Random or Competition?

L

Liquid validity

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Nothing is pure I agree.

What I am getting at is the traders perspective. Many people see themselves as one thing and the other participants as something else.

People are playing the same game. Game theory helps you to understand what is going on - how you are trying to guess what guessers are about to do. Nothing more.

I haven't seen a way to apply game theory to the markets personally, other than it helps you to stop over-thinking things

Game Theory with Ben Polak - YouTube

Yes I agree :)
 
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kimo'sabby

Experienced member
1,622 287
SCRIBBLE.jpg

Here's one view of the market, as you can see, it incorporates three ideologies - AMT, Game Theory (competition) and Random Walk.

The diagram(scribble) above illustrates a common daily scenario on the ES.

So what's happening?

The market bottoms out at 50, and trades through to 55. You should notice that once the market begins to trade up from 51, the lower whole price is not traded again (i've over-exaggerated/simplified the price action of this). 52 is traded at last, 51 is not traded again, and the market moves onto 53, and so on. This is what i would call the, The Auction Game. Note: The price action does not necessarily mirror or represent the detail of order flow.

The Competition: The competition will depend on the strength of the whole market, or the initiator, if there should only be one major concern involved. For example, light volume is an easy target for a larger participant(s) within any game scenario.

Random Walk: I understand that as soon as i post on the bid or ask, everything could, and does change. I believe the market can only be viewed through actual trading results, and not through backtesting or hindsight.

Very basic and crude, but nevertheless, an explanation of sorts.
 

Triggerfish

Active member
229 14
kimo'sabby said:
The market bottoms out at 50, and trades through to 55. You should notice that once the market begins to trade up from 51, the lower whole price is not traded again (i've over-exaggerated/simplified the price action of this). 52 is traded at last, 51 is not traded again, and the market moves onto 53, and so on. This is what i would call the, The Auction Game. Note: The price action does not necessarily mirror or represent the detail of order flow.

The Competition: The competition will depend on the strength of the whole market, or the initiator, if there should only be one major concern involved. For example, light volume is an easy target for a larger participant(s) within any game scenario.

Random Walk: I understand that as soon as i post on the bid or ask, everything could, and does change. I believe the market can only be viewed through actual trading results, and not through backtesting or hindsight.

It is interesting why you call it "The auction game" under the price move from 50 to 55/beyond, why would this definition of the term be applied to this move alone and not that of other times, in fact, at all times when the market is opened. After all, it is price alone that is being traded in any given time.
Under you OP, you mentioned cause/effect.....can we relate what this move is?.....is this a cause.....or an effect?.....and why?.....and how does "Random" relate to this cause/effect?.....if one can see?.....can they both exist at the same time?

On Competition, strength alone cannot exist by itself as it depends on something else.....so where does "strength" come from?.....you also highlighted the word "initiator" which is of great importance but without understanding to most, it is just a fancy word.....so what has the word "initiator" got to do with the "strength".....more importantly why? and how?

On Random walk, understanding is what one has not when starting yet they force a system to fit what has happened before through back-testing and formulate a trading plan.....how can a deluded self create a winning system/method when one is deluded especially when one does not know oneself is blind?
 

DionysusToast

Legendary member
5,963 1,501
Under you OP, you mentioned cause/effect.....can we relate what this move is?.....is this a cause.....or an effect?.....and why?

:clap::clap::clap::clap::clap::clap::clap::clap::clap::clap:

Many people spend years looking at effect hoping to find cause.

Fact is - you can analyze the markets all you like. They can only go up or down. It's 50/50 - up,down - toss a coin.

Trouble is - lots of little fish don't understand the difference between "UP" and "STRAIGHT UP". It'll go up - 50% chance. It'll go STRAIGHT up - that ain't 50%.

You gotta have the [email protected] to place a bet, to cut if you are wrong and to give it enough room to work out. If you keep betting it'll move vertically from where you are, you will end up with close to a 100% loss rate.
 

kimo'sabby

Experienced member
1,622 287
On Random walk, understanding is what one has not when starting yet they force a system to fit what has happened before through back-testing and formulate a trading plan.....how can a deluded self create a winning system/method when one is deluded especially when one does not know oneself is blind?


As a retailer, starting out on your own, you have nothing. So how do you create something, from nothing?

Experience? Results are the experience, and if you can't make money from one experience, how does this relate to the next experience, in a random market?
 

DionysusToast

Legendary member
5,963 1,501
It'll go STRAIGHT up - that ain't 50%.


What is it then?


That very much depends on how close to "Straight up" you place your bet and the volatility of the instrument. Also of course on where your target is.

