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Quoting Jasus
{quote} Go study bro, the random walk theory is outdated by 20 years. You obviously haven't been paying attention to the research papers in finance, and you're falling in the fallacy that because something looks like a random walk, then it must be a random process, but turns out it is not. There are papers who test if liquid markets are stochastic processes and they reject the hypothesis with a high margin on the p-value. Search for 'chaos and financial markets', Lyupanov exponent, Hurst exponent, and go study basic statistics and chaos dynamics...
What I don't understand is your aggressiveness and we aren't brothers. Random walk isn't a theory but a mathematical model for a time series. As if linear regression was outdated! Papers keep being written on Hidden Markovian Models and particle filters are growing in interrest especially in robotics. -There isn't only econometrics in life-.

Also, if you took the time to read, I said that even if the market were 100% deterministic it would still be seen as random since nobody yet found the formula of the process. When a car stops at a road crossing you can only guess if it will turn left or right. Yet the driver doesn't flip a coin to decide! I also gave an example of a series which is determinic despite it looks random. So I don't think I fell in any fallacy.

So far I found no reliable method to correctly estimate the Hurst exponent. Especially for time series with non gaussian innovations. The error of margin is always way too big. Some papers I read show Hurst exponent with values around 0.55 or 0.60. Usually on well chosen assets. They just "forget" to give the associate margin of error on their estimation! I welcome you post the papers you are talking about. I will read them with great attention. Despite what you might believe I will understand the equations inside.


Quoting Proximus
In mathematical sense i view the market as the "universe" of trading strategies.So it contains all types and combinations of strategies that can ever exits.So the total winrate of the market is 1 or 100%, because it contains all types of strategies and all combinations of it, weather it is based on: price action,divergence, indicators, chart patterns, eliott wave, etc.
Quoting Proximus
But on the other hand i was talking about the total WR of the market being 100%, that means that there must be a system there with 100% winrate too
Proximus this one is for you (not an easy lecture): http://papers.ssrn.com/sol3/papers.c...act_id=1773169

Shall we understand that a HG must exist to counter balance the 100% WR of the market -to keep zero sum game-? I can oppose that market has near infinitly deep pockets and infinite patience. You postulate that all the possible strategies co-exist therefore Dow Jones seen as a player has been holding a position since May 1896. Who else has?

Also Benny can print $40 Billions per month. Markets aren't a closed system where you could find an analog to the energy conservation principle.
No greed. No fear. Just maths.
  • Post #42
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  • Edited 6:15am Dec 13, 2013 6:01am | Edited 6:15am
Options strategies are better suited to a probabilistic approach then spot fx.

Edit:
Posted this earlier on the rookie forum. This where I am now, ten years after, and I make a living from these insane mkts.

There is no "systematic" solution to be successful in trading. One must know why the market is wrong and entering only when the market starts understanding it; not before nor after. How accurate is this "Why" and this "When" depends mainly on how hard you can work on it:
-What do you know about what's going on and what's looming (Information).
-What do you know about participants behaviour ( techs, specs, institutionals..) .
-What do you know about market dynamics (liquidity search, price formation..).
-Do you have a solid knowledge of economics, global macro economy, monetary policies and politics.
-Do you know how informations discounts each other and to what extent.
-Do you know what informations impact what kind of participant, when and how long (market sentiment).
-Do you know how to filter the noise from the real movers and what could weaken these movers or strengthen the noise.
-and so on.
Don't be fascinated by those traders who works for banks or hedge funds, I know many and they are not good at it, they don't need to. They make money because of their deep pockets driving the price and by mutualzing losses. Trading is a long, limitless and costly process and one will pay (blow accounts) before getting real expertise as an individual trader.
Rien ne sert de courir il faut partir à point.
  • Post #43
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  • Edited 6:44am Dec 13, 2013 6:24am | Edited 6:44am
Quoting PipMeUp
{quote} {quote} Proximus this one is for you (not an easy lecture): http://papers.ssrn.com/sol3/papers.c...act_id=1773169 Shall we understand that a HG must exist to counter balance the 100% WR of the market -to keep zero sum game-? I can oppose that market has near infinitly deep pockets and infinite patience. You postulate that all the possible strategies co-exist therefore Dow Jones seen as a player has been holding a position since May 1896. Who else has? Also Benny can print $40 Billions per month. Markets aren't a closed system...
Ok i shall read it,thank you, but please dont mix the stock market with forex, their structure is entirely different.The stock market has a tendency to go up because of economic growth, the DJ is growing because the US economy is growing.

If you'd intraday trade the dow if you'd trade only long youd have an edge there by default , as for any good stocks like coca cola,mcdonalds, etc
That is how Warren got billionairre, but we are forex traders i`m interested in forex mostly

The forex market is the collision of 2 currencies where there is no bias.So in forex an uptrend is the same as a downtrend, where as in an index a downtrend will cause more panic, therefore increase of liquidity where everyone starts to dump their stocks.

You can observe this by counting how many candles it took for an uptrend to move from point A to point B and how many candles to move back from B to A.You will see that a downtrend is much quicker in stocks.

