Randomness And Trading

[Tall Mike]

1. Do you think markets are truly random?
2. If something is truly random, how do you make money with it?

The reason I bring this up is that I've heard a lot of options trading gurus out there recently talk about how markets are random and therefore when you trade options, IV trades rich to actual and that's your edge. The numbers will eventually play out.

But if something is truly random how do you make money with it?

 

[themickey]

1. Do you think markets are truly random?
2. If something is truly random, how do you make money with it?

The reason I bring this up is that I've heard a lot of options trading gurus out there recently talk about how markets are random and therefore when you trade options, IV trades rich to actual and that's your edge. The numbers will eventually play out.

But if something is truly random how do you make money with it?

Traders with a religous leaning will make the claim that nothing is random, they cannot accept randomness.
In my opinion all trading has randomness to varying degrees, shorter the time frame and depending on the instrument's liquidity.
Chance, luck, randomness is all part of it, but not everything trading is random 100%.

 

[volpri]

Traders with a religous leaning will make the claim that nothing is random, they cannot accept randomness.
In my opinion all trading has randomness to varying degrees, shorter the time frame and depending on the instrument's liquidity.
Chance, luck, randomness is all part of it, but not everything trading is random 100%.

I don’t believe the market is random and it has nothing to do with religion or destiny.

 

[themickey]

I don’t believe the market is random and it has nothing to do with religion or destiny.

Anyone on this planet trading 1 instrument would have numerous losing trades. I don't care how brilliant that person is.
For large institutions like example Goldman, they may have a few losing days but that's only because they trade a huge number of instruments and or strategies concurrently.
Now if trading any single instrument has a very high rate of losing trades, not accounting for brokerage, how can that not have randomness in the way it behaves?
Don't tell me it's a human thing or human failure.
Even the best supercomputers trading one instrument will struggle badly.

 

[.sigma]

1. Do you think markets are truly random?
2. If something is truly random, how do you make money with it?

The reason I bring this up is that I've heard a lot of options trading gurus out there recently talk about how markets are random and therefore when you trade options, IV trades rich to actual and that's your edge. The numbers will eventually play out.

But if something is truly random how do you make money with it?

this discussion is as old as mankind.

no, the markets aren’t “truly random”, not even close.

truly random would be AAPL closing at $300, then the next morning tapping down to $88, then the next day up to $140 etc etc, that seems truly random to me. But obviously the market isn’t like that thank god, instead the market follows a non-Gaussian distro.. a geo brownian fluidity they say.

the inherent structure (micro) and how market participants all collectively trade via their ideas, goals, emotions etc form the price action we see every day. Yes it’s extremely difficult to accurately predict directional moves, but at least it’s easier to predict the magnitude of those moves, it’s all how you perceive the market man.

 

[themickey]

If anyone or anything can predict any bar length and OHLC with consistent accuracy, then I'm wrong.
If you can't get one bar right consistently, how are you going to get 100 bars right.
The only non randomness to a degree is you can estimate direction with a probability over numerous bar counts.

 

[.sigma]

If anyone or anything can predict any bar length and OHLC with consistent accuracy, then I'm wrong.
If you can't get one bar right consistently, how are you going to get 100 bars right.
The only non randomness to a degree is you can estimate direction with a probability over numerous bar counts.

It’s not about predicting bar length, it’s about putting a strategy on based off personal metrics a trader uses to take advantage of the magnitude. So it’s kind of predicated off mean reversion in a sense. Also the bar is the after effect, a visual representation.. a technical aspect, not the inherent cause. Look deeper into the order flow dynamics and volatility measures as well as the bars.

 

[themickey]

1. Do you think markets are truly random?
2. If something is truly random, how do you make money with it?....

The markets are not truly random, to beginners it may be confusing and difficult to master, but there is a randomness factor which is the reason for losing trades even amongst the best.
Currently we have a full blown pandemic affecting millions of people financially but the markets are rising.
Some traders are making $$$, other professionals are losing, depending on their mindset and algos.
But no, the markets are not truly random, just partially overall.
Bar by bar the level is high, collectively it becomes less.

 

[guru]

But if something is truly random how do you make money with it?

No one says that you can make money trading. Most hedge funds perform worse than simply holding SPY.
While people who make money trading, may be finding small market inefficiencies, mispricings, as well as possibly from the randomness or deviation from randomness. They just won’t tell you how.

 

[Same Lazy Element]

They just won’t tell you how.

No secret there. You buy things that will go up and sell things that will go down.

ps. The above recipe is true empirically - I tried doing the opposite and it did not work for me.