Stocks are random variables

Quote from WallStGolfer31:

I've tossed a coin before and it has landed on heads 15 times in a row, what's your point?
More...
The point is that the likelihood of that happening is .003%. Now, without looking at people like Ed Seykota, just go to the P/L thread, and look at the consistency that some people have, most notably Steve Tvardek. What's the likelihood of that? Is it a statistical anomaly?
 
Quote from WallStGolfer31:

Why deny it?


You can't predict the future with patterns on a chart, that's just absurd. You can't predict future prices by doing research based financial statements from the past, it's already priced in!
More...


LOL......:p .....You make me laugh.

How long have you traded? How long have you used TA in your method of trading? Do you know what TA is?

Let me ask you, have you ever taken a course in Statistics? Or mathematics in that matter?

With right calculations, they might tell you how long will you live.
http://bored.com/deathforecast/index.php

I will live until 89. LMAO

Right mate, if you do not believe in trading then don't trade or invest. I know that book you have read......"random walk down the wall street"...have made people millions and millions of dollars.

How about for a chance run some backtesting data, to see if you hypothesis is right. Wait, not you hypothesis but, the hypothesis of Burton G. Malkiel.

How about reading
"A Non-Random Walk Down Wall Street" by Andrew W. Lo and A. Craig MacKinlay.
http://www.amazon.com/Non-Random-Wa...ef=sr_1_5/002-8352807-8560849?ie=UTF8&s=books

Cheers.
 
Quote from andread:

The point is that the likelihood of that happening is .003%. Now, without looking at people like Ed Seykota, just go to the P/L thread, and look at the consistency that some people have, most notably Steve Tvardek. What's the likelihood of that? Is it a statistical anomaly?
More...


lol the P/L thread is hardly a random sample. People are less likely to post losses than they are to post winners, not to mention a HUGE survivorship bias.
 
Quote from WallStGolfer31:

lol the P/L thread is hardly a random sample. People are less likely to post losses than they are to post winners, not to mention a HUGE survivorship bias.
More...
I don't follow the P/L very closely, but I think that Steve posts every day. I remember I have found more times his consistency quite interesting. And I'm not the only one.
 
Quote from whitster:

THIS DOESN'T HAVE TO BE ABOUT "CHARTING"

there are many ways to gain an edge.

personally, i use charts (and market profile) as well as many other things (market internals, correlated market's performance etc.). but charts are merely a tool to model price over time

there is nothing magick about them

as to the coin analogy earlier. first of all, n= far more than 15. i make dozens of trades a week and have made thousands of trades.

so, while it is not incredbily unlikely for a coin to get heads 15 times in a row. it is (close to) statisitcally impossible when n>1000 (as an example), to show signficant positive expectancy if stocks were "random"

stocks are not random because stocks move based on TRADER's DECISIONS.

traders decisions can be chaotic, illogical, emotional, etc. but they are not RANDOM

and again, as to the charting. i've made several investments (not so much trades) where i completely ignored the chart, because i found an edge elsewhere, that for that situation was more compelling.

it's called "DD". do it. peter lynch wrote some great things about finding edge through field DD, and it is surprising how few people open their eyes to do it

i've got a pretty extensive background in game theory, statistics, etc. and i can tell you that it may make you feel good to think the market is random , since then you didn't fail - the market failed you, but it is part of the reason why you are a losing trader - failure to honestly assess your faults

not everybody can be a successful trader. if it was easy, and everyone could do it, it would cease to work (see: zero sum game - i trade futures, and they are zero sum)

whether or not all information is currently known (which isn't true, but even if it was) and thus no edege is available there - that's clearly not the case, because the edge is in BETTER interpretation of the information known - industry specific expertise, or whatever. clearly, when stocks can move HUGE amounts with NO news or change in fundamentals, the idea that they are always "efficiently priced" is absurd.

you need an edge. an ability to recognize some sort of situation where you have a statistical advantage in entering a trade. that's it. in a nutshell (and then you have to properly manage risk via position sizing, stops, etc.)

losers will frequently try to blame others, or in the case of the market - the market itself - for THEIR failure.

that's true in many sorts of human endeavours. why should trading be any different?

the reality is that trading is competition with other traders, and people who want to blame others for their failings are setup for failure from the get-go.

there is no more democratic institution on earth than an electronic order entry book.
More...



I used to think like you my man, but one day, I just saw the light.


It's not just about charts, it's about fundamentals, or anything that's past, public information.


If the information had some kind of edge, that edge would disappear almost instantly. There are millions of people out there looking to exploit something, what makes you think people haven't found it already, and that you're just fooling yourself basing random outcomes on your method.


I know what you're thinking, and I used to think the same thing. I was fooled already back in high school, but in my junior year of undergraduate school, after taking years of mathematics, I could finally understand the complex notation and equations within financial journals. With your extensive background in statistics, you should be able to comprehend the papers if you read them. Just get access to an academic database.

The papers provide hard evidence and millions of statistical inferences into the validity of EMT. I encourage you to read em' yourself.
 
look dood.

efficient market theory is a joke. it's right up there with phlogiston, alchemy, tabula rasa gender construction, and other academic myths that gain credence among people in ivory towers who know nothing about trading.

i don't have to read (another) book to know EMT is bogus. my P&L and the fact that i am able to make a very good living is PROOF. again, n>1000. sorry, but i can play statistics with you all day and the chances that (if the market were random) i would be profitable after thousands of trades (which of course also means commission costs etc.) would be as close to impossible as you can get in statistics.

the market is a very complex (see: complexity theory and chaos theory) very dynamic system with immense amounts of feedback.

that says a lot, but it says nothing about randomness.

price, otoh, is one thing and one thing only - an opinion.

an opinion that constantly fluxes based upon outside events/information AND (see: feedback) the ripples of aggregate trade decisions, marging calls, stops being hit, etc.

if the markets were efficient, than the nasdaq at 5000 was efficiently priced. riiiight

and if you believe that, there is no hope for you

btw, is real estate "efficient"?

riiiiiiiiiiiiiiiight
 
One of my tickers lowered its guidance. It was down 4 handles before I finished reading the headline.

Markets not efficient -- my ass.
 
The papers provide hard evidence and millions of statistical inferences into the validity of EMT. I encourage you to read em' yourself. [/B]
More...

Again, try here:

http://press.princeton.edu/books/lo/

Markets are not fully random. They are largely random, but not entirely so.

It's actually very easy to see with about a day's work if you know how to use a computer.

Fletch
 
Quote from WallStGolfer31:

I've tossed a coin before and it has landed on heads 15 times in a row, what's your point?
More...

Based on this observation, you have two potential inferences(amongst many) - The coin may not be fair, and hence there is more than 50% chance that it will turn heads again, or the coin is fair, and the next throw will have equal chance of a head or a tail. IMO there is some value in the first opinion. After all, if theory is our best attempt at explaining observed phenomenon, why disregard such strong evidence just based on theory?

There are many sources of market inefficiencies, let me site one obvious one: Let us say, you are right. However, it is obvious that there are many people in the market who do not agree. That would lead them to make suboptimal decisions, which implies that you just have to take the other side to their trades to make money.

Now, can we identify these inefficiencies and turn them into a successful, consistent trading system? May be, may be not. Inability to find such trading methods does not prove that there are no inefficiencies.
 
You must log in or register to reply here.
Back
Top