What do you consider noise?

[braincell]

Quote from kut2k2:

Seeing is believing. I have to see significant profits being derived from a randomly generated series before I believe it.

Take a look at G-Bot, seriously.

Or lets do a simple thought experiment. Draw 2 horizontal lines on any chart somewhere in the vertical middle. Buy when it hits the lower line and sell when it hits the upper line. See how many trades you get, and average that on about a 1000 different charts - picking just one bad one will not work. If you hold onto the position for a long time during a drawdown, you constrain your capital, but eventually it comes back (most of the time). If you do this for about a 1000 symbols at once, it's highly unlikely all of them will trend out of range at the same time.

You can also move the horizontal lines at your discretion and use stops, this is where statistics and risk preference comes in. If you have $200M and you trade only $1M, leaving the other $199M for drawdown, it could in theory work.

It's like chasing butterflies. If there's a 1000 of them, you set the nets at random places and eventually you'll catch something - when they pass through the net area (like price passes through your horizontal corridor area).

Disclaimer: It would be a really stupid plan, but i'm just illustrating a point here about trading randomness, not suggesting anyone trade like this.

 

[logic_man]

Quote from braincell:

Nobody said anything, thankfully. I was just saying I had my reasons for saying that about indicators (and how they don't work in noise, thus confirming the effect) in case it was misunderstood, and since we agree, it would be interesting to also get an idea what path you took to reach the same conclusion. I have no idea how many people do their own statistics or just read books on the subject, or why they're saying what they're saying, so i'm just curious...

Take something like Elliott Wave and ask yourself if any price action would be considered "noise" within it. Even if you don't necessarily assume you could identify the patterns in real-time, the fact that each bit of price action would ultimately fit into one of the framework's patterns shows that there can be scenarios in which every bit of price action is slotted into a "mutually exclusive, collectively exhaustive" analytical framework.

Now, obviously, Elliott Wave has been a terrible failure as practiced by the average Joe (average Ralph Nelson?), so one could argue on the merits that it actually did not establish the reality of a "noiseless" market, only the hypothesis that such a thing could exist. I would agree with you on that, but, once that hypothesis is established, who knows what types of approaches could be devised to fulfill it?

 

[oldtime]

Quote from logic_man:

Take something like Elliott Wave and ask yourself if any price action would be considered "noise" within it. Even if you don't necessarily assume you could identify the patterns in real-time, the fact that each bit of price action would ultimately fit into one of the framework's patterns shows that there can be scenarios in which every bit of price action is slotted into a "mutually exclusive, collectively exhaustive" analytical framework.

Now, obviously, Elliott Wave has been a terrible failure as practiced by the average Joe (average Ralph Nelson?), so one could argue on the merits that it actually did not establish the reality of a "noiseless" market, only the hypothesis that such a thing could exist. I would agree with you on that, but, once that hypothesis is established, who knows what types of approaches could be devised to fulfill it?

Yeah, once a butterfly in Japan flapped it's wings and nobody even paid any attention to it. Then a few years later there was a horrible typhoon in the Indian Ocean. They tried to figure out what caused it and sure enough, they traced it back to the butterfly in Japan. So then they set up a whole array of microphones to record the flapping of butterfly wings in Japan. But when they listened to the recording, all they heard was noise.

 

[logic_man]

Quote from oldtime:

Yeah, once a butterfly in Japan flapped it's wings and nobody even paid any attention to it. Then a few years later there was a horrible typhoon in the Indian Ocean. They tried to figure out what caused it and sure enough, they traced it back to the butterfly in Japan. So then they set up a whole array of microphones to record the flapping of butterfly wings in Japan. But when they listened to the recording, all they heard was noise.

This is completely irrelevant. We are talking about the circumscribed world of "the markets", i.e. a completely human invention, not all of nature. Causality such as may exist in nature and other non-market realms are out of scope.

 

[oldtime]

Quote from logic_man:

This is completely irrelevant. We are talking about the circumscribed world of "the markets", i.e. a completely human invention, not all of nature. Causality such as may exist in nature and other non-market realms are out of scope.

well then you can just classify my post as noise

 

[logic_man]

Quote from oldtime:

well then you can just classify my post as noise

It wasn't noise, but it was a misguided critique of the concept I was putting forward. You have the choice of either seeing that or pointing out that I am wrong. Or you can, as you seem to have chosen, be passive-aggressive and pissy.

Obviously, it's not "easy" to come up with something as comprehensive as Elliott Wave and, on top of that, to actually have it work, but I think that it's doing a disservice to yourself as a trader to not even try. As evidence of that, look at the sad sacks who post in the Psychology forum, whining about their lax discipline. If ever there was a group of people who'd be better off spending their time making their strategies more robust and comprehensive, so that they'd follow them instinctually, rather than worrying about the fact that they can't seem to follow their current (most likely negative expectancy) rules, it's those posters. That place is like a traders' ghetto.

