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Profiting from an unpredictable market?

  • #1
  • First Post: Edited 12:44pm Apr 1, 2015 5:46am | Edited 12:44pm
Predict:
from Latin praedict- made known beforehand, declared, from the verb praedicere, from prae- beforehand + dicere say.
To predict something means to say (know) that something will happen, before it do happen.

The traders (and economists) community all over the world is and has been always divided in 2:

On one side, the traders that believe market is simply unpredictable, and then its future movements cannot be forecasted (random walk hypothesis, consistent with the efficent market hypothesis).

On the other side, the traders that believe that market is predictable, and its future movements can be forecasted with various methods.

I am in the markets from a decade and in the past i've been on both sides and switched between them many times, as for NOW, i am in the "unpredictable believer" group.

Even if the community is full (really, i would say 95% are) of "predictable-market" believers, the truth is that to date nobody in the whole trading history has shown to be able to predict the market in any way.
A predictable market must able to be predicted all the times, a trader that can predict what the market will do will have only winning trades.

Let's assume that the future market movements cannot be predicted***.
Sure we can guess where market will go, but eventually we always have only a 50% chances of be correct in our guessing.

And here start this thread, how can we make profit from an unpredictable market.




***
Of course focusing too much on the unpredictability side of the view bring an aura of despair that make profitable trading impossible, so we all need something to believe in when we trade (even if deep down some of us know that no matter what, chances are always 50%), it is important to stay balanced, not fall in the predictability-view trap, and not fall in the unpredictability-view despair, just in the middle.. is fine.
  • #2
  • Apr 1, 2015 6:40am Apr 1, 2015 6:40am
From your assumption of the term random the short answer is: being lucky. But random doesn't imply i.i.d.
No greed. No fear. Just maths.
  • #3
  • Apr 1, 2015 7:05am Apr 1, 2015 7:05am
Markets are predictable on higher time frames(Weekly and above), prediction is highly related to economic factors.
As you move down to lower time frames (Daily and below) it gets more random.
No guts, no glory
  • #4
  • Apr 1, 2015 7:09am Apr 1, 2015 7:09am
Quoting abokwaik
Markets are predictable on higher time frames(Weekly and above), prediction is highly related to economic factors. As you move down to lower time frames (Daily and below) it gets more random.
Why? Time is the same, whether it is one minute or one month.
  • #5
  • Apr 1, 2015 7:11am Apr 1, 2015 7:11am
Quoting PiptheRipper
{quote} Why? Time is the same, whether it is one minute or one month.
It is clear that I am not referring to a Point in Time, I am referring to a Period.
No guts, no glory
  • #6
  • Apr 1, 2015 7:31am Apr 1, 2015 7:31am
Quoting abokwaik
{quote} It is clear that I am not referring to a Point in Time, I am referring to a Period.
lol

You got entangled there
  • #7
  • Apr 1, 2015 7:34am Apr 1, 2015 7:34am
Of course random doesn't mean that the market don't have any rules at all, it cannot go up or down of 2000 pips in one minute, it do still have some statistical limits, it move on average of 1% per day, it have specific times when volatility and volume are concentrated (london session, and economic data/news) release.

Yet, these statistical limits are not mandatory rules, we remember the 2000pips chf instant drop (and the one a few years before too, always because of snb), we can see many times when the daily change is well over 1%, even 4-5% (around 400-500pips or so), it do happen quite frequently, but we can say the average is 1% daily movement, concentrated on london/ny session.
  • #8
  • Apr 1, 2015 7:34am Apr 1, 2015 7:34am
Quoting abokwaik
{quote} It is clear that I am not referring to a Point in Time, I am referring to a Period.
Ok then, 5min and a month. Both are time periods. Why is the month less random than a 5min period?
  • #9
  • Apr 1, 2015 7:36am Apr 1, 2015 7:36am
Now, we can see how regardless clear statistical "rules", the market still can and many times move in a way that is beyond any statistical rule or limit.

Most of the time we cannot forecast the time and the direction of such extraordinary moves, and the same is absolutely true also for the ordinary moves (the ones within the 1% daily range statistical limit).

To sum up, not a totally always anarchic market, just a "sometime" anarchic market that can move wherever it want whenever it want and how much it want (a little, very much, super very much, black swan event).
In other words, unpredictable.

