I want to believe that it is not random, but this argues against me

[kateeus]

Below you see two graphs. First EURUSD weekly about two decades data. The second graph is done by me with excels random function. It consists of about 5000 points of data. IMHO you can see nice trendline/support/resistance bounces and breaks, double tops, bottoms hs, psych number action etc... I didn't bother to add any indicators there, but the results would probably not have been too surprising. Also surprise, surprise you can see clear up and down trends in both of the graphs. Even though the latter one is done basically by coin-flips.

EURUSD:

Random:

I really would love to believe that markets are not completely random, but this really strongly suggests the opposite. This comes to the point that entry matters not one bit because in the end the probability is always 50/50 or actually a little worse thanks to the spread/commission on a 1/1 R trade. ATM what I am really starting to believe is that all the TA/FA is utterly useless and in the end this business is really comparable to gambling, odds vice.

I argue that in the end all TA/FA is just trying to predict a chance which of course is not possible and will not end nicely in the long run. For example if you enter a trade with 50 pip stop and target, odds are slightly against you thanks to broker expenses. If trade goes your way 50 pips and you move your stop to BE now it is little more likely to close at BE. I can see no way that profits could be consistently generated with these odds. I've had my runs and ruins and now I see that the runs might just well have been because I had luck.

I'm really interested in hearing how people manage their trades and can they justify that there is a larger probability for positive outcome A to happen over negative outcome B on their trade management. In the long run I simply can't see it is possible to be turning in a profit thanks to the randomness of the markets. In my darkest thoughts I actually think that this whole financial crisis we are currently in was caused just a by a chance. Perhaps I'm just crazy, but if not... I just read Van Tharps TYWTFF praised by many. And in the end was disappointed as it really didn't offer anything new and surprising as I had expected. Areas of R multiples, expectancies, entries, trade managements were discussed in it, but in the end none of them IMHO can beat the randomness found in the markets because in the end it boils down to the point that no matter when you enter the market you always have the odds slightly against you on a 1/1 R trade.

Please prove wrong about the points I've made and justify if you see it fit why the markets are not random no matter what the timeframe. Oh and about timeframes. When you look at a 1min TF and then 1M TF what differences can you see on them? I'm asking this because I mostly see people praising their superiority. To be honest I see no differences in them, but I might be blind

I'm looking forward to have civilized, intelligent and knowledgeable comments from experienced people. Please don't come flaming here and accusing me of heresy. I'm not bitter or angry or anything like that: I just would like to discuss this subject that is not IMHO discussed all that much.

Thanks all.

 

[mrsoul]

Below you see two graphs. First EURUSD weekly about two decades data. The second graph is done by me with excels random function. It consists of about 5000 points of data. IMHO you can see nice trendline/support/resistance bounces and breaks, double tops, bottoms hs, psych number action etc... I didn't bother to add any indicators there, but the results would probably not have been too surprising. Also surprise, surprise you can see clear up and down trends in both of the graphs. Even though the latter one is done basically by coin-flips.

EURUSD:

Random:

I really would love to believe that markets are not completely random, but this really strongly suggests the opposite. This comes to the point that entry matters not one bit because in the end the probability is always 50/50 or actually a little worse thanks to the spread/commission on a 1/1 R trade. ATM what I am really starting to believe is that all the TA/FA is utterly useless and in the end this business is really comparable to gambling, odds vice.

I argue that in the end all TA/FA is just trying to predict a chance which of course is not possible and will not end nicely in the long run. For example if you enter a trade with 50 pip stop and target, odds are slightly against you thanks to broker expenses. If trade goes your way 50 pips and you move your stop to BE now it is little more likely to close at BE. I can see no way that profits could be consistently generated with these odds. I've had my runs and ruins and now I see that the runs might just well have been because I had luck.

I'm really interested in hearing how people manage their trades and can they justify that there is a larger probability for positive outcome A to happen over negative outcome B on their trade management. In the long run I simply can't see it is possible to be turning in a profit thanks to the randomness of the markets. In my darkest thoughts I actually think that this whole financial crisis we are currently in was caused just a by a chance. Perhaps I'm just crazy, but if not... I just read Van Tharps TYWTFF praised by many. And in the end was disappointed as it really didn't offer anything new and surprising as I had expected. Areas of R multiples, expectancies, entries, trade managements were discussed in it, but in the end none of them IMHO can beat the randomness found in the markets because in the end it boils down to the point that no matter when you enter the market you always have the odds slightly against you on a 1/1 R trade.

Please prove wrong about the points I've made and justify if you see it fit why the markets are not random no matter what the timeframe. Oh and about timeframes. When you look at a 1min TF and then 1M TF what differences can you see on them? I'm asking this because I mostly see people praising their superiority. To be honest I see no differences in them, but I might be blind

I'm looking forward to have civilized, intelligent and knowledgeable comments from experienced people. Please don't come flaming here and accusing me of heresy. I'm not bitter or angry or anything like that: I just would like to discuss this subject that is not IMHO discussed all that much.

Thanks all.

Kateeus,

I have been on this forum for about 7 months and your post is the most intelligent post that I have read.

Based on what I know about the markets, and I am in no way claiming to know it all, most set-ups (entry points ) are about 50/50- which is why nearly everyone loses in the market.

Clearly, you can't make money flipping coins.

