What Happens Next

[Splitlink]

Hi guys - back from golf early (rained out halfway)

I was not intending to say that markets are random - you can't say that because a randomly generated chart looks like a market chart, therefore the market must be random.

The point was that TA patterns are not necessarily indicative of market progression since those same patterns can occur in randomly generated movement. It follows that TA should be seen in that context and not as the be all and end all. In my view it mere serves to point up places where you are prepared to make an assumption about future direction. It's what happens next that counts (limiting loss, taking adequate profit, finding momentum etc) and not the TA.

Jon, when I say a market is random I, sometimes. ask myself whether what I said is true. I believe that it is, as far as we, the small fry, are concerned. We do not have a clue as to what large blocks of money are going to do. The owners of all that money will be the deciders. We try to make a crust on the backs of their decisions. Our decisions are what are random about the markets.

 

[Liquid validity]

I get you.

In calling them outright BS, I meant in terms of the frequency seen by the matching engine vs those dispatched to clients by api.lmaxtrader.com - now I have such a low latency solution I can still see a big difference, the engine must see twice as many than their system can cope with, which is an issue with acceleration methods that I have raised with them. You basically have to collect your own 2 years of ticks with whatever relevant connection you're using in order to have a pertinent tick sample - yikes.

Agree, mostly still down to CPU / bandwidth I spose, no matter how much it
increases, the capacity still gets filled.
Its probably demand based, or just a case of what they can get away with.

The other end of the spectrum is the spreadbet tick level smoothing
I mentioned elsewhere - same reasons CPU but mostly bandwidth.
In fact I think off the top of my head, the IB feed does something along
those lines - tick filtering, can't remember the specifics or where I saw it (pretty sure they mention it on their site in the fineprint somewhere).

 

[random12345]

Agree, mostly still down to CPU / bandwidth I spose, no matter how much it
increases, the capacity still gets filled.
Its probably demand based, or just a case of what they can get away with.

The other end of the spectrum is the spreadbet tick level smoothing
I mentioned elsewhere - same reasons CPU but mostly bandwidth.
In fact I think off the top of my head, the IB feed does something along
those lines - tick filtering, can't remember the specifics or where I saw it (pretty sure they mention it on their site in the fineprint somewhere).

Yeah IB provide a snapshot of their ticks every 20ms or so if I remember correctly, instead of a true tick feed - I think this might actually work better with acceleration/momentum in terms of entries because you should actually see consistent broker ticks, albeit delayed. Would be no good for HFT types.

Yeah SB ticks can be farcical - you only need to compare them to the true prorealtime feed they piggyback the technology off.

 

[new_trader]

Jon, when I say a market is random I, sometimes. ask myself whether what I said is true. I believe that it is, as far as we, the small fry, are concerned. We do not have a clue as to what large blocks of money are going to do. The owners of all that money will be the deciders. We try to make a crust on the backs of their decisions. Our decisions are what are random about the markets.

I wouldn't be able to trade if the markets were random. In fact I would have given up a long time ago if there was no rhyme or reason for the movements. Of course I can't speak for you and what you believe, but I can't figure out how you make money taking stabs in the dark.

 

[Liquid validity]

Is the OP suggesting his random chart is a true representation of the markets?



If ones view of the markets are not random then is it not then possible that it can be known, if it is not known, then surely not random cannot be applied? It would only be an assumption?
Thoughts?

By not random, I mean you can have a good idea of when and where price will go (at certain times).
Quite often how fast it will get there as well.
With speed comes volatility, which is less predictable than when and where.
Clarification on this point (I didn't initially word it very well):
http://www.trade2win.com/boards/technical-analysis/180828-what-happens-next-7.html#post2219022

Basically you can have a very good idea of where price might go and what you will
do in those circumstances, that is in no way a dead cert though.

As an example, go to the main page of this forum - tell me exactly when
the next post will occur, how big it will be and who will post it.

Another way of saying it - there is a certainty that someone will post within
the next 10 mins (if no one else does I will ).
That post may well trigger further posts.
That is probability versus exact prediction.

