Use random walk to make $$$

[Brandonf]

Quote from eagle:

You confuse many people with the term used. You mean a sideways market, and a high tendency to continue in one direction.

No, I dont mean a sideways market. The market can be just as random in a trend as it can be unrandom when its moving sideways.

 

[Jerry030]

Quote from Thumama:

Couldn't agree more except for the trick.
Testing randomness must cover the whole time-series. Slicing the series into predetermined parts will surely produce trends and lead to the rejection of randomness. The questions are where do you make the cut and what's the length of each part. Ironically, the timing and length of those parts are random themselves !

I can not switch between random and nonrandom mode for any time-series because switching time is random itself.

A much simpler test would be to see if there are any outliers in the net profitability of all traders in the market. Those with a profitability of more than 3 to 5 STDEV from the mean would indicate that somebody knows something most people don't.
Anyone know some programmers in charge of account management at some large brokerage companies?

 

[eagle]

In my view, by omitting daily fluctuations, a trend is a one single direction and in that case it shouldn't be considered as random since we only have one outcome.

Quote from Brandonf:

No, I dont mean a sideways market. The market can be just as random in a trend as it can be unrandom when its moving sideways.

 

[MAESTRO]

Quote from eagle:

In my view, by omitting daily fluctuations, a trend is a one single direction and in that case it shouldn't be considered as random since we only have one outcome.

If I tossed a coin and it landed 12 times on a row showing heads does that mean I am in a"head trend" ?

 

[Brandonf]

Quote from MAESTRO:

If I tossed a coin and it landed 12 times on a row showing heads does that mean I am in a"head trend" ?

Obviously Another good example is that if you take 1000 coins and flip them, each time removing every coin that comes up tails, eventually you might have a coin that turned heards 10 or 11 or more times in a row. That fact does not change the odds of the next toss, although it seems like a lot of people in the market seem to think it does.

 

[MAESTRO]

Quote from Brandonf:

Obviously Another good example is that if you take 1000 coins and flip them, each time removing every coin that comes up tails, eventually you might have a coin that turned heards 10 or 11 or more times in a row. That fact does not change the odds of the next toss, although it seems like a lot of people in the market seem to think it does.

Another very clear and elegant comment! I concur!

 

[eagle]

You tossed with a trick double heads coin.

Quote from MAESTRO:

If I tossed a coin and it landed 12 times on a row showing heads does that mean I am in a"head trend" ?

 

[ProfitTakgFool]

It's not often you find someone coming on ET and opening their mind to the idea that the market is random. The answer is actually pretty simple, both technicals and randomness are at play. The march to and from major support and resistance levels is mostly random. The greater the distance the market travels to get to such point - without taking a break - the more significant that support or resistance level becomes. The exact location the market stops on that support or resistance level is somewhat random but I've seen the price stop on a tick and I trade it accordingly.

A trader who believes the only explaination for the movement of the market is technical analysis and randomness doesn't exist will have a very short trading career. Good luck with your pursuit.

Quote from Thumama:

Hi..

Assume that the market is efficient and that prices move randomly.

1. For any stock, test the randomness of its price moves. There are many tests for randomness: for example, use the variance ratio test.

2. If the value of the variance ratio test indicates a nonrandom behavior of the time series, extend the time series by adding values ( future prices) that will force the variance ratio test to indicate a random walk. (revert to its expected value)

3. Try this for different timeframes and on average you get some abnormal returns.

I am just thinking..
Any thought?

 

[ProfitTakgFool]

And likewise, many traders tend to think a sequence of alternating heads and tails that converts to a squence of 8 consecutive heads will continue to come up largely heads. I'll be damned if it actually does sometimes but I wouldn't put any money on it.

Quote from Brandonf:

Obviously Another good example is that if you take 1000 coins and flip them, each time removing every coin that comes up tails, eventually you might have a coin that turned heards 10 or 11 or more times in a row. That fact does not change the odds of the next toss, although it seems like a lot of people in the market seem to think it does.

 

[Thumama]

1. Market behavior is mathematically not random but economically random.. and you cannot consistently achieve abnormal returns from the mathematically predicted market

2. We perceive market behavior as being unpredictable. The cause of this perception is that we always have a limited set of the information base. The freaky part is that even if we ALL have the complete information set (everyone is GOD and knows everything up to this moment), we CAN NOT predict the market.