Randomness And Trading
- Thread starter Tall Mike
- Start date
Use of a DAILY chart for trading decisions, according to @themickey.
Because a thing seems difficult to you, do not think it impossible for anyone to accomplish.
~Marcus Aurelius
I don't care if the market is random or not. I care if I can money reliably in the market. Last year, I made 147% profit, year-over-year. This year, I have made 36% in the past 2 months.
Please forgive me if the following sentences don't really make sense, I've had quite a few beers already.
Indeed I forgot to state a definition for "market", but I totally agree with you. What I wanted to say is that the randomness of "markets" is not really something relevant, insofar as you consider them as the place people go to trade goods. When you define them as you did, I 100% agree with you. Price is random and so are markets: there's no telling what is going to happen in any given market, as agents' motivations, actions and reactions are endlessly complex.
What you said, regarding stupid excuses, is basically what the whole investment/financial media outlets do: they find reasons for something after it happened. That's quite easy to do, being a prophet of the past. Like you said, there's no telling how markets are gonna behave nor how price is going to behave.
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.
Indeed, if it can be recognized again and again it is not "unusual", so let me rephrase that. It is unusual relative to the short/medium/long term activity. You always gotta establish (hopefully in an objective manner) some references for you to evaluate if something unusual is taking place.
Also, I did mean to imply randomness and unpredictability, just less of it. There's no telling if a small group of qualified agents (those with very high volume orders) will do X or Y or Z at a given point. We need to accept unpredictability in order to prepare ourselves for it (using things such as volume distribution, historical volatility, etc.).
First of all, congratulations on your trading results.
Second point, I care if posters make statements on ET such as "no randomness" which imo is just wrong.
Third, the subject matter is not about profitability.
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Who told you that?
Of course it is also about profitability, here is what OP wrote:
"But if something is truly random how do you make money with it?"
The fact that trend-following systems can consistently extract money from the markets is another proof that they are not random.
The first proof is that markets have "fat tails", meaning the prices are not normally distributed. This fact alone is the ultimate mathematical proof that the markets are not random, the rest is just conversation.
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Good for you Sir, but just keep in mind that making money in the market is easy, keeping it is another story...
Best wishes.
If it is not about profitability, what's the use to discuss this for a trader?
Of course EVERY analysis needs to be done in context. But when something is able to be recognized over and over, it is not unusual, in context or not. Our skills of the particular analysis may be lacking, mis-applied, or incomplete. Information/data may be incomplete or mistaken. Or maybe our analysis is just flat out wrong. None of which are a determination for randomness or unpredictability, which by the way, are 2 separate and distinct things. Perhaps there is a sequence or a cycle that leads up to or ends with that (recognizable) "unusal" activity, in those short/med/long contexts. Just throwing that out there.
Rather than randomness and unpredictability, I prefer to assume my application, knowledge and/or data is/are incomplete, therefore I get an analysis wrong. Progress and learn: The market is always correct, 100% of the time! But I do not have access to all the input the market has and likely never will. It's Ok. And it's OK to be wrong too. Directly, within one specific context, I agree with your example about unpredictability (and randomness) via the caveat in my original post. This however is the only context in my work, where your example is unquestionably fact.
Randomness is with the market forces, the volatility of the market. But despite that, there are charts to give you a fairly accurate prediction of the market. So if you are aware of the different strategies and know which one works for you, there is nothing to stop you from making profits.