The market is random

Quote from college_trad3r:

Now, is it possible to put luck in your favor? YES IT IS. By testing out alot of different strategies you can come up with one that seems to work. It is your job to exploit it until your luck changes. However finding strategies that work is mostly dependent on luck. You might dabble with price action strategies, and find out they don't work this year, though they might be the best strategy around in the long run.
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The OP answers his own question but uses wrong terminology. If you test something out, make money, but then lose your edge . . . that's luck/unlucky? No, it's the unpredictable nature of the market, not random events.

The market is very unpredictable, not random, don't you think?. Just when you have an edge, the market unpredictably swallows the edge.

So where does that leave you? Trying to identify predictable behaviours of the market in a swarm of unpredictability.

I'll at least agree with the OP that the Law of Large Numbers guarantees that there will be people who make money even if the market is random.

Question is . . . do the same people make money year in and year out . . . or is it a completely revolving door? Probably both. The year in / year out money makers are such a small percentage that most people never grasp this and suffer from intellectual dishonesty . . . eventually giving in to the random theory.

Keep trading.

js
 
Quote from MAESTRO:

The big confusion here is that by the term "Random" original poster obviously had "Normally Distributed" in mind. So, if the question is "are the markets normally distributed?" then the answer is "Hell NO!". However, the markets are RANDOM. They absolutely must be to provide desired efficiency. But it , of course, does not mean that the markets do not exhibit stable stochastic patterns.
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This is what people don't understand. The sad truth is that people that understand what you are talking about are usually lousy traders ie quants. You need someone with Harvard smarts and
Brooklyn common sense. That makes a dangerous trader. Perhaps you can explain the difference between normal and lognormal. The issue is to what degree can markets be predicted, most are not honest about how difficult that problem is although in the realm of finite math for sure.
 
Thats why you are TheMan!

Nice post :)

BANG!!!! :D

Quote from TheMan:

the reason "systems" stop working is because the market changes with its eb and flow. It does the same thing in a sense just does it a little different.

this does not mean that the market is random

as long as a trader trades what is happening instead of what they think will happen than they will always win--- or at least i do

be discretionary and willing to adapt--- taking advantage of other traders mistakes in a psychological kind of way---

the price bars tell the story-- always have and always will


those of you who do not understand does not make it impossible for others to do it -----day in and day out
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Quote from college_trad3r:

What I have realized in the past weeks is that the market is truly random. It has been an epiphany. I dreamt about this at first. I was scared: what if the market is truly random? What if all the effort you put in can come unrewarded? I expounded on this idea and came up with the following: that the market is truly random.

What this means is that there is no winning trading strategy.

You might think, how is this possible? Well it is, because the way people make money is 100% by luck. The luck decides whether your strategy will be profitable for a few years, before the market changes. Each year there are different strategies that work, because of luck.
You might think then how did Buffet made his money? Pure luck! He is an outlier of statistics. Just like the 1% out of traders who are consistently profitable, they are profitable by luck! It is only by chance their strategies seem to work. :eek:

Now, is it possible to put luck in your favor? YES IT IS. By testing out alot of different strategies you can come up with one that seems to work. It is your job to exploit it until your luck changes. However finding strategies that work is mostly dependent on luck. You might dabble with price action strategies, and find out they don't work this year, though they might be the best strategy around in the long run.
Trading is more about luck than hard work It is not a meritocracy that people think it is. Most people ignore this cold hard fact.

This is the hard and pure truth i have finally uncovered about the markets. See what you will do about it. I can only give you the tools but you have to do the fishing yourself.:cool:
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Yep you pretty much got it correct.
It's just simple math.
On average you cannot beat the averages without assuming more risk.
Costs are a huge drag on performance for any level of assumed risk. Increasing Trading activity sets a higher hurdle rate due to it's cost and is generally counter productive.

That's why index funds/ etf's will always be the superior choice given the same level of risk for most investors.



Hope That helps
 
Quote from college_trad3r:


Trading is more about luck than hard work It is not a meritocracy that people think it is. Most people ignore this cold hard fact.
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I think alot of people who post here fail to realize what this guy is trying to say.

A person can become a doctor in a set period of time, like 10 years of education. This period does not change.

A trader can become profitable in either 1 year, 10 year, or not become profitable ever.

What this this mean? It's not like one person is a hell of alot smarter than other ones. This means that becoming a trader depends alot on luck, more then people (like NoDoji for example) want to admit!:eek:
 
Quote from failed_trad3r:

I think alot of people who post here fail to realize what this guy is trying to say.

A person can become a doctor in a set period of time, like 10 years of education. This period does not change.

A trader can become profitable in either 1 year, 10 year, or not become profitable ever.

What this this mean? It's not like one person is a hell of alot smarter than other ones. This means that becoming a trader depends alot on luck, more then people (like NoDoji for example) want to admit!:eek:
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What you mean here really just boils down to the fact that trading and investing is not a skill set in a traditional sense like a true profession (MD,accountant, etc).

Once you learn the mechanics, avoid the scams, you generate returns based upon your market risk assumption if you have properly diversified away idiosyncratic risk.

How hard you work means nothing, how smart you are means nothing, that's pretty harsh as the only exception to the formerly accepted capitalistic protestant work ethic belief system.
 
how much time/how many trades is considered statistically significant?
Obviously, if someone had a 'system' that only traded once a year then it would be hard to ever actually have confidence in the system as it would have so few trades to analyse?

The reason I ask this is because i've been paper trading for about 3 years (dont laugh!!) and am now trading real money, and am having a nice spell at the monent, but then threads such as this one really play on my mind.

I can tell you that I make about 20 trades per day on the FX market and have generally around 10 pip stops and my profit targets about 14. I trade off of price patterns.

Naturally i am feeling quite confident as its one of my best patches, but threads like this make me think that maybe im just lucky at the moment and next week the 2 month losing streak begins.
 
Quote from flatron:

how much time/how many trades is considered statistically significant?
Obviously, if someone had a 'system' that only traded once a year then it would be hard to ever actually have confidence in the system as it would have so few trades to analyse?

The reason I ask this is because i've been paper trading for about 3 years (dont laugh!!) and am now trading real money, and am having a nice spell at the monent, but then threads such as this one really play on my mind.

I can tell you that I make about 20 trades per day on the FX market and have generally around 10 pip stops and my profit targets about 14. I trade off of price patterns.

Naturally i am feeling quite confident as its one of my best patches, but threads like this make me think that maybe im just lucky at the moment and next week the 2 month losing streak begins.
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As long as you don't expect income to be automatic, but remain humble everyday, even if you win all your 20 trades, and always have a back-up plan, I see no reason to worry.:)

So this means don't go on a spending spree after a good run, though with 3 years paper trading i don't expect you too.

I am more interested in your drawdowns and drawdown period. If those don't exceed the paper traded drawdowns then should you really worry? You should worry if it does happen though.
 
Just remember folks being profitable in your trading is not the correct benchmark: The proper question is:

Are you beating a comparatively risky passive portfolio with all of that effort and time?



This question is the bane of all mutual and hedge fund managers.
 
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