What Happens Next

[Triggerfish]

As for permanent edge, correct, I just don't see how its possible.

Maybe one should remove the "I" for starters.

 

[Liquid validity]

Maybe one should remove the "I" for starters.

Maybe you should expand on your side of the argument, because at
this point its just getting too vague.
I'm not having a pop, but this is pointless if you won't elaborate.
If you think its possible to have a permanent edge, give a rough description.

I can only think of one - market making, which obviously is not open to the majority.
Arbitrage and insider info are about the only others, even they can fail so are not
permanent.
LTCM or jail time as examples.

Even with market making failure is still possible although rare.
Knight capital.
If the potential to fail exists, how can it it possibly be permanent?

Edge is no guard against failure, but sane risk management and market understanding
are about as close as you can get to guarding against failure.
There are no guarantees, and this whole issue strikes me as gamblers fallacy.
Having survived for a long time is no guarantee of future survival or permanence.
That doesn't mean its impossible though, it has to be said.

 

[random12345]

Maybe you should expand on your side of the argument, because at
this point its just getting too vague.
I'm not having a pop, but this is pointless if you won't elaborate.
If you think its possible to have a permanent edge, give a rough description.

I can only think of one - market making, which obviously is not open to the majority.
Arbitrage and insider info are about the only others, even they can fail so are not
permanent.
LTCM or jail time as examples.

Even with market making failure is still possible although rare.
Knight capital.
If the potential to fail exists, how can it it possibly be permanent?

Edge is no guard against failure, but sane risk management and market understanding
are about as close as you can get to guarding against failure.
There are no guarantees, and this whole issue strikes me as gamblers fallacy.
Having survived for a long time is no guarantee of future survival or permanence.
That doesn't mean its impossible though, it has to be said.

I'm bemused as to why you're having this non-argument with Thus Spoke Bullsh1tustra in the first place. It's never ever worth it.

 

[Shakone]

Looking at Barjon's random chart, it seems as though several TA methods could give you a profit. Of course, if it's randomly generated as a random walk (i.e. so that at each time it is equally likely to go up as down and isn't biased towards mean-reversion or one direction or has dependence) then there is no way to profit in the long term. You'll just churn up and down, or down if you have costs. It's tempting to think that one could go long below the initial point, or short above the initial point and that it would return to that point so you'd win. That's not really a winning strategy though.

I gave a bar chart

http://www.trade2win.com/boards/technical-analysis/180828-what-happens-next-8.html#post2219152

which was also randomly generated, even though it looks 'similar' to the real thing. One member pointed out that you can discern at least one difference between this and the real thing. Aren't these differences important things to focus on? If there's no way to beat the random walk, there can still be a way to beat the non-random walk, if it can be detected. How would you go about detecting/determining that the chart is random, and how might that help you with a real chart?

 

[barjon]

......Looking at Barjon's random chart, it seems as though several TA methods could give you a profit........

Shakey

I suppose one difference is that you know for certain that any directional prediction is impossible with a random chart. It follows that the only way to make money from it must be to take 2 when it gives it and restrict loss to 1 when it doesn't (or some similar type factor).

It's the spread (and/or commissions) that buggers that up in real life, of course, but it serves to illustrate the importance of money management.

 

[Shakone]

Shakey

I suppose one difference is that you know for certain that any directional prediction is impossible with a random chart. It follows that the only way to make money from it must be to take 2 when it gives it and restrict loss to 1 when it doesn't (or some similar type factor).

It's the spread (and/or commissions) that buggers that up in real life, of course, but it serves to illustrate the importance of money management.

Even without commissions that won't work, I think you'll still just oscillate around breakeven and long term get nowhere.

To put my question another way, if you can't tell any difference between the random charts and the real ones, then aren't you just trading something completely random, irrespective of whether it is random or not?

 

[wackypete2]

Even without commissions that won't work, I think you'll still just oscillate around breakeven and long term get nowhere.

To put my question another way, if you can't tell any difference between the random charts and the real ones, then aren't you just trading something completely random, irrespective of whether it is random or not?

The lower time frame you trade the more random it appears. Fundamentals cause long term trends. If you trade on fundies for position or long term trading then randomness is not very relevant. In some cases it's fairly certain where the price is headed in the long term, although getting there might be bumpy. Apply this to crop futures. Forex is a bit of a different beast but you can still find long tern trends.

Peter

 

[Shakone]

The lower time frame you trade the more random it appears. Fundamentals cause long term trends. If you trade on fundies for position or long term trading then randomness is not very relevant. In some cases it's fairly certain where the price is headed in the long term, although getting there might be bumpy. Apply this to crop futures. Forex is a bit of a different beast but you can still find long tern trends.

Peter

But how do you tell that the lower timeframe is more random than the longer term? Just eyeball it? As sensible as what you have said sounds, I wouldn't take it as obviously true. I might even say the opposite. In some cases it's also fairly certain in the short term where price is going to.

 

[scholfield]

I think even without a spread at all, and zero commissions, most of us would still get similar results.

 

[wackypete2]

But how do you tell that the lower timeframe is more random than the longer term? Just eyeball it? As sensible as what you have said sounds, I wouldn't take it as obviously true. I might even say the opposite. In some cases it's also fairly certain in the short term where price is going to.

I didn't say it was, only that it appears that way if you are trying to trade it. Short term traders, myself included, are more likely to get stopped out on spikes or stop hunts that longer term position traders because their stops are too wide to be taken out that way...they are in for the long haul. Short termers that want to avoid spikes would have to widen stops too much relative to their profit targets. This makes it appear that random movements are more likely than in a longer term chart, when in fact that is not really true.

Hopefully I am conveying my message correctly...if not just shoot me

Peter

 

[Purple Brain]

To put my question another way, if you can't tell any difference between the random charts and the real ones, then aren't you just trading something completely random, irrespective of whether it is random or not?