Same thing in a market

 

[counter_violent]

never confuse volatility with velocity...they are quite different and should be filtered properly

 

[Liquid validity]

never confuse volatility with velocity...they are quite different and should be filtered properly

Agree, they aren't the same, but often travel together, in varying degrees

 

[counter_violent]

Agree, they aren't the same, but often travel together, in varying degrees

no sorry
volatility is 2 directional and velocity is 1 direction.
This is very important when discerning real from noise.

 

[Shakone]

Hi guys - back from golf early (rained out halfway)

I was not intending to say that markets are random - you can't say that because a randomly generated chart looks like a market chart, therefore the market must be random.

The point was that TA patterns are not necessarily indicative of market progression since those same patterns can occur in randomly generated movement. It follows that TA should be seen in that context and not as the be all and end all. In my view it mere serves to point up places where you are prepared to make an assumption about future direction. It's what happens next that counts (limiting loss, taking adequate profit, finding momentum etc) and not the TA.

With the TA predictive (indicative) argument, I often read from many people that you don't need to be able to predict, it's how you manage the trade. I understand what they mean, because you can't know how the trade will go, it may go 10 pips, it may go 100. You shouldn't limit profits arbitrarily as LV pointed out earlier, and management is key. But the management of the trade is just another form of prediction. You take the trade, it's not working out after so many minutes or hours, so you exit, or you move stops or whatever. You've exited, perhaps, not because you knew with certainty what would happen, but because it wasn't doing what you expected or wanted, and you've predicted the probabilities are not in your favour any more. But this is just prediction - based on TA - of likelihood, rather than a precise outcome.

So if TA is not predictive, then the dilemma becomes, how is it that it can suddenly become predictive when in a trade, but not before? How can it be, that "It's what happens next that counts (limiting loss, taking adequate profit, finding momentum etc", when these are just decisions, each of which can clearly be (and usually is) based on price movement (TA)?

 

[Liquid validity]

no sorry
volatility is 2 directional and velocity is 1 direction.
This is very important when discerning real from noise.

Yes true, travel together was not a good choice of words,
that implies same direction.

A tendency for both to be increased and present at the same time
is probably a better choice of words.

No worries, its a very good point, which needed to be made
as my terminology made it unclear and potentially misleading.
Quite right to pull me up over that one

 

[Splitlink]

I wouldn't be able to trade if the markets were random. In fact I would have given up a long time ago if there was no rhyme or reason for the movements. Of course I can't speak for you and what you believe, but I can't figure out how you make money taking stabs in the dark.

Ok.

Knowing the way your arguments go, eventually, I choose to leave it at that.

 

[Liquid validity]

Yes true, travel together was not a good choice of words,
that implies same direction.

A tendency for both to be increased and present at the same time
is probably a better choice of words.

No worries, its a very good point, which needed to be made
as my terminology made it unclear and potentially misleading.
Quite right to pull me up over that one

Actually, this post raises another important point.
One I don't mind making either, especially as I'm highlighting the fact that
I was wrong.

My initial post was worded badly.
In that situation I have 2 choices:
1. Accept I am wrong, and correct it.
2. Argue semantics for 20 pages to avoid admitting I am wrong

The same equally applies in trading.
There is absolutely nothing wrong with admitting you are wrong.
Its actually essential that you do so, as soon as you realise you are wrong.
Close the trade.

 

[counter_violent]

Actually, this post raises another important point.
One I don't mind making either, especially as I'm highlighting the fact that
I was wrong.

My initial post was worded badly.
In that situation I have 2 choices:
1. Accept I am wrong, and correct it.
2. Argue semantics for 20 pages to avoid admitting I am wrong

The same equally applies in trading.
There is absolutely nothing wrong with admitting you are wrong.
Its actually essential that you do so, as soon as you realise you are wrong.
Close the trade.

I beg to differ

Could be in a trade in a period of volatility and it isn't necessarily a wrong-un.
However, if your in that trade and velocity shows up...well, that's another story

 

[Shakone]

Actually, this post raises another important point.
One I don't mind making either, especially as I'm highlighting the fact that
I was wrong.

