Fooled: The Role of Randomness

[Rossini]

The outcome of any single trade in isolation will be random, however over a number of trades the outcome will become less and less random until clearly identifiable patterns emerge. Whether that leads to profitability or not depends on the method to begin with.

''Answer:
Human emotion runs the markets and until the day it stops I will believe the markets are NOT random.''

So true....

 

[arabianights]

He was a local on CBOE for a bit, fairly sure he has ...

 

[arabianights]

Well aside from writing Dynamic Hedging, to quote from his CV:

"Taleb held senior positions with major banks, focusing on trading complex derivatives: Head currency derivatives Trader and Managing Director, UBS; Head fixed income derivatives trader, derivative, CSFB, NY; Independent floor trader, Chicago Mercantile Exchange; Head derivatives trader, CIBC; Other trading positions: BNP-Paribas, Bankers Trust, Credit Agricole. Founded Empirica Capital LLC in 1998 mainly to directly manage protection portfolios against extreme events for hedge and pension funds, until his retirement from daily trading in January 2005. Currently member of the board of several hedge funds. Was inducted into the Derivatives Strategy Hall of Fame in 2001 (among a dozen of such industry awards). "

so he probably does know a fair bit about OTC market making

 

[arabianights]

oh, agreed. I think his point is that it will be (if done properly) profitable in the long run... which is obvious really, when you think about it

 

[firewalker99]

I wanted to start a thread, to highlight the role of randomness in the short trading time frame of 1-5 minutes. It's called "Scalping" or in other words, gambling (if you ask me)

You are mixing up several elements.
1: unpredictability does not mean randomness
2: it's not because a trader enters off a 1 or 5 minute chart, he can't stay in for hours (or even days)
3: scalping is usually defined as opening and closing a position within minutes for only for very tiny profits, and making a dozen or more trades like this each day

I have not been profitable, mainly because the random nature of scalping will suck in new-traders (which I have abandoned long ago)...

There is nothing random about scalping if you know what you're doing and know what to look for.

Fwiw, I am NOT someone who scalps.

 

[firewalker99]

Yes, I could tell the difference on a candle chart, or even a line chart for that matter...

Then you won't have any problem telling me what timeframe this is
I removed time and scaling, because those are irrelevant. Just tell me if you think these reactions are random or not and if this looks like support becoming resistance or not (green circles).

1 min obviously contains much NOISE.

There's more noise on the radio than in a 1 minute chart.

 

[alan5616]

It's a wind up.

OK

 

[Paul71]

Fooled: The Role of Randomness

(yeah that's a rip off of Nassim Taleb)



I wanted to start a thread, to highlight the role of randomness in the short trading time frame of 1-5 minutes. It's called "Scalping" or in other words, gambling (if you ask me).

Why do so many traders think scalping is profitable? I would assume the 90% failure rate is due to over leveraging and trading in very short time frames. In any market, the bid and ask can spike or drop from a single buyer or seller, especially if it's during low-volume.

Scalping is risky and quite a bit of work compared to trading the larger time frame.
I think the Newbie FX, Futures, or Stock trader should avoid "scalping" at all costs. It will save hundreds to thousands in extra "expenses" and "tuition." Not only is scalping risky, but it doesn't pay to sit at a computer for 5-8 hrs doing 100 trades or more. Why not take less risk, "work" less and capture more points in the trend?

To some extent, the markets are RANDOM! Especially in the shorter time frame (1-5 minutes). It's not hard to move a market...as we all know very well. But is it harder to force a market to trend higher on a daily chart (or even 10 min, 15, 30 or 60)? Yes, because it takes a substantial amount of buy orders to push the market up.

So WHY scalp? I mean, realistically, who is profitable day after day...
Scalping can work if you use excessive leverage I suppose, which is higher risk and it still doesn't capture as many points, pips, or ticks as other methods.

If someone could prove scalping isn't random, I would love to see that (I have seen it work for 1 friend of mine, a rare example of 800% return). And just because we can curve fit a few indicators to data-doesn't mean the price movement isn't random. Scalpers are gambling on a very short time frame.

The market isn't random, scalping maybe random, and the reason why scalping maybe random is that scalping is a persons perception, a scalp is a trade, so the scalpers results may appear random (a bad scalper) because at times we all misjudge the market.


Making so many trades a day off the lower TFs should be done in accordance with the higher TFs, so for example if the broader market is selling off at higher prices that's the way you scalp.


There's nothing in your arguement, you've had a bad time scalping or trying to scalp in the past, thats your problem.





Paul.

 

[c_c405]

I agree mostly - But I sometimes catch a scalp or two

Fooled: The Role of Randomness

(yeah that's a rip off of Nassim Taleb)



I wanted to start a thread, to highlight the role of randomness in the short trading time frame of 1-5 minutes. It's called "Scalping" or in other words, gambling (if you ask me).

Why do so many traders think scalping is profitable? I would assume the 90% failure rate is due to over leveraging and trading in very short time frames. In any market, the bid and ask can spike or drop from a single buyer or seller, especially if it's during low-volume.

Scalping is risky and quite a bit of work compared to trading the larger time frame.
I think the Newbie FX, Futures, or Stock trader should avoid "scalping" at all costs. It will save hundreds to thousands in extra "expenses" and "tuition." Not only is scalping risky, but it doesn't pay to sit at a computer for 5-8 hrs doing 100 trades or more. Why not take less risk, "work" less and capture more points in the trend?