In the extreme, if you placed a long trade on say the DAX with a 1 tick stop loss and a tiny little 10 tick target, you'd get taken out most of the time.

On the one hand, you have the theoretical 90% loss rate but break even P&L that such a stop & target would yield. On the other hand the volatility would probably see you hit more that 90% of the time.

Add into that mix a little bit of hope and you would most certainly be looking at 100% losers.
 
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L

Liquid validity

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On Random walk, understanding is what one has not when starting yet they force a system to fit what has happened before through back-testing and formulate a trading plan.....how can a deluded self create a winning system/method when one is deluded especially when one does not know oneself is blind?
Yes that is curve fitting.
Curve fitting and back testing are not the same thing.
Curve fitting is a blind arbitrary choice of parameter values (usually too many)
to give the desired result.
Basically its the abuse of backtesting.

Backtesting is purely an historical simulated execution test, nothing more.
Nothing replaces forwards testing.
The battle between optimization and curve-fitting
 

Triggerfish

Active member
229 14
As a retailer, starting out on your own, you have nothing. So how do you create something, from nothing?

Experience? Results are the experience, and if you can't make money from one experience, how does this relate to the next experience, in a random market?
There is nothing to create.
Experience will provide results but results are not usually what one is looking for.....this is nothing more than a progress that leads to something. If one experience is not ideal, the next experience (with the same cause) will not create a different effect.....so we are going round and round and round. I wonder if there is a purpose behind experience and what exactly is it that we are looking for?....what is this "something?"
 

kimo'sabby

Experienced member
1,622 287
That very much depends on how close to "Straight up" you place your bet and the volatility of the instrument. Also of course on where your target is.

In the extreme, if you placed a long trade on say the DAX with a 1 tick stop loss and a tiny little 10 tick target, you'd get taken out most of the time.

On the one hand, you have the theoretical 90% loss rate but break even P&L that such a stop & target would yield. On the other hand the volatility would probably see you hit more that 90% of the time.

Add into that mix a little bit of hope and you would most certainly be looking at 100% losers.


Ok. Firstly, i asked you for a percentage outcome, rather than 50%, you answered with your own theoretical answer. You decided not to give a direct and absolute answer, instead you created an answer to suit your own particular view on one very random and unique set of circumstances. Do you think that your own theory would be applicable to all traders in every scenario?

Theoretical = monotonous:)
 

kimo'sabby

Experienced member
1,622 287
There is nothing to create.
Experience will provide results but results are not usually what one is looking for.....this is nothing more than a progress that leads to something. If one experience is not ideal, the next experience (with the same cause) will not create a different effect.....so we are going round and round and round. I wonder if there is a purpose behind experience and what exactly is it that we are looking for?....what is this "something?"


It is said that most fail. If this should be true, i would hazard a guess that the reason for this is due to the fact that most people are terrible at gambling, and not because of any random element.

The, 'something', that is searched for, is not actually the, 'something', that is required.
 

Triggerfish

Active member
229 14
kimo'sabby said:
As a retailer, starting out on your own, you have nothing. So how do you create something, from nothing?
The, 'something', that is searched for, is not actually the, 'something', that is required.
? Can you re-question?
kimo'sabby said:
It is said that most fail. If this should be true, i would hazard a guess that the reason for this is due to the fact that most people are terrible at gambling, and not because of any random element.
I don't think any reasonable person should doubt that most will fail.....to most, gambling is simply gambling since the outcome cannot be known in advance, like randomness.....but if someone can make it in gambling, then is it still a gamble? or non-random?
 

DionysusToast

Legendary member
5,963 1,501
Ok. Firstly, i asked you for a percentage outcome, rather than 50%, you answered with your own theoretical answer. You decided not to give a direct and absolute answer, instead you created an answer to suit your own particular view on one very random and unique set of circumstances. Do you think that your own theory would be applicable to all traders in every scenario?

Theoretical = monotonous:)

Well my apologies for backing up why your failure rate will be close to 100% if you place trades on the basis the market will go straight up as opposed to just up.

Trading is not pure math. So there will inevitably be human elements that sway the results of trading without allowing for normal volatility.

You seem to be looking for absolutes, trading isn't about absolutes. You full well know this or did you let a noob hack your account :p
 

D70

Established member
839 195
It is said that most fail. If this should be true, i would hazard a guess that the reason for this is due to the fact that most people are terrible at gambling, and not because of any random element.

The, 'something', that is searched for, is not actually the, 'something', that is required.

Do you believe that trading is like blackjack? That there is no edge for the average guy that sits down at the table? But for the card counter knowledgeable in bet size, he can win against the house? This is the essence of trading isnt it? Bet size and card counting (some people call card counting an "edge", others just call it probability).
 
 
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