The only way, or the only way that I know, to make money in the markets- in the LONG RUN- is to find set-ups that have a better than 50% chance of being profitable (in the long run).

These set-ups are out there but they are VERY DIFFICULT to find.
You can, literally, spend your entire life looking for them without success.

In short, the only way that I know how to be profitable, in the long run, is to find set-ups that have a greater than 50% chance of being profitable in the long run.

I hope that helps.

 

[zupcon]

Clearly, you can't make money flipping coins.

a) Yes you can make money flipping coins, and I do it day in day out
b) Try sticking a hurst exponent on both time series
c) compare the normal distribution of your random data with the kurtosis seen in real markets

Random series based on excel are nothing like a financial market, I've spent years developing strategies based on random timeseries, and comparing the results against real markets, and its definately time well spent.

 

[glyder]

Hi Kateeus
The thing is the Random series of figures from excel does not display a psychology of participants that can be understood/read to gain an edge, but the market 'randomness' does because there are participants and they make decisions because they have a purpose. Or so it seems to me anyway, and that understanding, so far as it is not an illusion I labour under, gives me a greater than 50% chance of being correct in a trade.
I get your point about moving to b/e , I don't use that strategy despite being told I should by far better & more experienced traders.

 

[Mr10%]

Most stupid post I have ever read.

For one EURO has not been around for 2 decades.

 

[trader_dante]

in the end it boils down to the point that no matter when you enter the market you always have the odds slightly against you on a 1/1 R trade.

I don't agree with this at all since I have seen too many consistent traders (some of them unnaturally so) to believe the markets are random.

But in reference to one of your points, it's very simple. Don't take 1:1 trades then.

 

[Weighbridge]

It's certainly true that humans tend to see patterns within randomness - the phenomenon is called apophenia.

However, that does not mean that every pattern must be random. A live chart most likely contains a mix of information and noise.

 

[Black Swan]

Who defines "random"? You have buyers and sellers exerting forces, unequal forces, thereby creating a market. Over a selected time series a marginal pattern, bouncing around a matrix of sorts, is bound to emerge...
Not sure where you're headed with this (other than to be sectioned) Sorry, just had a 'Virtuoso moment' there...but what are you suggesting, currency markets are rigged? Muhahahaha...no chance.

 

[barjon]

mmm, well you can use your random numbers to generate a binary series that will look like computer code - but it won't be.

jon

 

[kateeus]

Hi,

Thank you guys for taking your time reading my rants I appreciate it. Zupcon, your suggestions very particularly interesting. Based on your reply you have extensive ammount of knowledge about this subject. I did do some research on Hurst exponent and also some comparison between Normal distribution and Kurtosis. I see these are far from the KISS, but probably of use if understood correctly.

I just got out some numbers. These are just numbers and I'm not yet able to interpret this in any useful way, but I'll just share them if someone has something to comment on them. These numbers might be far off as statistics and probabilities have never been my strongest areas

I generated a new random series and compared it to the two decades of eurusd weekly closing prices. And here are some results. Again, I might have made mistakes so be skeptical with these few numbers.

Normal Distribution:

EURUSD: 0,357697546
Random: 0,480250521

Kurtosis:

EURUSD: -0,18567
Random: 0,449304148

I can see that the Kurtosis is higher in the random series. I think this should suggest that more of the variance is due to infrequent extreme deviations. I interpret this as and actual proof that the real market series actually seems less random now. I shall try to do some more study on this and hopefully come up with some more numbers that would tell that there is a difference between random and market moves.

 

[Weighbridge]

I think when people describe a period of market action as random, they actually mean chaotic. Surely no one believes there are traders flipping coins?

There's a motive behind most trades. It's just that from the outside looking in we can hope to guess the motive behind some (e.g. reaction to a s/r level) but not others (e.g. someone selling shares to buy a house).

 

[kateeus]

HA!

That is very well put Barjon. I wonder how would random walkers respond to that

 

[Mr10%]

Well computer code is programmed by someone. You can never actually get 100% with computer random series for this reason.

 

[tenbobtrader]

good thread idea

first thoughts that spring to mind ~

Momentum

Price change velocity

Perceived value of instrument

Outside events that effect the position of one side or the other

Fear

Greed

really cannot see that looking into the hard right edge .......... its 50/50 every time offering no edge to either side

Andy

 

[Paul71]

How come markets are ahead of the economy, market tanks, few months later recession? Random zero sum recessions? Someone out there knows something, and they are not letting on.

 

[Splitlink]

I think that you should get your facts right, as Mr10% suggests. You can't say that you have been studying two decades of data when the Euro did not come in until 2000.

I'm not sure that markets are, entirely, random. I believe that they gain momentum by traders getting in on the bandwaggon. There will come a time when the run exhausts itself. There is some randomness, I suppose, and a trend can last an unspecified amount of time but, while the momentum is strong, there is not much random about it.

 

[virtuos0]

The market isn't random, it's just incredibly hard to peel away the chaos to reveal the order.

 

[Mr10%]

I'm sure if you looked at individual stocks, instead of fx, your fundamental reasons for randomness might unfold somewhat.

 

[TWI]

correct money management can probably provide an edge when applied to random data series and is significant in trending markets.

 

[Paul71]

Do markets cause recessions/depressions, or do markets know that recessions/depressions are on the way? Or both?