Chart of 10,000 coin tosses

Daniel

Junior member
46 0
Don't know if anyone has posted this previously, but there seem to be some familiar TA patterns there - which is food for thought.

NB - hope the attachment works - not tried it before.
 

Attachments

  • coin.GIF
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bonsai

Veteren member
4,106 10
hhmmmmm. ?
a toin coss will give a binomial distribution , yes ?
but the market isnt like that - it can stand still as well as go up or down -
just trade options and you will now what I mean as time value erodes .

unless you can get the coin to land on its edge ?
lol

I have found a random number generator very useful for testing different systems.
but the market isnt random either.
 

FTSE Beater

Experienced member
1,518 5
...and coin tossing doesn't incur commissions :rolleyes:

Still interesting though. I wonder what happens if you apply basic money management rules, like risking 1% of capital :idea:
 

FTSE Beater

Experienced member
1,518 5
Hi All

I've just worked it out, and the results are very inconclusive. Some times the capital is up 70% and sometimes down by 70%, all depending on which random numbers you use :rolleyes:
 

donaldduke

Experienced member
1,665 257
Interesting.

The markets are random most of the time.. so no surprise the charts might be similar.
However there are times when the herd doesn't act randomly and you can predict prices.

Also TA could be complete rubbish, but if enough people believe it then it can become a self fulling
prophecy, enough to cause a few non random patterns.

Actually alot of TA patterns only work around 50% of the time anyway, but you can use good money
management to still profit from them.
 

frugi

1
1,827 126
What might the graph look like if you allowed Bonsai a trinomial distribution (i.e head +1, tail -1 and edge 0) and knew that as the coin was unusually tall there was a 1/3 chance of each?

Lots of edgy, flat, illiquid spots to break up the trends and confuse the random TA I suppose...a bit like looking at MyTrack data...hmm must consult Paulos! :|
 
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Bigbusiness

Experienced member
1,408 23
I think that the fact that TA works on randomly generated charts means that it doesn't matter that much if the markets are random or not. Having looked at a lot of randomly generated charts, there is some difference between them and charts of the major markets. This makes me believe that there is an element of randomness in the markets but there are also some non-random elements that make the charts look different.

It would be good to see a randomly generated candlestick chart. My spreadsheet skills aren't up to that task.
 

growltiger

Member
91 0
Bigbusiness said:
It would be good to see a randomly generated candlestick chart. My spreadsheet skills aren't up to that task.

Pleas see attached for a randomly generated candlestick chart (the four series - OHLC -are independently random). It looks less coherent than the 10,000 coin tosses!
 

Attachments

  • RandChart.JPG
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growltiger

Member
91 0
Kelly rules OK

FTSE Beater said:
...and coin tossing doesn't incur commissions :rolleyes:

Still interesting though. I wonder what happens if you apply basic money management rules, like risking 1% of capital :idea:

Is this a case where the Kelly formula applies? Because you have no edge in tossing a fair coin, at any finite time you could be plus or minus a fortune, even though the expectation - for infinite series of tosses - is zero (and commissions likewise). In case anyone is interested, I attach a pdf of the original Kelly paper on information and games of chance, which I found somewhere on the web.
 

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  • Kelly formula.pdf
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neil

Legendary member
5,167 748
Doesn't it all come down to money and trade management?
 

Bigbusiness

Experienced member
1,408 23
growltiger said:
Pleas see attached for a randomly generated candlestick chart (the four series - OHLC -are independently random). It looks less coherent than the 10,000 coin tosses!

Thanks for that. I suppose in a real chart the HLC are not independent of the open. That is the bit that has flummoxed me when trying to create a random candlestick chart.
 

bracke

Experienced member
1,286 12
Bigbusiness

Why are HLC not independent of the open? Are you suggesting that during the day the price is constantly referring to the openening price. I appreciate that in terms of up or down it is but it is not controlled by it.

To take extreme cases what happened on 9/11, black monday etc did the price refer to the opening before dropping - I think not.. Surely OHLC are just part of a series related to one another but independent of one another

Regards

bracke
 

frugi

1
1,827 126
A more realistic way of creating a random stock price pattern might be to imagine an x sided die, say one with 21 sides, and then throw it 10000 times. The facets of the die would be numbered +1 to +10 and -1 to -10 and zero (to represent unchanged).

Then start your chart with an arbitrary stock price, say 100, and start throwing, adding each result to the running total. So you might get 100, 101, 100, 103, 102, 99, 99, 101, 102,104, 107, 105, 115, 111 etc. Then plot this on your chart as just closes. After a while it may start to look like a typical daily stock chart. I don't know how to incorporate the OHL bit though!

However stock prices do not generally move up or down by 10 as often as they move up or down by a lower number, so you might want to load the die so that the higher the number, the progressively less chance there is of it coming up. I don't know whether, for realism, this progression of chance should be logarithmic or linear. Try both perhaps. Either way the outcome then won't be truly random because it is weighted towards the lower numbers, more like a stock price movement.

Anyone fancy trying this on a spreadsheet?
 

bracke

Experienced member
1,286 12
We seem to have got locked into the thought that the markets are random surely they are not.

They react according to stimuli - not always in the manner expected but they do react. If they were truly random they would be pinging around all over the place (try a random number generator), instead they follow some sort of pattern which is what we try to latch on to. If they were truly random Fibonacci and all the rest of them would be useless as they use patterns to predict.

Regards

bracke
 

spreadbet

Member
88 0
Over time coin tossing as we know will reveal odds of 50/50, far higher than spreadbeting I would think.

Cheers
spreadbet
 
 
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