Toss You for it

[Nildes]

We tend to use the example, when explaining how statistical and (inter-alia) TA techniques work, of coin tossing to demonstrate random sequences.

Interestingly, we may be using a false analogy. A researcher has demonstrated that coin tossing is not as random as has long ben assumed.

Take a look at:
http://www.npr.org/features/feature.php?wfId=1697475


Not of earth shattering importance but interesting, if only because so many statistical primers will have to be re-written

 

[chump]

I could live with this astounding revelation just so long as I know it is not my taxes paying for this earth shatteringly important research.

Cheers

 

[JonnyT]

Ah, I always let a coin fall to the ground...

JonnyT

 

[techst]

Yeah this coin toss thing is explained in detail in Against the Gods by Peter Bernstein. It's not a TA book but a book about the history of risk. Good for reading on about probability, if anyone wants to take their coin toss studies further!

 

[Nildes]

I think there's a strong argument to say that TA is the study of the "History of Risk"

 

[Sharky]

There's a java coss toin simulation available here:

http://www.agribiz.com/merchdiz/cointoss/cointoss.html

Try 10,000 coin tosses, it's amazing how many TA patterns you instinctively see.

 

[oatman]

Fibonnaci was the boy for fitting numbers into everyday life.
http://www.mcs.surrey.ac.uk/Personal/R.Knott/Fibonacci/fib.html

 

[chump]

Re a definition of TA I would go with ...TA is a psychological comfort blanket.....well it's Friday..announcements etc later means we are in for a wait so let's spice the day up by lobbing a few a bombs...LOL


Cheers

 

[Nildes]

Nice one Sharky.
I can confidently say that each simulation was a clear "buy" for me.
Such perfect IHS's and DB's.

 

[TheBramble]

Anyone tried plotting RSI or CCI against this...?

 

[Nildes]

I thought this:

Daily price change in an efficient commodity market is a random event. Each day theoretically starts out with a 50-50 probability that the price will be higher or lower.* Randomness does create unusual price trends. That does not imply that the price trends are predictable. Randomness means unpredictability. Any attempt to force order upon a random event will result in eventual failure.

From Sharky's link: http://www.agribiz.com/ngfa/CoinToss/cointossdist.html

to be a bit provocative.
Perhaps the terms: "efficient commodity market" and "Randomness" need to be elaborated more.

The last sentence is OK but misses the point that it is possible to seek and predict patterns (order) in apparently random sequences.

In their own cpin toss simulations, it's amazing how many times an IHS or DB is followed by a move north.
Obviously, you cannot impose (force) them but you can identify them where they occur.

 

[damianoakley]

Hi all

I have posted a number of previous comments on this board about the subject of Random Entry. Some people tend to think the concept has merit, others just laugh it off instantly as being rediculous.

When talking about Randomness, I always refer to the test performed by Van Tharp. He entered the market long or short based on a coin flip, used a 1% position size, and a trailing ATR exit. That was it. If stopped out, he would re-enter the market again based on a coin flip.

I think he did something like 10 sessions of 100 trades each.

The point is that he made a profit on 100% of the runs.

I understand that other tests have been done to show that most TA indicators predict the direction of the markets with results that are barely better than random (50%).

I think there is a comment made on another thread somewhere:

"If you owned a monkey that you could tell to either ENTER or EXIT trades for you, what would you prefer him to do?"

This makes a very valid point about the importance of exits, and indicates that entry is far less important, and yet it is entry that most people focus on because of the need to be right.

 

[DaveGos]

The way I look at it I can't control the market, whether it's a random walk in the park or totally structured it doesn't care what I do or think. So I concentrate all of my efforts on what I can control which are three targets: My entry, my stop and my profit, get these three consistently right and the market can do what it likes and you'll still make money.

 

[keano]

you said it Dave

 

[damianoakley]

DaveGos

I think this attitude is spot on - totally agree.

If as a trader you can develop a strategy where "the market can do what it likes and you still make money", then you'll be able to trade steadily and without emotion. You'll be armed with the knowledge that you'll make money in the long term if you just stick to the rules of your strategy.

 

[Nildes]

In practical terms, this represents a sensible approach.
However, the thread was really pointed at the underlying theory that many apply to the market.
Whilst the Dung-beetle approach "Where there's Buffalo, there's dung and that's my food & drink sorted" is a good practical basis for living, there is perhaps some longer term mileage in understanding where the Buffalo go and why. :cheesy:

 

[Thirteen]

do you enter trades at random

so are the markets random

random is a dumb explanation used by idiot traders who dont understand and cant handle uncertainty so they use this word to explain what they dont know

PS van tharp is a fool

 

[ibet]

Nildes

Don't wish to criticise your name but isn't the original expression : Softly, Softly, catchee monkey suggest more cunning than slowly slowly which suggests laziness ?

 

[damianoakley]

Hi Thirteen

I was just wondering why you think Van Tharp is a fool.

Could you expand?

 

[TheBramble]

Hi all

I have posted a number of previous comments on this board about the subject of Random Entry. Some people tend to think the concept has merit, others just laugh it off instantly as being rediculous.

I made a comment elsewhere about Welles J. Wilder pioneering just such a concept.

His rationale being that risk & money management makes your overall trading activity profitable - not the entry criteria per se .