As for money printing, i dont think that matters to the structure of the market, that may increase the inflation ? It increases the liquidity too whereas more money = more money is on the market so less doji's appear, then they will increase the interest rates to counter inflation, but the initial bad bias of the inflation gets countered by a good bias of an interest rate increase, so it becomes neutral

Quote
Markets aren't a closed system...

In term of structure it is, because the same patterns repeat themselves over and over again.If it were an open system, then 1 patterns would very rarely repeat.Using the metaphore of the "universe" we know that our universe is a closed system too, but it is an expanding universe due to dark energy.The market is the same, closed, but expanding ,and the dark energy here is the extra money printed by central banks, but that hardly ever influence the aspect and structure of the market, it just expands the playground for us

No wonder how the forex market capitalization rise from 2 trillion to 5 trillion so fast, that is not real money it is inflated money...
"There's a sucker born every minute" - P.T. Barnum
Quoting flytox
This where I am now, ten years after, and I make a living from these insane mkts.
Bah. These markets aren't "insane", its just mad people saying they have to make 'sense'. Which is essentially saying the markets should be predictable, but they aren't, thus they must be 'insane'.
Quoting ForexFury
{quote} Jasus, You must be be a multimillionaire since you can predict market movement. I'd love to hear more about how Forex is not a random walk from you. Empirical data people. F*ck theory. Show us results!!
That kind of data will not be forthcoming, because they do not have it. Markets are random to the retail trader in the short term. They believe that if they cobble together enough indicators, they must have some predictive value. It's one of those cognitive blind spots Taleb talks about.

You can make money from a random market, but it will be through systematic money management.
If you are good at something, never do it for free--Joker
Quoting Proximus
As for money printing, i dont think that matters to the structure of the market, that may increase the inflation ? It increases the liquidity too whereas more money = more money is on the market so less doji's appear, then they will increase the interest rates to counter inflation, but the initial bad bias of the inflation gets countered by a good bias of an interest rate increase, so it becomes neutral
I don't see the U.S. interest rates increasing to compensate their inflation... After all USA external debt is in USD. The weaker USD the less they owe, no?
$1 in 1913 and $1 today aren't the same at all. This is to me the reason why stocks go up: the value of the money decreases.
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By closed system I meant this http://en.wikipedia.org/wiki/Closed_system
Can you explain why "If it were an open system, then 1 patterns would very rarely repeat."
No greed. No fear. Just maths.
The market must be efficient (it is not possible to win - long term) in order for it to function.
You can amuse yourself trying to find anomalies (ineficiencies) but they are only temporary and a futile pursuit. Over time the set of traders / investors cannot take any money out of the market.
There is only 1 inefficiency: transaction cost; that is why brokers are rich and traders are poor.
  • Post #48
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  • Edited 8:20am Dec 13, 2013 7:58am | Edited 8:20am
Quoting PipMeUp
{quote} I don't see the U.S. interest rates increasing to compensate their inflation... After all USA external debt is in USD. The weaker USD the less they owe, no? $1 in 1913 and $1 today aren't the same at all. This is to me the reason why stocks go up: the value of the money decreases. {image}{image} By closed system I meant this http://en.wikipedia.org/wiki/Closed_system Can you explain why "If it were an open system, then 1 patterns would very rarely repeat."
Oh really, sorry i was confused I forgot that the US shifted its industrial oriented economy to a service oriented economy after WW2.And yes they are lowering interest rates to simulate economic growth.In fact even after the 2007 problems they lowered their interest rate from ~2% to ~1% i think, when they should have been increase it.Which caused people to go from bonds to mortgages which eventually led to the 2008 housing industry collapse and other bad stuff after.

As if the USD is so strong that even if you lower the rates people wont lose confidence and wont change their USD bank deposits suddently to CHF.
But they do buy gold, that is another sign there.

It looks like Bernie doesn't give a rat's @ss about the dollar's value, they are more interested in keeping the economy healthy.Since if you lose the economy you cannot pay the debt anymore, but if you inflate your money to the stars you will mess up with your lender's nerves.

And since many times China is the lender, that is obvious.But lets hope the dollar wont get hyperinflated like the reichsmark after WWI, that would be a worldwide disaster 9999x worse than the 2008 stuff.

But thats an even bigger mystery then, since if the US in economic growth oriented that would make the economy healthy with many GDP increase, but the interest rate cuts would diminish dollar value, yet the EUR/USD is not upward biased, why ? It is a big mistery, i dont think that the small economic growth (almost none between 2008-2012) would compensate for interest rate cut, yet the EUR/USD didnt had an upward bias, it was mostly ranging (maybe because the EUROZONE was hit with the same impact )

--------------------

BTW right now i am reading that scientific paper, and it doesnt start that good.They mix the stock market with forex right in the first paragraph,which already decreases its credibility (or the information is only working for stocks), but nontheless i will read it through it seems very interesting.Thanks again for sharing!
"There's a sucker born every minute" - P.T. Barnum
  • Post #49
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  • Edited 8:26am Dec 13, 2013 8:14am | Edited 8:26am
Quote
By closed system I meant this http://en.wikipedia.org/wiki/Closed_system
Can you explain why "If it were an open system, then 1 patterns would very rarely repeat."
Not even that is true in my opinion.So by closed you mean that of the physics interpretation, a system which does not get any external manipulation.

