Random Walk Theory Proved, once and for all.

[ProfitTakgFool]

Another quick thought....I fought the Random Walk Theory tooth and nail in college. I thought my professors were crack pots for believing this nonsense. I could pull up 1000's of charts to prove the market was not random. I tried and tried and tried to make money while holding onto my beliefs. All I did was lose.

When I opened my eyes to the possibility the market was random and I began to look for evidence I began making money. I read "Trading in the Zone," by Mark Douglas and my view of the market changed dramatically. I can pinpoint the change in my trading career almost to the time I began accepting the Random Walk Theory. I have never looked back. My account grows steadily and sometimes exponentially because I have accepted the fact the market exhibits a great deal of randomness. We could fight about this all night but the only evidence I really need to see if the shape of my profit curve.

I don't know what will happen next, nor do I care. I put myself in a position to win regardless of what the market does. I fully accept the fact that the next tick could be either up or down -- flip a coin. I just care about winning, that's it!

 

[4DTrader]

When an event happens, the market goes up. That is NOT random, due to the causal link.
When an event happens, the market goes down. That is NOT random either. Your argument that the market goes down instead of going up after a certain event proves that the market RESPONDS to that event. Therefore, you are defending the non-randomness of the market.

 

[4DTrader]

OK, let me shut this stupid talk of random market once and for all.

Here is the enlightenment you should remember:

The world is one of physical objects. In this world of physics, objects follow the laws of motion. One of the laws is that if there is ACTION, there will be REACTION. When you apply that law in the market, you must accept that when the market moves, there is a reason for that move. Nothing is random.

 

[ProfitTakgFool]

Like I said, we could fight about this all night. It isn't worth the battle. If you believe the market is not random and you are making good money then there is no need for you to think any differently.

I believe the market is driven by both technical and random forces but random forces account for the vast majority of the markets movements. I make good money so I'm happy with my beliefs.

If you think there is room for your trading to improve then just give the RWT a glance. If you're in a good spot trading-wise then you probably don't care about the RWT.

Quote from 4DTrader:

When an event happens, the market goes up. That is NOT random, due to the causal link.
When an event happens, the market goes down. That is NOT random either. Your argument that the market goes down instead of going up after a certain event proves that the market RESPONDS to that event. Therefore, you are defending the non-randomness of the market.

 

[BSAM]

Quote from 4DTrader:

OK, let me shut this stupid talk of random market once and for all.

Here is the enlightenment you should remember:

The world is one of physical objects. In this world of physics, objects follow the laws of motion. One of the laws is that if there is ACTION, there will be REACTION. When you apply that law in the market, you must accept that when the market moves, there is a reason for that move. Nothing is random.

My little brother, news does make the market move. That can sometimes be used as a trading edge. However, there are so many participants "seeing"so many
"opportunities".....(Action/Reaction). This is a contributing factor that causes the market to be random.

When you put on a trade are you always certain of the outcome? Why not? If the market is not random, smart guys like you and me would always be right.

Trading is simple.
The market is random.
Everything works sometimes.
Nothing works all the time.

 

[rcanfiel]

Quote from 4DTrader:

OK, let me shut this stupid talk of random market once and for all.

Here is the enlightenment you should remember:

The world is one of physical objects. In this world of physics, objects follow the laws of motion. One of the laws is that if there is ACTION, there will be REACTION. When you apply that law in the market, you must accept that when the market moves, there is a reason for that move. Nothing is random.

The only stupid talk is what you said. The enlightment is what you need.

If you think that market action has anything to do with physics, then you need to go back and study investing 101. The market moves on expectations, news events, etc. it is largely moved by mass psychology. It is not affected by the 3 laws of thermodynamics

 

[Mike805]

Quote from 4DTrader:


The world is one of physical objects. In this world of physics, objects follow the laws of motion. One of the laws is that if there is ACTION, there will be REACTION. When you apply that law in the market, you must accept that when the market moves, there is a reason for that move. Nothing is random.

For those who believe that the market is random: take a shot at reproducing this repsonse (see attached chart) with a RAND() function...

Oh... and there's a little somethin' called "efficient market theory" that warrants serious and focused attention too (sarcasm)... I suggest you waste .... I mean *spend* your time examining this amazingly well thougthout and throughly tested concept

 

[JSHINV]

I don't post here often. But, I find this thread entertaining. I haven't read the whole thread, so someone may have mentioned what I am going to say already. If so, I am confirming. I agree with those that say nothing is random.

It has been proven by statisticians, psychologists and/or mathematicians, that humans can not give generate random list numbers. In other words they directed a person in their empirical testing to, "Give me random list of numbers." The participants replied orally or wrote down starting to list those "random" numbers. When the scientists evaluated the numbers, it was determined the list was not random mathematically or statistically. There was something non random about the numbers regardless who the person was. Humans can not be random - impossible. Don't ask me to provide my source or evidence It was a statistics, psychology or computer science course I took in college. I don't remember, as that was about 30 years ago and I am not going to the trouble to find sources. If you don't think it isn't true fine.

So, if an individual person can not be random, then can the market composed of numerous individuals be random? No, I don't think so.

A computer program, I guess can generate random numbers. Even an Excel spread sheet can. There is nothing random about people's decisions. The decisions may be illogical, based on fear or the wrong decision. But, they are not random.

 

[steve46]

I will just say this because for some reason, I think it is possible that someone out there can think independently.

First I get the impression that most of the posters do not really understand the concept of randomness.

Second, seems as if none of you know about the search function at the top of the home page. If you did, and if you happened to use it, you might discover that this subject has already been hashed out.

As it turns out, "the markets" exhibit both random and non-random behavior.

Academics and professionals alike know this, and spend a lot of time and money trying to determine WHEN markets will exhibit random behavior and when markets will act randomly.

Some of this is common sense. For instance. Markets exhibit a type of non-random behavior called "herd" behavior a lot of the time. This "herd" behavior is displayed whenever price wiggles around a certain price point, then abruptly breaks out in one direction or another, only to wiggle around at another price point for a while. This behavior is very common today and can be seen by traders who watch the futures indexes (like the Emini for instance). This herd behavior also occurs whenever we have "events" like earnings reports, economic reports, FOMC announcements, bond auctions, etc. Clearly these are all examples of non-random behavior and are attributed to human emotions of fear and greed as displayed by participants.

Markets also exhibit random behavior. This random behavior happens because of the many different participants and their various agendas all interacting at the same time.

Clearly "the markets" move back and forth, sometimes trending as the majority of the participants act together to establish value, and sometimes chopping around in a range as buyers and sellers play "tug of war".

Instead of debating whether markets are or are not random. A smart aspiring trader would do well to try to learn how to identify when a market is random and when it is not. Here is a reference to a book that tries to show how that is done.

"Mathematics of Technical Analysis. Applying Statistics to trading Stocks, Options and Futures" by Clifford Sherry and Jason Sherry. Forward by John Sweeney. Published by ToExcel

Good luck folks

 

[Mike805]

Quote from Mike805:

For those who believe that the market is random: take a shot at reproducing this repsonse (see attached chart) with a RAND() function...

Oh... and there's a little somethin' called "efficient market theory" that warrants serious and focused attention too (sarcasm)... I suggest you waste .... I mean *spend* your time examining this amazingly well thougthout and throughly tested concept

Chart attached this time: