Random Walk Theory Proved, once and for all.
- Thread starter mu200411
- Start date
Exactly... What the market does is random. What you do with it is predictable, because you make your action consistent. It is when you become random in a world of random you create a world of chaos and disarray for yourself.
The greatest challenge for a trader is to remain disciplined with his trading criteria, no matter what it may be. Your criteria can be simple and rely strictly on probability.
Random walk was disproved already man.... EVEN BY ACADEMICS! 
http://press.princeton.edu/titles/6558.html
One of these is a Wharton Prof, The other an MIT prof
http://press.princeton.edu/titles/6558.html
One of these is a Wharton Prof, The other an MIT prof
And notice the link that says 'Full text online'.Quote from jgalt7:
Random walk was disproved already man.... EVEN BY ACADEMICS!
http://press.princeton.edu/titles/6558.html
One of these is a Wharton Prof, The other an MIT prof
For the people who are actually able to read the book
I do. Although here it's the whole concept of 'random' and 'deterministic' that is mixed. Of course most of market movements are just plain random. However, well hidden inside these movements there is an average, and if you are able to predict this average consistently well, you make money. Looking at the average backward doesn't help you. The whole question is all about what will be the average return in the future (for whatever time horizon you may choose).
How to predict it? That's your edge. If there was plain temporal autocorrelation of returns, that would be very easy. If positive, follow the trend. If negative, just be contrarian. But plain linear autocorrelation measure cannot be used as its value is well inside the statistical confidence interval. You have to find something else. And I do not even mention the problem of stationarity...
Enjoy your edge, and try to find tens of them if you want to survive
Random walk was disproved already man.... EVEN BY ACADEMICS!
http://press.princeton.edu/titles/6558.html
One of these is a Wharton Prof, The other an MIT prof
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Great link. Great book. It was obvious from the beginning. A quick look at the random excel-generated charts would show obvious differences between these pictures and real market charts. But it demands some understanding of market behaviour to see the differences. Nothing to do with TA. Simple common sense and an unbiased mindset.
http://press.princeton.edu/titles/6558.html
One of these is a Wharton Prof, The other an MIT prof
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Great link. Great book. It was obvious from the beginning. A quick look at the random excel-generated charts would show obvious differences between these pictures and real market charts. But it demands some understanding of market behaviour to see the differences. Nothing to do with TA. Simple common sense and an unbiased mindset.
For what its worth my view is that people which support random walk dont look at the market as a whole they just look at price. Price is the end result of millions of decisions being made by market participants.
If you see a leaf falling down through the air and you chart its movements it will look like a toin coss chart. It appears random, but when you learn about aerodynamics, thermals, weather patterns, gravity etc the leaf's motions although still having random elements ( a car driving past) follow a predictable process. So do the markets
Just as a price chart looks random you have to put into context. take a currency chart, then plot interest rate differentials over it you will see a better than 50-50 (i.e random) percentage in favour of currencies yielding higher interest to trade at a premium. For those random walkers that accept price moves for valid reasons however all information is discounted instantly, there is nothing "instant" about the dollars recent demise. Could you "predict" the dollar was going to move like this? possibly. could you profit from the continuing dollar movements by realising that it was likely to continue until another another market force stopped it? almost certainly. What random walkers dont realise is that although a force to stop a markets movment could happen at any time doesnt mean you cant profit from calculating the probabilities of it happening
If you see a leaf falling down through the air and you chart its movements it will look like a toin coss chart. It appears random, but when you learn about aerodynamics, thermals, weather patterns, gravity etc the leaf's motions although still having random elements ( a car driving past) follow a predictable process. So do the markets
Just as a price chart looks random you have to put into context. take a currency chart, then plot interest rate differentials over it you will see a better than 50-50 (i.e random) percentage in favour of currencies yielding higher interest to trade at a premium. For those random walkers that accept price moves for valid reasons however all information is discounted instantly, there is nothing "instant" about the dollars recent demise. Could you "predict" the dollar was going to move like this? possibly. could you profit from the continuing dollar movements by realising that it was likely to continue until another another market force stopped it? almost certainly. What random walkers dont realise is that although a force to stop a markets movment could happen at any time doesnt mean you cant profit from calculating the probabilities of it happening