The markets are Random

[Neoripley]

Are the markets structured or random? Is there really any point in market analysis (as we know it) or should someone try to formulate a strategy based on (mathematical) randomness?

I have a strategy based on randomness (fundamental and technical anomalies of the EMH) because I believe the markets are random. But it's a lot of hard work to maintain and to trade it. Works though, most the time.

Do you have a strategy based on market/tech analysis or based on randomness?

ps: By randomness I don't mean totally without structure for e.g. one could just as well assume a water-skier could form a 'moving average' of the boat pulling him. A chicken's tracks in a pen over a centre line drawn in the sand could have 'relative strength' in relation to the direction and proximity to the line. Etc, etc.

 

[Technically Fundamental]

Who agrees with that?

people who don't understand it and don't want to dedicate the years it takes to get a grasp

 

[Neoripley]

people who don't understand it and don't want to dedicate the years it takes to get a grasp

You replied while I was editing my post! I've changed it now and forgot what I'd said before Didn't realise the post could be viewed while still on the post page.

But if I remember, it was TA and your answer suggests that I can't be bothered to learn? Fair enough. You're wrong, but fair enough.

 

[Technically Fundamental]

Do you think inter market forex is random? I think a more appropriate question (which I was about to post up on a new thread lol) would be how far can supply/demand and buying/selling force the price to deviate away from the fundamental value before things start getting ugly. Problem is there are manymanymanymanymany variables to consider before you could get anything better than an estimate of a fundamental price and I'm sure they would vary from person to person.

edit: Something just occurred to me. Most of the size comes from institutions and they use Fin Maths and as the market is basically just what people are willing to pay then Fin Maths should basically give you an idea of who wants what where. You just need to work out the when.

 

[Neoripley]

Do you think inter market forex is random? I think a more appropriate question (which I was about to post up on a new thread lol) would be how far can supply/demand and buying/selling force the price to deviate away from the fundamental value before things start getting ugly. problem is there are manymanymanymanymany variables to consider before you could get anything better than an estimate of a fundamental price and I'm sure they would vary from person to person.

That sounds kind of 'random' to me

How many traders/market makers didn't make it into work today (swine flu, car broke down), how many rumours were spread, how many market orders were placed then cancelled/adjusted, how many mistakes were made, how many market corrections were there, how many orders were executed at the right levels, how many SEC filings were inaccurate, how many judgements were wrong, how many earnings announcements disappointed, etc, etc?

 

[Rhody Trader]

Are the markets structured or random? Is there really any point in market analysis (as we know it) or should someone try to formulate a strategy based on (mathematical) randomness?

Those who espouce the Random Walk type of view of the markets would tell you that the markets are structured but that unpredictable external influences (news items, basically) introduce randomness making the markets essentially unpredictable.

That said, academic research has been coming out suggesting that both low valuation plays and momentum plays can actually beat the market, so market analysis does in fact seem to have value after all. :smart:

 

[Rhody Trader]

I think a more appropriate question (which I was about to post up on a new thread lol) would be how far can supply/demand and buying/selling force the price to deviate away from the fundamental value before things start getting ugly.

Ummmm....Isn't supply/demand more or less the same thing as fundamental value, especially in the forex market?

 

[Technically Fundamental]

i was just using cross market forex valuations as an example of structure to the market.

The rest was just general spiel and I was thinking of other markets particularly equities. I personally dont see why supply/demand is the same as fundamental. If a stock is trading at £10 then the company reports a loss then the price drops in relation to performance but that wouldn't necessarily mean that it couldn't fall to a level at which the shares would be undervalued

 

[Neoripley]

Those who espouce the Random Walk type of view of the markets would tell you that the markets are structured but that unpredictable external influences (news items, basically) introduce randomness making the markets essentially unpredictable.

That said, academic research has been coming out suggesting that both low valuation plays and momentum plays can actually beat the market, so market analysis does in fact seem to have value after all. :smart:

What you just mentioned are in fact EMH anomalies - there's a website that covers this in some detail. You can Google it but you probably know it already. My interest is more in what gives the markets structure - and I don't think it's mainstream market analysis.

 

[Technically Fundamental]

unpredictable?

If a the news came on right now and said Ahmedinejad has decided the pipes cant flow through his gaff any more you telling me you wouldn't know what to do?

I think the only reason that the market 'seems' random is that you can't always know what some other guy is doing. There's always some clever 8astard around the corner. If you knew how the major players thought, how they are likely to react in a given situation and then make your assumptions on that information rather than just a on the trend line itself...

 

[Rhody Trader]

I personally dont see why supply/demand is the same as fundamental. If a stock is trading at £10 then the company reports a loss then the price drops in relation to performance but that wouldn't necessarily mean that it couldn't fall to a level at which the shares would be undervalued

Agreed, things are different in stocks, but supply/demand basically the bottom line basis for most other markets.

 

[Rhody Trader]

My interest is more in what gives the markets structure - and I don't think it's mainstream market analysis.

Define what you mean when you say "market structure".

 

[Neoripley]

What you just mentioned are in fact EMH anomalies - there's a website that covers this in some detail. You can Google it but you probably know it already. My interest is more in what gives the markets structure - and I don't think it's mainstream market analysis.

OMG - just followed up on something TF mentioned re Fin Maths. Found this thing called Stochastic calculus. Is this how the b*stards (MMs) choose their levels and manipulate the price?

 

[Technically Fundamental]

:arrowd:

 

[Neoripley]

Define what you mean when you say "market structure".

Support/resistance or rather market reversals where the market makers/institutions step in, price limits, relative highs/lows, etc. I know the market moves mainly because of the MMs and institutional traders pushing the price up and down for profit, but what I'd like to know is how to figure out the levels they're aiming for, what they decide is the limit for the session, etc, etc. That's why I say it's random as far as normal market analysis goes but perhaps not entirely mathematically random. After all, MMs can't send the price sky high or rock bottom with no control (brakes)/management. The price, although random, seems to operate within limit or under certain amount of 'control'. Like an unbridled horse in a meadow - it's free to move, up to a point.

 

[Skill Leverage]

Random Walk is for idiots. I will show you a dozen traders whose profitability over years is many, many standard deviations away from what should be achievable under random conditions. Is there no-one else out there who trades purely on feel, and doesn't give a soft c0ck about systems, stops or signals...?

 

[Technically Fundamental]

Random Walk is for idiots. I will show you a dozen traders whose profitability over years is many, many standard deviations away from what should be achievable under random conditions. Is there no-one else out there who trades purely on feel, and doesn't give a soft c0ck about systems, stops or signals...?

I made thousand on my demo account when doing that. Difference is you have ridiculous capital and you can trade without stops and wait out the volatility

 

[Neoripley]

:arrowd:

Yeah! The 'unseen' power/danger!

 

[Technically Fundamental]

What I actually meant was that stochastic is the tip of the iceberg in Fin Maths

 

[Neoripley]

unpredictable?

If a the news came on right now and said Ahmedinejad has decided the pipes cant flow through his gaff any more you telling me you wouldn't know what to do?

I think the only reason that the market 'seems' random is that you can't always know what some other guy is doing. There's always some clever 8astard around the corner. If you knew how the major players thought, how they are likely to react in a given situation and then make your assumptions on that information rather than just a on the trend line itself...

Yeah and if the institutions and MMs didn't want that stock (oil, whatever) to tank they'd buy it like crazy and your short would be screaming sky high. Then once you'd closed out (at a loss) they'd drop the stock like a sack of sh**.