I am sure the random walkers will claim that Warren and other value investors are just lucky to have happened to pick the stocks that would go up over the years.

btw... I found it funny that Heisenberg has been cited by both sides as evidence that their position is correct.

Occasional anomalous events do not prove that ordered systems are disordered.

 

[Cheese]

Quote from oddiduro:

I have concluded that there is no such thing as a trend. All patterns happen in hindsight. Taleb has something with his market views.

I am not marketsurfer

Seriously, my trading experience has shown me that trying to predict the direction is worse than flipping a coin and using good stops with risk management.

Let's talk yet again about whether we are not barking up the wrong tree with this prediction stuff.

Any pattern that can be shown to have worked in hindsight can also be shown to have NOT worked in hindsight, which means that the patterns we think we see have no predictive potential at all.

Regards
Oddi

Well there are trends, up and down, sure, but I don't follow trends. And of course they are better identified in hindsight. Trend is a diversion but it does a very valuable job in being the fixation of other traders and apparently the rest of the world.

Now patterns, here I disagree. The trick is in establishing a predictive model. So I welcome the belief elsewhere that patterns, or gyrations as I call it, have no predictive potential.

 

[cnms2]

Quote from Perseus:

would offer up that the markets are not random like coin flipping, but rather behave more like this message board. Within reason there is no predictable outside force that can swing the outcome of a coin toss. However, the markets and the posting and reading of a message board are dictated by human behavior. Human behavior is predictable based on previous observations.

Human behavior is not predictable, i disagree.
the events that drive human behavior are not predictable, nor is the exact response to those events.
hurricane Katrina and 9/11 are examples. your own response to a given event may differ depending on all circumstances.

sometimes responses though are uniform to a high degree I'll have to admit. If we have a surprise freeze in July in Iowa- Corn's going to be bid up 99% of the time.

All of you that think the market is random, why are trading? You just like gambling? Is there a sure method of making money through gambling? Even card counters rely on probabilities.

I'm just confused, not ironic, not sarcastic

 

[Cheese]

Quote from cnms2:
All of you that think the market is random, why are trading? You just like gambling? Is there a sure method of making money through gambling? Even card counters rely on probabilities.

I'm just confused, not ironic, not sarcastic

I am surprised you think that everyone thinks the market is random.

I know that data/parameters can be marshalled into a framework to predict the markets gyrations (eg DOW). Others would know, even if they don't know how to measure and exploit the market's predictive potential. Establishing a predictive trading model is apparently not something independent traders do or want to do.

 

[trader28]

Quote from nononsense:


Heisenberg would roll over in his grave laughing at this kind of nutiness.

You mean he has been bured alive???

 

[bwc]

Quote from cnms2:

All of you that think the market is random, why are trading? You just like gambling? Is there a sure method of making money through gambling? Even card counters rely on probabilities.

I'm just confused, not ironic, not sarcastic

Randomsurfers-walker-whatever are trading because their belief is that the money and risk management (the only thing that is controllable) alone will do the trick to make money. (sorry, but a negative expectancy with the best money management strategy in the world wouldn't help... or actually even a zero expectancy - which is what the market is if it's completely random - might not help much.) So if you are a randomwalker, zero is the expectancy that you are having when you trade and eventually you will lose money long term, especially if you think each trade is independent, so there is no point for them to trade at all.

But now, if they say that they are using money management because they are betting on that anytime a market will definitely trend, this statement in a way contradicts their randomwalk belief, because if you believe a market is random, then how would you know that it will definitely trend. If it's truly random, it might not even trend in 150 years.. longer that you live..so you will lose all your money anyways.. so again, no point to trade. I mean you already mentioned that trend is a hindsight.

So conclusion - randomwalkers don't really trade; they just like to state their belief either because they can't figure it out yet or just for ego reason..just like some academic absentminded phds.

Basically a market is an open nonlinear system as everyone here should know ..and this falls into the category of chaos theoretical science. No one is still able to figure this science out..so unless this forum is for just purely for sharing ideas...then there is no point to argue and prove who is right. If I recall correctly, there is one thing that chaos theory states and that is that both order and randomness can coexist in a system and also short term "predicting" of an event is easier than long term "predicting" of an event and thus this allows one to be able to make a probability call of an event in a nearer term.

Sorta like almost predicting a hurricane path.. noticed that the hurricane probable route on a weather map is always narrower near the actual hurricane and widens as it gets further away from the point of the actual hurricane. Shows that it's easier to to "predict" in a shorter time length, than a longer time length from the actual point of reference.

 

[trader28]

Quote from Perseus:

would offer up that the markets are not random like coin flipping, but rather behave more like this message board. Within reason there is no predictable outside force that can swing the outcome of a coin toss. However, the markets and the posting and reading of a message board are dictated by human behavior. Human behavior is predictable based on previous observations.

Who do you think is doing the tossing? Studies actually show 51% of tosses land on the side that was facing up when thrown

And the old saying "tails never fails" is actually true if you spin the coin on its side instead of throwing it up, it will land on tails 80% of the time.... there is more weight on the heads side

 

[cnms2]

Quote from bwc:
... just like some academic absentminded phds...

Not a joke: When the Japanese invented the automatic cameras they called them PHD Cameras. PHD stands for "push here dummy".

 

[jficquette]

Quote from oddiduro:

I submit that the markets are indeed a random walk, yet tradeable. The success comes in managing the risk, and not the outcome of the trade.

I say that the market is very predictable under certain conditons. At violent tops and bottoms the behavior is the same.

Markets are not random. They can not be random because it is a living system. Each action taken is from a human being or his machines on purpose and for a reason.

These charts just project the prices and combine them various time formats. It looks random on paper but each price was put there on puprose by a person. This chart protrays the actions of the crowd but the chart is not the crowd.

John

 

[hermit]

Quote from oddiduro:

Okay, what I think VN is saying is that the usual suspects as far as indicators go...MACD, RSI, Stochastics, Head and Shoulders, Double bottoms, Triple bottoms, Average True Range, Doji, Dark Cloud Cover, etc. ,all have thier issues with reliability.

I will say again that I think indicators (including the squaring of price and time) should be used only to trade within a framework of rules.

These rules are mainly in place to limit risk, not to predict profit.

It is not possible to predict direction with any statistical reliability.

Those people who are saying that the market is non-random are mistaking their system of limiting risk for predicting the market, and they are two different animals.

My trading education is fairly well documented on elite, and on the TS forums. I have used indicators successfully, but I have never felt comfortable enough to fully automate any system. The market is too complex.

The complexity is due to it's chaotic nature.

That is my assertion.

This thread continues because I believe that many very experienced traders are aware of this "apparent randomness"

If someone could predict within a margin of error of 0.1% the closing price of any market entity, for the span of one week, it would end the randomness talk for good from me.

You need not reveal your methodology, just post the results by no later than 9:29 am on the week of the test.

That would shut me up
[/B]

Where did I talk about randomness anywhere.I was pointing out the apparent ineptitude of Niederhoffers Article.

Fooled by Cognitive Dissonance