Random Walk Theory

This is a discussion on Random Walk Theory within the General Trading Chat forums, part of the Reception category; Originally Posted by new_trader Why would I care about what you say anyway? You make idiotic assertions like "a market ...

Reply
 
LinkBack Thread Tools Search this Thread
Old Feb 12, 2008, 6:07pm   #41
Joined Feb 2004
Quote:
Originally Posted by new_trader View Post
Why would I care about what you say anyway? You make idiotic assertions like "a market is nothing but the sum of it's constituting participants, each of whom has his own agenda, doing his own thing." and almost in the same breath say

"Next time someone tells you they have a great new system thats gonna beat the markets just give Gamma Jammer a call and tell him to sell one billion worth of EUR/USD while watching your friends pipe dream go up in smoke."

So, could you sell billion worth of EUR/USD ? I couldn't. So, what does that tell you about all the participants?

Let me ask you something, what would you do if Gamma Jammer called you and said he was going to sell one billion worth of EUR/USD in the next 5 minutes?
LOL!!!! There was a chapter in Pit Bull by Marty Schwartz (I don't actually like the guy just in case you are wondering, think his character is utter reprehensible), where he meets Paul Tudor Jones and other traders and they got round and talked about oil. The next day or so something is acting funny on the oil prices, and at the end Marty realised it was because what was going in the meeting before.

Hey, BSD, you're out of line.

Last edited by temptrader; Feb 12, 2008 at 6:19pm.
temptrader is offline   Reply With Quote
Old Feb 12, 2008, 6:08pm   #42
 
dbphoenix's Avatar
Joined Aug 2003
Quote:
Originally Posted by temptrader View Post
terribly sorry, must have been dyslexic there for a minute.
No problem. We're all subject to the occasional brain fart.
dbphoenix is online now Training literature vendor (e.g courses / spreadbetting guides / eBooks)   Reply With Quote
Old Feb 12, 2008, 6:25pm   #43
BSD
 
BSD's Avatar
Joined Feb 2006
Quote:
Originally Posted by temptrader View Post
LOL!!!! There was a chapter in Pit Bull by Marty Schwartz, where he meets Paul Tudor Jones and other traders and they got round and talked about oil. The next day or so something is acting funny on the oil prices, and at the end Marty realised it was because what was going in the meeting before.
Yup, Marty said at the get together that he was bullish on oil.

That night, which was the evening traders dinner at the then Commodity Corp that was eventually taken over by Goldman Sachs, oil was at $12.50 / barrel.

During dinner Marty gave his bullish assessment on oil to all present.

There was like 50% of the then hedge fund money at the time in that room, what with people like Tudor Jones, Bruce Kovner and Michael Marcus attending.

Next day, immediately upon the open, oil started climbing all the way up to $15 / barrel that day.

Quote:
Originally Posted by dbphoenix View Post
No problem. We're all subject to the occasional brain fart.
__________________
Markus
Doing without doing
BSD is offline   Reply With Quote
Old Feb 12, 2008, 7:37pm   #44
 
firewalker99's Avatar
Joined Jul 2006
Quote:
Originally Posted by dbphoenix View Post
Perhaps if you guys were to explore the difference between randomness and unpredictability?
Often a system/event/phenomenon will show a characteristic randomness on a microscopic level, but predictableness on a macroscopic level.

If I throw a dice, I have no idea what it will be (random). But if I throw 1000 dices, I can predict (to a certain degree) how many 6's I'll end up with.
firewalker99 is offline   Reply With Quote
Old Feb 12, 2008, 7:51pm   #45
 
arabianights's Avatar
Joined Jan 2007
Sure, but you wouldn't be able to tell what the next coin flip would be. A random walk doesn't mean every price is random, it means every price movement is random, although ultimately following a distribution, usually gaussian.

One of the stupidist things that academics who believe in random walks on the markets do is to de trend them, but then give no justification for the trend itself! You can come up with mathematical justifications for doing this but they are ultimately self defeating.
arabianights is offline   Reply With Quote
Old Feb 12, 2008, 8:22pm   #46
 
new_trader's Avatar
Joined Jan 2006
Quote:
Originally Posted by firewalker99 View Post
Often a system/event/phenomenon will show a characteristic randomness on a microscopic level, but predictableness on a macroscopic level.

If I throw a dice, I have no idea what it will be (random). But if I throw 1000 dices, I can predict (to a certain degree) how many 6's I'll end up with.
How many 6's will you end up with if you threw 1000 diceseseses?
__________________
"It always pays a man to be right at the right time." - Jesse Livermore | Less Marx, More Mises

CLICK - My Trading Journal
new_trader is offline   Reply With Quote
Old Feb 12, 2008, 9:36pm   #47
Joined Feb 2004
Quote:
Originally Posted by firewalker99 View Post
Often a system/event/phenomenon will show a characteristic randomness on a microscopic level, but predictableness on a macroscopic level.

If I throw a dice, I have no idea what it will be (random). But if I throw 1000 dices, I can predict (to a certain degree) how many 6's I'll end up with.
That's the binomial distribution, and since we have 1000 dices unfortunately we need to approximate using the Poisson distribution.

No, you can only probabilistically predict. The possibility of having NO 6s at all is still there.

Forgot to add: FW is referring here to the disparity in the probabilities. Here we have 5 times more chance of NOT getting a 6 than getting a 6. This means that the probability distribution curve will be skewed to a "favourable" range.

Last edited by temptrader; Feb 12, 2008 at 9:44pm.
temptrader is offline   Reply With Quote
Thanks! The following members like this post: dbphoenix
Old Feb 12, 2008, 10:06pm   #48
 
firewalker99's Avatar
Joined Jul 2006
Quote:
Originally Posted by new_trader View Post
How many 6's will you end up with if you threw 1000 diceseseses?
Quote:
Originally Posted by temptrader View Post
No, you can only probabilistically predict. The possibility of having NO 6s at all is still there.
I'm not sure where this is going, but I can't tell how many 6's one will end up with.

I can only make a statement like "there's a xx% chance that you will have at least yy 6's" or "there's a xx% chance the amount of sixes lies in the interval [a, b]".

So, yes new_trader and temptrader I agree.
firewalker99 is offline   Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
Random! JTrader The Foyer 414 Jul 31, 2011 9:50pm
Random Entry damianoakley Psychology, Risk & Money Management 50 Oct 6, 2008 5:05pm
Article: A Random Rant on the Random Walk Theory T2W Bot Educational Resources 2 Nov 7, 2007 2:51pm
Random Reboots RogerM Techies Corner 6 Jun 25, 2003 1:56pm
Random walk breakout.... titus-uk Technical Analysis 3 Apr 4, 2001 10:46am

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)