An interesting point; one which led me off down the route of Cartesian logic.

Either what we trade is random, or it is not. We trade what we trade in a manner consistent with believing it to be random or believing it not to be random. I think it unlikely any would assume the markets not to be random yet trade it randomly nor those who consider it random trade it with expectations of non-random significance.

The approach Barjon suggests of ‘aiming for 2 willing to give 1’ – although obviously simplified, does have merit even if the markets are not random. Surely that’s just money management and risk management?

On any given day, on any given instrument, it is possible even the least experienced trader could give a potential high low range which would be statistically significant. 1000 pip/point days are rare, there is an expectation, generally fulfilled, that an instrument will unlikely exceed a given range. eur/chf 30 pips, gbp/jpy 150 etc. While the direction and profile of the price during trading will be largely unknowable, we do have a range which is largely known.

Where there is an observable tendency for the price to trend, regardless of whether it is totally random or driven my fundamental/technical biases, it is possible to extrapolate the expectation of range onto any existing trend and make a better than evens guess as to the region where the price is more likely than not to end up that trading session.

Examples: aud/usd is trending down, the daily range is around 45. It opened at 9358 and will probably peak at some point today somewhere in the 9313 area, or at least around 50 pips from the daily low. eur/aud is trending up, the daily range is around 120. It opened today at 4320 so will probably end up peaking at some point today in the region of 4440, or around 120 pips from its daily low. eur/jpy is in an up trend, the daily range is around 75. It opened today at 132.92 and will probably peak at some point today around the 133.70 area, or around 75 pips above its daily low. We don’t know how the price will develop or where the low and the high will be, but on average we can make a better than evens guess on the more probable areas and levels it will visit.

None of the above may happen of course and there may be exogenous events which drive all much further or reverse them, but on average, over the long run, is it reasonable to say that more often than not we can assess the likely peak and trough levels for any instrument currently exhibiting a trending nature?

 

[Shakone]

Either what we trade is random, or it is not. We trade what we trade in a manner consistent with believing it to be random or believing it not to be random. I think it unlikely any would assume the markets not to be random yet trade it randomly nor those who consider it random trade it with expectations of non-random significance.

The approach Barjon suggests of ‘aiming for 2 willing to give 1’ – although obviously simplified, does have merit even if the markets are not random. Surely that’s just money management and risk management?

Well it only can have merit in a non-random market, since it has no merit in a truly random one, does it?

I agree about the beliefs. But I can't understand why people play if they think it is entirely random.

The example you give about ranges is another example of a feature that one wouldn't expect to see if everything was completely random.

 

[Purple Brain]

The example you give about ranges is another example of a feature that one wouldn't expect to see if everything was completely random.

I don't believe it is random for the reasons already stated, but admit to the futility of trying to convince anyone else one way or the other for a few simple reasons:

I could be wrong.

They are as tightly coupled to their beliefs as am I to mine.

There is no way to prove the markets are random or prove they are not. Quite impossible.​

 

[barjon]

Since the movement in a market is driven by its participants then, for the market to be random, its participants would have to act in a random way, wouldn't they? Surely that's not the case by intention, but maybe it's the motives of those participants being many and varied that sometimes causes it to look as though it's random.

 

[kimo'sabby]

I don't believe it is random for the reasons already stated, but admit to the futility of trying to convince anyone else one way or the other for a few simple reasons:

I could be wrong.

They are as tightly coupled to their beliefs as am I to mine.

There is no way to prove the markets are random or prove they are not. Quite impossible.​

Random, non-random, just topics and theories for passing the long winter nights really.

To run a profit is to run your luck, so don't cut your luck short, and don't let your bad luck wreak havoc.

 

[new_trader]

There is no way to prove the markets are random or prove they are not. Quite impossible.

Quite impossible to prove markets are not random? There is overwhelming evidence that the markets are not random, so much evidence that it baffles me to see people who have been trading for more than 5 years still arguing that it is.

 

[Purple Brain]

Quite impossible to prove markets are not random? There is overwhelming evidence that the markets are not random, so much evidence that it baffles me to see people who have been trading for more than 5 years still arguing that it is.

Evidence which satisfies (for now) even a complete novice such as myself, but even overwhelming evidence is not proof positive in any logical sense. But the passion of the debate surprises me - as if it makes any difference either way.

 

[random12345]

Personally I don't understand why people who have found ways to make consistent money from the market care if it's random or not. I couldn't care less. All I'd say is that it depends on the number and interests of the participants as to how 'random' it is and that is a total limitation as far as a mathematical concept is concerned, being variable. You could say that lean hogs being so thin barely has any randomness to it at all and many of us could move that market somewhat ourselves if we fancied the exposure (perhaps then people could understand that moving the market does not equal free money), whereas the E/U perhaps is much 'more' random, though not outright random, being there are logical and capital restraints to any move. I was struck by Forexmospherian or whatever he's called explaining that a 60 pt move in the E/J was a trick by 'them.' If anyone thinks 60 points worth of consumed liquidity is a trick by singular entities (Barclays on Instant Bloomberg chat aside)... no wonder people believe in both zero and total randomness in the markets.

T2W definitely wins out as the semantics forum, even if we lag a little when it comes to actual applicable technique.

 

[robster970]

It's about as random as the fact that almost every week, someone wins the lottery.

 

[new_trader]

Personally I don't understand why people who have found ways to make consistent money from the market care if it's random or not. I couldn't care less.

Why do people care about posting in this forum? There is a degree, however trivial it may be, of altruism. That's why some have made it their mission to 'protect' newbies from scam artists.

But you're right, I shouldn't really give a f*ck if people want to remain ignorant.