Randomness And Trading
- Thread starter Tall Mike
- Start date
When I entered, it was about one being better than the other.
Somehow, it became one is useless.
My position is that both can be utilized; it all depends on the trading system/goals. But if someone had to choose only one approach, I would choose T/A over F/A. How 'bout you?
For example, one could use F/A to narrow down a universe of stocks; then enter and exit from that subset using T/A. There are billions of possibilities.
I just wanted to clarify ... my position, at least.
Exactly.... and we all have unique interpretations of what random is.
Look at today's MU MIST big breakouts.... random or predictable?
Goal is to develop trading strategies and rules designed to minimize negative impact of minor random price fluctuations.... while booking profits on the winners.
Example: I try to enter daytrades 9:35am - 10am tue-wed-thur best timeframe etc
=> Assuming that fundamentals in the form of intraday NEWS is not important ....
An Esp big assumption wrt unscheduled NEWS
Intraday liquidity can vanish quickly
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Good point-- intraday news, tweets, fed speaking are all sources of randomness for daytrading... which is why I use automated OTO trailing or hard stops every time I trade.
Paradox that from intraday pov, fundamentals can be experienced as random !
How can fundamentals be random ?
Another reason to ask "What is really meant by 'random' ?"...
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Speaking of randomness (and this is totally baffling) Tom Basso demonstrated that it is possible to make money with totally random entry points!
I am quoting from the book "Trade Your Way to Financial Freedom" (by Van K. Tharp):
"Tom Basso designed a simple, random-entry trading system … We determined the volatility of the market by a 10-day exponential moving average of the average true range.
Our initial stop was three times that volatility reading.
Once entry occurred by a coin flip, the same three-times-volatility stop was trailed from the close. However, the stop could only move in our favor. Thus, the stop moved closer whenever the markets moved in our favor or whenever volatility shrank. We also used a 1% risk model for our position-sizing system. …
We ran it on 10 markets. And it was always, in each market, either long or short depending upon a coin flip. … It made money 100% of the time when a simple 1% risk money management system was added. … The system had a (trade success) reliability of 38%, which is about average for a trend-following system."
I am quoting from the book "Trade Your Way to Financial Freedom" (by Van K. Tharp):
"Tom Basso designed a simple, random-entry trading system … We determined the volatility of the market by a 10-day exponential moving average of the average true range.
Our initial stop was three times that volatility reading.
Once entry occurred by a coin flip, the same three-times-volatility stop was trailed from the close. However, the stop could only move in our favor. Thus, the stop moved closer whenever the markets moved in our favor or whenever volatility shrank. We also used a 1% risk model for our position-sizing system. …
We ran it on 10 markets. And it was always, in each market, either long or short depending upon a coin flip. … It made money 100% of the time when a simple 1% risk money management system was added. … The system had a (trade success) reliability of 38%, which is about average for a trend-following system."
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It depends on holding period.
In the context of commodities futures instruments:
1. Intraday = chart only
2. Interday + intraweekend = chart only
3. Interday + interweekend = chart + fundamentals (seasonal + natural disaster + geopolitics + etc)
For index futures, only 1 and 2 above apply. I have never explored 3.
For individual stocks, I am fundamentalist because my approach is value investing. Never intraday and interday + intraweekend.
Personally if I had to pick either fundamentals or charting right now, I would pick charting only because I have figured out how to trade using chart, the correct way in my own definition.
But if someone new was asking me whether to learn fundamentals or charting, I would suggest fundamentals + individual stock value investing. Never would I recommend charting if I was not going to share what I have figured out in charting.
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Nothing is truly random. Every event must happen for a reason. Some reasons may be more hidden than others, which can create the illusion of randomness, but buying and selling of stock is not a random action. It is calculated. It is why trading fresh news on stocks makes things feel less random, since you now have insight into what people are likely doing with this news, whether they are short or long, and where many of them are likely to make entry or exit decisions based on trader psychology and big volume levels on the chart. Just how I think of it.