To some extent, the markets are RANDOM! Especially in the shorter time frame (1-5 minutes). It's not hard to move a market...as we all know very well. But is it harder to force a market to trend higher on a daily chart (or even 10 min, 15, 30 or 60)? Yes, because it takes a substantial amount of buy orders to push the market up.

So WHY scalp? I mean, realistically, who is profitable day after day...
Scalping can work if you use excessive leverage I suppose, which is higher risk and it still doesn't capture as many points, pips, or ticks as other methods.

If someone could prove scalping isn't random, I would love to see that (I have seen it work for 1 friend of mine, a rare example of 800% return). And just because we can curve fit a few indicators to data-doesn't mean the price movement isn't random. Scalpers are gambling on a very short time frame.

I can't stand sitting in front of my computer looking at 1min charts etc. Why bother? Life is for living so I choose to LIVE it

Scalping can be profitable as long as you know where the price is within it's trading range. Risk is not limited as you can enter and re-enter losing or wining all the way up or down.

Scalping for many is a preference that I think is developed due to a lower risk tolerance than position traders or swing traders. They only want to risk 30 pips instead of 100 or 300 many don't even keep a 2:1 ratio. I'm sure many break even during the day and I'm just not into that. I prefer larger movements with less noise but that's just me. I'm detached from my money simply because I make profits and that allows me to have a greater risk tolerance. Money I risk is profits I have earned and it's not going to kill my paycheck to pay back my credit cards!

Tolerance is the key! the sooner you accept that you WILL take some losses the better trader you will be no matter what style you trade. Most scalpers I know still work their day jobs, Maybe if they owned a business they would have a greater tolerance towards losing money as a business can lose in so many more ways.

 

[Paul71]

There is a 'need' to scalp, no one on here has that need or is employed for that need. Gamma may be employed, but he is not needed to specialise in 'scalping', for a number of reasons.



Paul.

 

[firewalker99]

Then you won't have any problem telling me what timeframe this is
I removed time and scaling, because those are irrelevant. Just tell me if you think these reactions are random or not and if this looks like support becoming resistance or not (green circles).

Still no takers? I thought it would be fairly easy to determine what timeframe that chart was...

 

[Rossini]

Still no takers? I thought it would be fairly easy to determine what timeframe that chart was...

I would have said tick by tick??

 

[firewalker99]

I would have said tick by tick??

Does it look random to you?

 

[wasp]

its a perfectly obvious metatrader tick chart with a rare S/R level on it... pure coincidence. :cheesy:

 

[Pippy5000]

Buy and hold, day trades, scalping.. hmmm.. couldn't really tell you which one's more profitable. However, if you spend your life in front of a computer looking at the tick charts you have lost the game of life.. When your time comes not one second more will your money buy..

 

[wasp]

However, if you spend your life in front of a computer looking at the tick charts you have lost the game of life.. When your time comes not one second more will your money buy..

Its not the money. Never the money. Those who are in it for the money should look elsewhere. Its the challenge, the skill, a passion, a desire to conquer, understand and achieve. Trading is only partly about money.

Unless one is born with a silver spoon rammed up their ass then we all have to work. No one lies on their death beds looking back and saying 'wow, I'm glad I spent 40+ hours per week for an ungrateful boss and faceless MD/DEO accounting for them when they wouldn't know me if they bumped into me in the street'. There is no job I have to do to fulfill my hobbies but we all need an income.

I am more than happy to be trying to type drunkly on a trading forum whils tthe missus sleeps and its nearly midnight on a Friday between looking over the last weeks charts because I love my job, I love not having a boss for 5+ years now and working when I like and putting in the hours I like, however bizarre and antisocial they are at times. Yet, tomorrow, I could get on a plane and sod off for 2 months and still have job to come back too, or, cut back to one day a week if I wanted.

Most of all though, I am fullfilled that when I do get to my death bed, I can look back and say I achieved something through my own brain power, skill, hard work, sweat and tears, that 85% of those that tried, failed in.

Rant over... Carry on!

 

[counter_violent]

its a perfectly obvious metatrader tick chart with a rare S/R level on it... pure coincidence. :cheesy:

Not only that...must have taken hours to find it :cheesy:

 

[firewalker99]

Not only that...must have taken hours to find it :cheesy:

I save these charts of my entries on daily basis :whistling

 

[wasp]

You sad git FW!

A tick chart changes every 5 minutes and the data is gone... Thats a LOT of saving!

 

[firewalker99]

You sad git FW!

A tick chart changes every 5 minutes and the data is gone... Thats a LOT of saving!

Only two or three files per day, depending on how many trades I take...

No one said you need to monitor a small bar interval continuously. For example yesterday, I went long off support and stayed in for about 4 hours until we hit the opposite extreme.

Buy and hold, day trades, scalping.. hmmm.. couldn't really tell you which one's more profitable. However, if you spend your life in front of a computer looking at the tick charts you have lost the game of life.. When your time comes not one second more will your money buy..

There's no point in arguing with people who don't understand the difference between scalping and entering with minimal risk. But then again, I'm past the point of caring

Carry on...