The same apply on higher time frames, it is true that it is possible to understand the dynamic and the reasons behind a long-term move, looking at the chart, looking at the past.
What about the future, is it possible to predict a long-term move that will happen (or continue to happening) in the future?
  • #10
  • Apr 1, 2015 7:36am Apr 1, 2015 7:36am
Now let's give a look at the word "predict":

from Latin praedict- made known beforehand, declared, from the verb praedicere, from prae- beforehand + dicere say.

It means to say, to know that something will happen, before it happen.

You can predict something when you know that such a thing will happen, in the trading context that would be like insider trading, when somebody have the absolute certainty that the market will move in a certain direction (the certainty derives from the fact that the insider trader know information that the market still don't know, therefore such information are not priced in yet).

Apart from using this few and illegal tools, it is a fact that it is not possible to predict (with 100% certainty) the future direction of the market.
  • #11
  • Apr 1, 2015 7:37am Apr 1, 2015 7:37am
I may as well give a 100k usd prize to anybody that demonstrate that he can predict the market (any timeframe!).

What many don't realize is that when you make a "prediction" that maybe it work or maybe it don't (50% probability), it is not really a prediction, it is just a guessing.

To end this post, we now know that the market is unpredictable (but guessable, lol).

Now, the quest here is to extract profits from it anyway, and that is where i want to go.
  • #12
  • Apr 1, 2015 7:47am Apr 1, 2015 7:47am
These were my only 2 comments on news at FF:
They were both Long Term Predictions and both were before the actual move:

Prediction of USD Rise HERE

    1. May 11, 2014 11:08pm
    2. Best USD long trades would be against EUR,CAD,NZD while GBP and AUD might have another rally first. As for JPY I prefer the long side of USD/JPY but it wont be easy way up.

Prediction of EUR Fall HERE

 

    1. May 4, 2014 8:26pm
    2. 1.39 would be a good place to sell, 1.4 will be even better , for long term targets.

No guts, no glory
  • #13
  • Apr 1, 2015 7:55am Apr 1, 2015 7:55am
Quoting spaceduck
Of course random doesn't mean that the market don't have any rules at all, it cannot go up or down of 2000 pips in one minute, it do still have some statistical limits, it move on average of 1% per day, it have specific times when volatility and volume are concentrated (london session, and economic data/news) release. Yet, these statistical limits are not mandatory rules, we remember the 2000pips chf instant drop (and the one a few years before too, always because of snb), we can see many times when the daily change is well over 1%, even 4-5% (around...
Good morning sir.
I would like to first welcome myself to this thread and forum. I simply wanted to mention that if one believes the market is "random", then it would suggest that it has no rules. The market can actually spike 2000 pips in one minute, only because it has the ability to do so in 15 mins as we saw with the "black swan event".
You've also mentioned that the market "typically" trades within an avg. Which should also tilt the argument in the favor that the market isn't random, but if it was then the on a daily basics we would have a much distorted % change of what the market traded in.
With the limited experience I have in trading, I must say that the market "isn't random", for various reasons.The first point is patterns we see on the higher tf, are also seen on the lower tf. The market also tends to accumulate at daily pivots, and reverse clean off of daily pivots. Another key factor I have noticed is in direct relation to time and price action. If the market "is random" then why is it that breakouts "ALWAYS" begin at the start of a fresh 1 min candle, instead of random seconds inside of the 1m candle?
I'd love to see this topic continue to grew as it can lead to many new ways of looking at the market. Please remember that I am "bias" to the notion that the market "isn't random". I hope my points to support my bias would be considered valid, and will be expanded on.
Everything in life has a "counter". Especially in forex.
  • #14
  • Edited 8:12am Apr 1, 2015 7:58am | Edited 8:12am
Quoting spaceduck
To end this post, we now know that the market is unpredictable (but guessable, lol).
If markets are unpredictable, then what are we doing here, lets go to Las Vegas, at least we can catch some nice chicks there
No guts, no glory
  • #15
  • Apr 1, 2015 8:08am Apr 1, 2015 8:08am
Every time I'm in a position it seems that the market is predictable.

