Originally posted by NUTSNEAL
...when I first started in 1979 I thought nearly every thing in the market was static/noise. Now I am not sure there is really anything in the market that is just noise/static. I am coming to the realization that at this time my instruments are just not sensitive enough or calibrated right to bring in the message clearly.
After a long examination of so-called Random Walk and related theories about price action, including the inevitable encounters with opinions and positions that don't really deserve to be called "theories" at all, I've come to a similar conclusion.
It seems to that there is a lot of confusion and obfuscation around these matters, partly related to the paradoxes and counterintuitive presumptions embedded in Efficient Market Theory and its Malkielian stepchild, partly related to the misuse and misunderstanding of statistical and mathematical terms and concepts. Instead of trying to sort through it all, or frame the various counter-positions, I'll summarize my own position: I believe that when traders or theorists describe price action as "random" or "chaotic," what they really mean is that their methods are unable to account for it consistently or meaningfully.
For some traders, it's easier simply to dismiss as random price action that fails to fulfill their expectations or that they cannot effectively trade, but for others of us the notion that price action might be random or chaotic, or (closer IMO to the true Random Walk position)
for all practical purposes random or chaotic, is troubling - troubling enough to undermine whatever chances we might otherwise have of success. My own trading improved substantially when I began to dispense with all methods and worries derived from "fear of randomness." I accept that there's much price action that I cannot trade effectively, but that has more to do with how I choose to trade (time frames, set-ups, probabilities, etc.) and with other limitations of my own, than with inherently chaotic or random aspects of the marketplace.
I feel I should add one caution: Though all of my own trading is "technical"; though I might even argue, if strongly enough pressed, that
all trading, in the end, is technical; and though I have no doubt that systems based on mathematically derivative indicators as combined with profit-taking and loss-limiting techniques may produce good or even excellent results over some period, my own experience and observation suggest that a poorly executed technical approach can be much worse than even a random approach. Precisely because price action is consequential, a poorly executed system or a mishandled method can become a systematic loss-producer and loss-magnifier. The "human element" may even make this result the most likely one. For this reason, common system-trading precepts - "take every trade" foremost among them - can also, in the hands of a new trader who may or may not have developed his system "correctly," be a formula for financial suicide. More generally, believing that price action can in fact be accessible to timely technical analysis and trading is much different from believing that any particular indicators, methods, or systems really are likely to work over any extended period.
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