Randomness And Trading

[themickey]

So we have 'intelligent' people on ET claiming markets have no randomness or price has no randomness.
Let's take a typical ET trader (won't mention names) been on ET years, prolific poster, studies and works hard, trades frequently.
ET trader struggles to be a profitable trader after years in the game.
What is there to trading? Pick direction and make bank right?
But no, for some reasons they find it extremely difficult.
What's the problem???
Why the hell can't someone simply look at a chart and clean up? Shouldn't be difficult.
Markets aren't random!
Intelligent traders, making intelligent assumptions there is no randomness but still can't trade to save themselves.
Other minority traders are profitable, they trade the same markets as the unprofitable traders, where lays the difference?
(The ET trader can be anyone, no-one finds trading consistently easy)

 

[notagain]

Price action is bait and switch, must be enough momentum to scalp quickly to reduce drawdown. Holding for a trend increases both profit and drawdown and is very sensitive to market conditions.

 

[Onra]

So we have 'intelligent' people on ET claiming markets have no randomness or price has no randomness.
Let's take a typical ET trader (won't mention names) been on ET years, prolific poster, studies and works hard, trades frequently.
ET trader struggles to be a profitable trader after years in the game.
What is there to trading? Pick direction and make bank right?
But no, for some reasons they find it extremely difficult.
What's the problem???
Why the hell can't someone simply look at a chart and clean up? Shouldn't be difficult.
Markets aren't random!
Intelligent traders, making intelligent assumptions there is no randomness but still can't trade to save themselves.
Other minority traders are profitable, they trade the same markets as the unprofitable traders, where lays the difference?
(The ET trader can be anyone, no-one finds trading consistently easy)

Mick, is it in the entry or the management of the trade?

 

[themickey]

Price action is bait and switch, must be enough momentum to scalp quickly to reduce drawdown. Holding for a trend increases both profit and drawdown and is very sensitive to market conditions.

Look at QQQ for a year or two's or three on a chart.
I don't see a lot of bait and switch.
Anyone should be a millionaire by now just trading QQQ by looking at the chart. No randomness there much.
But wait. It's an illusion.
Not many trading millionaires about.

 

[themickey]

Mick, is it in the entry or the management of the trade?

I don't know.
It could be that profitable traders have their brains wired to accept losses, treat trading like an arcade game, take risks, are bold as well as cautious, have a technique or two they stick to, there are a whole package of factors, its not in the trades "out there", it's in the person "between their ears".

 

[themickey]

The HUGE majority of people cannot trade.
A HUGE majority of people find it easier to have a $500,000 mortgage that they commit nearly all their life to paying off, rather than put $50,000 down into investing or trading stocks.
So trading is not random, it's easy right?
Many who would plonk $50,000 onto trading would get very afraid, cautious, burnt, would not turn a profit or a measly one at best.

 

[ironchef]

So we have 'intelligent' people on ET claiming markets have no randomness or price has no randomness.
Let's take a typical ET trader (won't mention names) been on ET years, prolific poster, studies and works hard, trades frequently.
ET trader struggles to be a profitable trader after years in the game.
What is there to trading? Pick direction and make bank right?
But no, for some reasons they find it extremely difficult.
What's the problem???
Why the hell can't someone simply look at a chart and clean up? Shouldn't be difficult.
Markets aren't random!
Intelligent traders, making intelligent assumptions there is no randomness but still can't trade to save themselves.
Other minority traders are profitable, they trade the same markets as the unprofitable traders, where lays the difference?
(The ET trader can be anyone, no-one finds trading consistently easy)

The main difference is luck.

You send a bunch of soldiers into battle, some will be killed some will survive. Most of those who survived thought it was their fighting skills that saved them, but perhaps only a small deciding factor is skills.

 

[andre.salmeron]

I'm just barging in here but here's my two cents (I've been writing about this as part of a book I'm working on).

First of all, markets are not random, markets are simply the place where people gather to exchange something. Price, on the other hand, is indeed random and there's no two ways about it. Simply because you can't put a pin on every single action taken by every single market participant at a given time nor how they react to everyone else's actions. If that were possible, by definition acting on it would introduce a new piece of information that would in turn transform the system as a whole.

However, price is merely the resulting effect of a dynamic relationship between supply and demand. This is why I personally hate the term "price action", because price doesn't actually do anything, it is merely the consequence. What we, as traders, do (or should do) in order to be profitable (consciously or not) is to speculate about future supply/demand as it is affected by the historical variations of price.

This is why I really don't get why a lot of people refuse to dedicate enough time to understand volume analysis (by whatever means/methods), as it shows the actual points of unusual negotiation, which are the areas where things tend to work in a less random or unpredictable fashion.

 

[tiddlywinks]

I'm just barging in here but here's my two cents (I've been writing about this as part of a book I'm working on).

First of all, markets are not random, markets are simply the place where people gather to exchange something. Price, on the other hand, is indeed random and there's no two ways about it. Simply because you can't put a pin on every single action taken by every single market participant at a given time nor how they react to everyone else's actions. If that were possible, by definition acting on it would introduce a new piece of information that would in turn transform the system as a whole.

However, price is merely the resulting effect of a dynamic relationship between supply and demand. This is why I personally hate the term "price action", because price doesn't actually do anything, it is merely the consequence. What we, as traders, do (or should do) in order to be profitable (consciously or not) is to speculate about future supply/demand as it is affected by the historical variations of price.

This is why I really don't get why a lot of people refuse to dedicate enough time to understand volume analysis (by whatever means/methods), as it shows the actual points of unusual negotiation, which are the areas where things tend to work in a less random or unpredictable fashion.

Excellent post!

The closing paragraph however, can be better expressed with mention of "where the combined activity of volume and price movement provides notice of continuation or change", rather than "where things tend to work in a less random or unpredictable fashion", which implies randomness and unpredictability.

If "unusual negotiation" can be recognized again and again when/as it occurs, is it really unusual?

Price is merely the consequence!! Perfect!

One caveat... the overall pace of volume is important for application. For instance, for a particular instrument, overnight trading may produce less than 10% of the volume of regular trading hours which is of similar or even a shorter period of time. Randomness within severely diminished liquidity/pace must be considered.

 

[themickey]

.....First of all, markets are not random, markets are simply the place where people gather to exchange something. Price, on the other hand, is indeed random and there's no two ways about it.....

My definition of 'market' is either the indexes or sectors, futures etc or commodities but also includes the general day by day collective trading action of individual instruments.
You say "markets are not random".
On any day by and large, the collective crowd can get into their usual schitzo mood and push the market hard in a direction against the prevailing trend for basically no logical reason.
Take Friday as example, gold price took a smack on ASX for no logical reason.
Yep, you can now make a hundred stupid excuses; "overbought", "exchange rate", "daytraders selling Friday", yadda yadda, but Monday it would not surprise me to see gold bounce back hard.
Price is affected by the whole market mood.
To say "price is random, markets are not", doesn't compute with me.
I'll repeat again, any single bar, no matter what the time frame is hugely if not wholey random.
Doesn't matter if it's a stock or an index, any instrument.
If you or any supercomputer can gauge the next OHLC consistently, I'll eat my hat.