Each time I'm on the sidelines it seems that the market is unpredictable until some thing happens that I can't resist opening a position.

lol
  • #16
  • Apr 1, 2015 9:00am Apr 1, 2015 9:00am
What I understand with Random you have a meaning , you still finding direction in Random mood, You likes to predict from other traders real time decision. And if by your own you doing random then it means your in gambling. It's correct that many time market is unpredictable and after a long wait mostly traders goes in random. If a news and other instruments help traders then why only less then 15% traders in lifetime profit.

Good Luck
  • #17
  • Apr 1, 2015 9:17am Apr 1, 2015 9:17am
Me too, am a (NEW) random believer. There's no way you can predict with 100% certainty the direction of the market neither in the short term nor the long term.

However, what is certain is that the market will move, either upside, or downside or even sideways. If we are to assume that the market is random, then there will be at least 1/3 of a chance that the market will go up tomorrow, 1/3 of a chance it will go down tomorrow, and 1/3 of a chance it will move sideways.

What I'm trying to do now, is to develop a strategy that will allow me to capture either the upside or downside movement, hence a 2/3 chance to be in the money. Its similar to what the Turtles used to do anyway, and look how successful they were. They never claim to be able to predict the market, just reacting the to PA movements.

PS; I've just started to trade this idea since last Thursday. Now still around breakeven. Waiting for a major break to either side. Sigh........
  • #18
  • Apr 1, 2015 9:58am Apr 1, 2015 9:58am
Quoting spaceduck
The traders (and economists) community all over the world is and has been always divided in 2: On one side, the traders that believe market is simply Random, and then its future movements cannot be forecasted (random walk hypothesis, consistent with the efficent market hypothesis). On the other side, the traders that believe that market is not Random, and its future movements can be forecasted with various methods. I am in the markets from a decade and in the past i've been on both sides and switched between them many times, as for NOW, i am in...

So according to your theory 2K pip move of Swiss Franc was a RANDOM movement? It's clear that it was the aftermath of currency floor removal, and I hope you won't question this obvious fact.
Don't tell me that nobody knew it would happen. Swiss bank chairman knew, and maybe his team went long on Franc with f*cking big lot and made enormous profit.
If you manage to get out of Fibonaccies and Elliot Waves fancies then probably the road of profitable trading will open to you.

I think there is no need for further explanations
  • #19
  • Apr 1, 2015 10:54am Apr 1, 2015 10:54am
Ok i just changed the title of the thread and the first post too, let's forget about the word "random", most of you don't even had the willingness to read my posts about what random meaning was, the concept is simply too complex for the average joe to grasp, so let's get it out of the equation.

This thread now is about "Profit from an unpredictable market", ok let's stay in the predictable-unpredictable arena, for god's sake let's assume that the market is NOT random (every move have a reason, sometime known sometime not known, but still do have a reason), yet is unpredictable (nobody know what happens next).

In order to be able to profit (i mean, really, not just hitting a few winners here and there and lose it all later) from an unpredictable market, the first thing you have to do is realize that it is unpredictable, and accept it of course.

Until you realize this fact, you will be wasting your time trying hundreds of systems, methods, techniques, patterns, indicators, strategies etc. looking for the tool able to predict an unpredictable thing.

Of course there is no way an unpredictable thing can be predicted, so you would essentially wasting time (and money).

If you still believe in the predictable-market story, good luck, all you need to do is less than 10 "predictions" and trade them full leveraged in order to become extremely wealth and everybody is happy.

Again, a prediction is something that work 100% of the time (you predict something, you say or know that something will happen before it happen), otherwise is just guessing, we all guess where market will go next, we all have 50% probability of success in our guessing, and we all agree that this is a guessable market.

Ok, continue later
  • #20
  • Apr 1, 2015 11:30am Apr 1, 2015 11:30am
Quoting spaceduck
In order to be able to profit (i mean, really, not just hitting a few winners here and there and lose it all later) from an unpredictable market, the first thing you have to do is realize that it is unpredictable, and accept it of course.

Are there any trading system could be evolved from chaos? What are the principles to proceed from?
What I can say is when the number of factors affecting something goes to infinity then yes this "something" becomes unpredictable in behavior. But it is from the point of pure math, real situation shows that big events overlap all this noise and can affect the price in evident way as NFP for example.
Profiting from unpredictable market is impossible as chaos doesn't yield to any kind of analysis
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