Why do I see "Trends" in Randomly Generated Data?
- Thread starter Rahula
- Start date
Your brain is predisposed to find patterns in data, whether they're really there or not. (It's even more predisposed to see faces, which is why so many people see the face of Jesus when they spill their coffee.) It has long been understood by finance experts that market prices look very much like a random walk. If markets were 100% efficient price movement would be pure memoryless random walks and successful trading (without inside information or the like) would be impossible. To trade successfully you must find some way that prices deviate from pure randomness and find a way to take advantage of that. That is hard to do, especially since the existence of thousands of traders, many heavily computerized, makes markets more and more efficient over time.
That, by the way, is the real reason most traders fail. Not psychology, but the simple fact that they didn't find a reliable way to exploit inefficiencies and deviations from randomness.
That, by the way, is the real reason most traders fail. Not psychology, but the simple fact that they didn't find a reliable way to exploit inefficiencies and deviations from randomness.
+1
According to the above statement , one could buy when prices are dropping and creating inefficiency.As an example ,crude has dropped $15 (14%) in a few days , yet euro/usd has only fallen 3%. = oil is oversold and cheap.Short term absence of buyers has driven prices lower.
It isn't hard to do because if you look at major currency trends, there is an underlying interest rate expectation which is driving prices and trends.If traders follow these from the interest rate expectations announcements , they will catch the big trends which are not random , but they are driven by fundamentals.
In addition a method can also be devised to trade randomness , and daily intra-day movements.These movements suggest short term inefficiencies like liquidity,absence of buyers/sellers.If trader is prepared to take this risk and provide intra day liquidity within his limits , there is reward awaiting.Just another way to skin a cat.
I think there main problem with these threads is that some people are arguing that markets are random but that most people are arguing (whether or not they use the word random) that markets are unpredictable.
I can say with 100% certainty that markets are not random, because there are certain market behaviours things you can predict with a near 100% certainty. For example, I would've happily bet my entire fortune on trading in Europe (where I trade incidentally) being rather light today. Does that mean I can predict where the price is going to go ahead of time? Fuck no, at least not based on that (almost 100% reliable) data point, because there have been US holidays where the European markets really moved regardless and created (or anticipated?) gaps in US trading (especially if some kind of fundamental news comes out or fails to come out).
News isn't random, the economy isn't random and other fundamentals which move the market are not random either. Unpredictable is a viable point, but random implies that there is no certainty (in fact a coin toss) that if you knew that a major US bank would fall tomorrow there would not be trading going on at a significantly lower price from where it's at prior to this event. Of course there is no certainty what happens after the news, so prices could rebound or keep dropping (who knows?) but that falls under unpredictable, not under random.
I can say with 100% certainty that markets are not random, because there are certain market behaviours things you can predict with a near 100% certainty. For example, I would've happily bet my entire fortune on trading in Europe (where I trade incidentally) being rather light today. Does that mean I can predict where the price is going to go ahead of time? Fuck no, at least not based on that (almost 100% reliable) data point, because there have been US holidays where the European markets really moved regardless and created (or anticipated?) gaps in US trading (especially if some kind of fundamental news comes out or fails to come out).
News isn't random, the economy isn't random and other fundamentals which move the market are not random either. Unpredictable is a viable point, but random implies that there is no certainty (in fact a coin toss) that if you knew that a major US bank would fall tomorrow there would not be trading going on at a significantly lower price from where it's at prior to this event. Of course there is no certainty what happens after the news, so prices could rebound or keep dropping (who knows?) but that falls under unpredictable, not under random.
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Ra;
No
but as John''trendfollower'' Henry wrote, what you call luck i call a small sample.
The question should be, can a trader highly skilled in money management make money from a random chart? There are runs that both make money and those that will lose money randomly--- cut losses and let winners run applied to randomness--- will this work? if not why not?
Can an experiment be devised to prove this one way or another? (Other than the market itself) LOL !
Can an experiment be devised to prove this one way or another? (Other than the market itself) LOL !
Yes ,a trader highly skilled in money management can make money from a random chart.
Price on a random chart goes 1/5 atr in one direction , stop 20 target 20 , hit rate 49 %.
After 30 more losses than profits, double your lot ,When number of losses equals number of profits in last 100 trades , revert to original lot size.
If you develop this money management system further , you will never lose money , cause you will always recover your losses = net no loss.