My initial post was worded badly.
In that situation I have 2 choices:
1. Accept I am wrong, and correct it.
2. Argue semantics for 20 pages to avoid admitting I am wrong

The same equally applies in trading.
There is absolutely nothing wrong with admitting you are wrong.
Its actually essential that you do so, as soon as you realise you are wrong.
Close the trade.

You should have stayed in and argued for 20 pages. Weak hand forced to cough up his position

 

[Shakone]

no sorry
volatility is 2 directional and velocity is 1 direction.
This is very important when discerning real from noise.

I disagree. Volatility has a magnitude which can go up or down (2 directions if you wish). Velocity has a magnitude that can go up or down and a direction too.








(Sorry, Friday afternoon boredom before it's pub time)

 

[Liquid validity]

I beg to differ

Could be in a trade in a period of volatility and it isn't necessarily a wrong-un.
However, if your in that trade and velocity shows up...well, that's another story

Ripping me a new one today
Yes volatility can be present by itself.

The point I was making (extremely badly by the looks of it),
was that a fast downwards move can be very volatile.
Not always by any means, they aren't tied to each other in the way I have apparently made it look.

All I'm trying to get across is that for someone who isn't used to it,
trading NFP, FOMC, ECB min bid rate and so on, needs to be careful of volatility.
For those reasons they are best avoided altogether if someone isn't aware of that.

Yes its not the case that volatility is always harsh.
Surely I can't be the only one who has ever judged the direction right,
but had a stop knocked out by a volatile spike?

Velocity and volatility don't have any sort of strict connection.
All I am saying is they are often present at the same time, but not always.

This is starting to drift off into vector modelling, I was trying to keep it simple.
Not that I know anything about vector modelling anyway.

 

[wackypete2]

I got in a couple of good short scalps while price stalled at 220.

Peter

 

[barjon]

With the TA predictive (indicative) argument, I often read from many people that you don't need to be able to predict, it's how you manage the trade. I understand what they mean, because you can't know how the trade will go, it may go 10 pips, it may go 100. You shouldn't limit profits arbitrarily as LV pointed out earlier, and management is key. But the management of the trade is just another form of prediction. You take the trade, it's not working out after so many minutes or hours, so you exit, or you move stops or whatever. You've exited, perhaps, not because you knew with certainty what would happen, but because it wasn't doing what you expected or wanted, and you've predicted the probabilities are not in your favour any more. But this is just prediction - based on TA - of likelihood, rather than a precise outcome.

So if TA is not predictive, then the dilemma becomes, how is it that it can suddenly become predictive when in a trade, but not before? How can it be, that "It's what happens next that counts (limiting loss, taking adequate profit, finding momentum etc", when these are just decisions, each of which can clearly be (and usually is) based on price movement (TA)?

Lot of sense in that, Shaky, but there's not much predictive in saying "I'll risk £100 and take £200 if it comes (I disagree about limiting profits in this way btw)" nor if you climb on momentum and go when it's gone, albeit that their might be a bit of prediction in that depending how you judge it. True, if you manage trades by deciding when it looks like enough is enough then it has a predictive element, although not necessarily one related directly to TA.

 

[Liquid validity]

Lot of sense in that, Shaky, but there's not much predictive in saying "I'll risk £100 and take £200 if it comes (I disagree about limiting profits in this way btw)

It nearly almost always does limit profit, at least I've found that to be the case.
I've looked into average MFE then putting targets around that level ( and pretty much every other level).
Result is always the same, strike rate rises, profitability lowers.
Thats not too say my finding are conclusive by any means, thats just been
my experience of targets.

One point that does overlook though is how it affects your ability to trade
it in a confident way.

At the end of the day, there is empirical efficiency and practical efficiency.
If something is more efficient on an empirical basis, its no use if you
can't handle the drawdown or periods of treading water.

So in that sense, if targets give you more confidence than anything else,
then they are better, as they suit you.

 

[barjon]

.........It nearly almost always does limit profit, at least I've found that to be the case............
.

Maybe, but I don't care I know what I need from a trade to keep my account ticking along nicely and I take it unless there's a damn good reason why not.