 

[oldtime]

Quote from logic_man:

It wasn't noise, but it was a misguided critique of the concept I was putting forward. You have the choice of either seeing that or pointing out that I am wrong. Or you can, as you seem to have chosen, be passive-aggressive and pissy.

Obviously, it's not "easy" to come up with something as comprehensive as Elliott Wave and, on top of that, to actually have it work, but I think that it's doing a disservice to yourself as a trader to not even try. As evidence of that, look at the sad sacks who post in the Psychology forum, whining about their lax discipline. If ever there was a group of people who'd be better off spending their time making their strategies more robust and comprehensive, so that they'd follow them instinctually, rather than worrying about the fact that they can't seem to follow their current (most likely negative expectancy) rules, it's those posters. That place is like a traders' ghetto.

yeah,I was over there. Problem is with strategy, not how you feel about it. All I was saying is in the big scheme, nothing is noise, everything is a reaction which causes another reaction or a cause which causes another cause.

In the old days, when I was a stockbroker, someone would call

He got a lawsuit settlement so he is a buyer
She needs to move into a resthome so she is a seller
He wants to set up a college fund for his new grandchild so he is a buyer
She just got divorced so she is a buyer
He just got divorced so he is a seller

Is that noise? It might be, unless you start figuring out how many grandchildren are being born to grandparents that invest for education, and how many little old ladies are moving into rest homes.

otherwise, I'm not aggressive and I'm not pissy, but I am extremely passive. My motto is, "If you wait long enough, someone will make up your mind for you."

 

[OddTrader]

Quote from mcteague:

Being new to trading, ... ...

So my basic questions are: How many different time frames do you look at a position from? And, How do you distinguish noise (or irrelevant information) from things that are or could be valuable. Thanks

I think you'd have to stay with us for a reasonably long time then you know what is noise from us.

 

[logic_man]

Quote from oldtime:

yeah,I was over there. Problem is with strategy, not how you feel about it. All I was saying is in the big scheme, nothing is noise, everything is a reaction which causes another reaction or a cause which causes another cause.

In the old days, when I was a stockbroker, someone would call

He got a lawsuit settlement so he is a buyer
She needs to move into a resthome so she is a seller
He wants to set up a college fund for his new grandchild so he is a buyer
She just got divorced so she is a buyer
He just got divorced so he is a seller

Is that noise? It might be, unless you start figuring out how many grandchildren are being born to grandparents that invest for education, and how many little old ladies are moving into rest homes.

otherwise, I'm not aggressive and I'm not pissy, but I am extremely passive. My motto is, "If you wait long enough, someone will make up your mind for you."

All of those individual transactions are reflected in price, though. I only watch the most liquid markets where individual transactions don't really matter, it's all "mass psychology" at that level. At the opposite end of the spectrum, for things like unique art works, individual psychology and transactions are all that matter.

My point was that Elliott, for all of his mistakes, threw down a gauntlet to later traders. You can either pick it up or pass it by, according to your character.

 

[oldtime]

Quote from logic_man:

All of those individual transactions are reflected in price, though. I only watch the most liquid markets where individual transactions don't really matter, it's all "mass psychology" at that level. At the opposite end of the spectrum, for things like unique art works, individual psychology and transactions are all that matter.

My point was that Elliott, for all of his mistakes, threw down a gauntlet to later traders. You can either pick it up or pass it by, according to your character.

I don't know that much about Elliot, yeah I browsed through the book. The name has been coming up more and more often on this site. I think it is all fashion, things come and go, and if you stick with it long enough you will be hip, then and old fogie, and finally hip retro. That's why I never throw away an old tie. Sooner or later they will be back in fashion.

Correct me if I'm wrong, but they way I read your last post is, individual transactions are noise, at least in liquid markets, but mass psychology is the move. Sounds good until you try to figure out where individual transactions have crossed the line and become a mass move.

Some of us try to make a living off noise, since it requires really no prediction which takes any skill other than the common sense your mother hoped you were born with. But paying the bills is one thing, to make up for all the mistakes I make along the way I need a big move, or as you call it, "Mass Psychology." I don't know how Ellliot figures it out, for me it's just wake up one morning and the realisation, "Wow, I don't think this is just noise! We might be on to something here. And it's about time, because this noise has been chopping me to death." (and that's what noise will do to you, it will make you money a lot longer than the trend traders can hold on, but in the last days it will take away everything it gave to you and then some. Hopefully by then you are still solvent and can ride the noise free trend.)