What if I think the Market is totally Random

<b> "What if you think the market is random?</b>

Most successful traders think this at one time or another and use that skepticism as a jumping off point in continuing to explore and learn about the market. It's those who, from day one, insist that correlations exist where they do not, who get hurt the most.
 
Quote from paperboy:

Its mind boggling to think that a tick from 1980 has influence over market movements now. :)
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Sort of like the prehistoric butterfly :p
Where would we be now if Icahn hadn't run at USX in 86, NSCP had gone public via a dutch auction or Ken Lay had been honest?
 
Quote from aus_SPIder:

markets are random except for a tiny weeny bit of serial correlation otherwise known as TREND!!!!!!!!!!!!!!!!
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Yes, but exactly when the market transitions from trending to nontrending is random, or random enough.

Having a strategy for when the market transitions from efficient to inefficient seems to be the key to being profitable over time. Know one can ever consistently predict when these transitions will occur. However it has been proved time and again that it is still possible to make money by trading, so it comes down to how flexible your trading methodology is.

That's also why a broadly diversified buy and hold strategy can make you money given enough time.
 
Quote from IdontGoogle:


Can I still trade successfully with that perception of the markets.

What I do know is that stocks trade in certain ranges (obviously GE wont go from 35 to 60 in one tick) and the movements are relatively stable from one price point to the next on an intra-day basis but the combination of buyers and sellers and all of the many reasons for making a trade as well as all the different strategies that traders employ, make for totally random price action.

Sure somebody can point out s/r on a chart after the fact but if you backtest it your stops will equal your gains and you will be down commissions.


So having said that, are there strategies that will make you a winner if you believe markets are totally random?


PS. I do believe tape reading will give you an edge because one specialist controls orders and 1 human can become predictable in how they handle orders.
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Look @ the charts, one has the support & resistance zones noted after market close on 9-29-06. The 2nd chart is after market close on 10-2-06. This to me is not random market activity, however, for the uneducated trader or the struggling trader, the markets appear to be random in their movements, just a coincidence perhaps? hardly, this occurs routinely, every single day. The markets are governed by dynamic forces that are enforced by bulls & bears.
 

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Quote from panzerman:

Yes, but exactly when the market transitions from trending to nontrending is random, or random enough.

Having a strategy for when the market transitions from efficient to inefficient seems to be the key to being profitable over time. Know one can ever consistently predict when these transitions will occur. However it has been proved time and again that it is still possible to make money by trading, so it comes down to how flexible your trading methodology is.

That's also why a broadly diversified buy and hold strategy can make you money given enough time.
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And what makes u think you need to PREDICT transitions? Why not ride the wave when it starts moving?
Mayos charts are perfect examples. How many times would you get screwed if u took the first pullback when market pulls away from balance?
Now, THAT it is not random, and good news it works in practically every market, without indicators or other BS.
U just got to put in the screen time and work harder than u ever imagined to get really good at it, and that's the problem for most people.
 
Quote from IdontGoogle:

Article on ivestopedia about how something as simple as Cramers Mad Money makes the market inneffecient in case anybody cares..

http://www.investopedia.com/articles/06/madmoney.asp
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That article states that "market efficiency causes existing share prices to always incorporate and reflect all relevant information. "

I'd consider a broadcasted opinion about a stock "relevant information", and the fact that it jumps a few points is also "relevant information" used by those who chose to sell at that point - right?
Dan Dorfman had the same short-term effect, except he did it during market hours. Not sure what his, or Cramer's long term results are. It seems to me that if Cramer could outperform the market, he'd still be running a hedge fund instead of doing a TV show - an entertaining one, but still, something of a career change :)
 
Quote from IdontGoogle:

Can I still trade successfully with that perception of the markets.

What I do know is that stocks trade in certain ranges (obviously GE wont go from 35 to 60 in one tick) and the movements are relatively stable from one price point to the next on an intra-day basis but the combination of buyers and sellers and all of the many reasons for making a trade as well as all the different strategies that traders employ, make for totally random price action.

Sure somebody can point out s/r on a chart after the fact but if you backtest it your stops will equal your gains and you will be down commissions.


So having said that, are there strategies that will make you a winner if you believe markets are totally random?


PS. I do believe tape reading will give you an edge because one specialist controls orders and 1 human can become predictable in how they handle orders.
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"(obviously GE wont go from 35 to 60 in one tick)"


It is this belief that causes many Traders to blow out..and Very Levraged traders(LTCM,Amaranth, ) to really fumble the ball...

"Obviously we are disappointed with our performance..Our models didn't factor in such a move.having a significant probability...but we still got paid...booyah..."
 
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