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Random Market PROOF
- Thread starter ProfitTakgFool
- Start date
The shorter the time frame the more random the price action.
Betting on the Patriots to win the game is less noisy than predicting if Brady will complete his next pass.
Obviously market events aren't truly random. No human action is predicated upon a coin flip. Rather though a traders ability to measure minutia is a diminished exercise.
In the MACRO markets are far from random. Think of trends. Would anyone suggest that each of the worlds stock markets randomly generated plus vs minus ticks of such magnitude over such a large sample? Of course not. The direction of the next 2 ES points? Not random either but based on our limited ability to forecast those next prices might as well be drawn out of a hat.
Betting on the Patriots to win the game is less noisy than predicting if Brady will complete his next pass.
Obviously market events aren't truly random. No human action is predicated upon a coin flip. Rather though a traders ability to measure minutia is a diminished exercise.
In the MACRO markets are far from random. Think of trends. Would anyone suggest that each of the worlds stock markets randomly generated plus vs minus ticks of such magnitude over such a large sample? Of course not. The direction of the next 2 ES points? Not random either but based on our limited ability to forecast those next prices might as well be drawn out of a hat.
As long as there are cyclical patterns present it is pointless calling price action random, because comparisons to randomness carries no benefit, even if there are similarities. The only thing that matters is research based on cyclical events, that are not random.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=113003&perpage=6&pagenumber=9
http://www.elitetrader.com/vb/showthread.php?s=&threadid=113003&perpage=6&pagenumber=9
Nobody has even brought up the point that the "seeded" random generator used in most computer programs is not really "random". The underlying concept that the generated sequence is random is very much in doubt, which leads to the skewed "bell curve" and other inconsistencies.
- Greg B.
P.S. Are six-sigma events random? Can they not be seen as clearly obvious events on charts?
- Greg B.
P.S. Are six-sigma events random? Can they not be seen as clearly obvious events on charts?
Quote from ProfitTakgFool:
I used the =randbetween(-1,1) in excel to generate a random number that could either be -1, 0, or +1 and added that number to the previous quote, starting with an arbitrary number of 1500. The next tick of the market is slightly more complicated than a flip of a coin because you can have a flat tick so there is a 1/3 chance of any one output. The attached chart is what the output looks like. If you don't think that looks like the stock market then you are just blind.
this experiment is so poorly thought out it proves nothing. what makes you think the stock market only moves -1, 0 or +1 per day? theoretically it can move -100% to +N% per day if you assume daily movements are truly random and normally distributed (which they are not).
change your experiment to increase/decrease previous values by a random % from 0.0001 to (say) 100% and you'll see it looks nothing like the market. even if you assume a range like [-30%, +30%] you'll see it doesn't resemble the market.
i say it again, daily price movement is not random.
Quote from ProfitTakgFool:
Now, for the sake of simplicity I ran that exercise again but this time with 200 quotes. The attached chart is what the output looks like. Again, it looks like the market.
and note the second test of resistance at 1505/1506 and the second test of support at 1498/1499. Prices tend to revert to a mean, even in a randomly generated sequence.
Therefore as the random sequence hits an extreme based on the generated formula, it is likely to change direction. I expect that the probability of generating twelve +1 "random rolls" in row is a lot less than generating a +1, -1 sequence..... as I perform a random walk.
Quote from gwb-trading:
Nobody has even brought up the point that the "seeded" random generator used in most computer programs is not really "random". The underlying concept that the generated sequence is random is very much in doubt, which leads to the skewed "bell curve" and other inconsistencies.
- Greg B.
P.S. Are six-sigma events random? Can they not be seen as clearly obvious events on charts?
i believe the rand() function in excel creates normally distributed values, or as good as you can get with software. it does so by selecting numbers from a pool of pre-generated, random numbers. other software-based random number generators use an algorithm with a hardware seed value, and the result may not be normally distributed. the ones that come with programming libraries typically do this.
rand() should be valid for our purposes.