Law of energy conservation here would be law of market independency or something like that, but thats not true, you can see many examples of unlawful forex rates manipulation.In stock market there are fake news,pumping a stock, insider information, and other types of dishonest methods.So the market is totally not independent in that way neither.

But the structure stays the same, as much manipulation there exists, the market will always find its equilibrium value and will always tend to go for it.So if you let it roll and dont influence it, it will flow independently , like a river it will always find its path.

Quote
"If it were an open system, then 1 patterns would very rarely repeat."

Yes i interpreted the closed system and open system differently,sorry for that.I thought that you referred by open system a series of data where every term is unique, thus a pattern would never or very rarely repeat.But then the market would not be continuous line of close price but the prices would jump to random levels and would not be confined to a likely 4 sigma deviation from the current close price, thus the next value could assume any value from higher than 0 to ∞ ,as (0,∞) ,which would be hilarious, but fortunately the market is somewhat continuous (although at gaps or missing ticks they are more discrete), the close prices are usually 4 sigma deviations confined from the current open price
"There's a sucker born every minute" - P.T. Barnum
Quoting Proximus
Law of energy conservation here would be law of market independency or something like that
I meant that the "value" of the whole money would be constant (like energy) and it would just flow back and forth. Money would accumulate in gold for some time then flow somewhere else.
Like the heat of a hot cup of coffee flows to the air of the room. But in the market there are central banks opening the window or adding hot water in the cup of coffee.

FX can go beyond the 5th sigma. Zimbabwe dollar hyper inflation is an historical example: http://commons.wikimedia.org/wiki/File:ZWDvUSDchart.png

Anyway I worth shit when it comes to fundamentals. There are FF members way more knowledgeable on this. And I think fundamentals are quite off-topic here.

I'm more interested in jmn5611's comment: "You can make money from a random market, but it will be through systematic money management."
I don't share the money management point of view (http://www.forexfactory.com/showthre...87#post6379487).
But the first part may be true. It depends a lot on the kind of random movements we are facing.
No greed. No fear. Just maths.
  • Post #51
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  • Edited 9:31am Dec 13, 2013 8:58am | Edited 9:31am
Quoting PipMeUp
{quote} I meant that the "value" of the whole money would be constant (like energy) and it would just flow back and forth. Money would accumulate in gold for some time then flow somewhere else. Like the heat of a hot cup of coffee flows to the air of the room. But in the market there are central banks opening the window or adding hot water in the cup of coffee.
Well you can create money in more ways but i dont think its constant, money as such is is just the paper, but we are more talking about the worth of an object.You can create the paper with the mint, but you cant create the value by a mint.So the money minted has no value, and only distorts the dollar value, yet it helps ease the pain on the U.S's shoulder.That is why it's called Quantitative Easing.They increase the money supply but that money's worth is absolutely 0.

To increase the worth of a stuff you need production, a service oriented economy is not productive, yet most developed countries are that, simpler because juggling with money is easier than producing something.

But if you refer to it like heath, its not even close.The mint can introduce more dollars but to add value to it, you need GDP increase too.So if you get a paper and draw 100$ on it it has no value, but if you produce a pair of shoes then you have something to associate that paper with and if you sell your shoes for 100$ that 100$ represents the value of that shoe.So this is how economy is built, of course there is amortization but i dont want to talk here too much oftopic about fundamentals, but the basic stuff is that no its not constant.It's growing, both the inflated and the real values are growing, thus the inflated values grow faster, than the real values, which get corrected in market crashed often, but both grow, so the money supply and the total GDP of Earth is bigger than 100 years ago, and that makes sense.

Quote
FX can go beyond the 5th sigma. Zimbabwe dollar hyper inflation is an historical example: http://commons.wikimedia.org/wiki/File:ZWDvUSDchart.png

Anyway I worth shit when it comes to fundamentals. There are FF members way more knowledgeable on this. And I think fundamentals are quite off-topic here.

I'm more interested in jmn5611's comment: "You can make money from a random market, but it will be through systematic money management."
I don't share the money management point of view (http://www.forexfactory.com/showthre...87#post6379487).
But...

It can but its unlikely, and c'mon zimbabwe dollar ? Not to be rude but do you think they have a very good regulation over there? And hyper inflation is an uncommon stuff, we should measure our measurements in normal conditions not in extreme conditions where all rules dont apply by default.Hyperinflation is a very delicate state of economy specific to very poor and very unregulated economy.But in normal conditions usually its a 4 sigma, maybe even 3 sigma deviation for less volatile markets.

Quote
I'm more interested in jmn5611's comment: "You can make money from a random market, but it will be through systematic money management."
I don't share the money management point of view (http://www.forexfactory.com/showthre...87#post6379487).
But the first part may be true. It depends a lot on the kind of random movements we are facing.

True, that bothered me too, thats like the thread about martingale system, where we had a good discussion .The market is independent from your MM,unless you can precisely fine-tune your RR and predict which RR will be the most suitable to you, but thats nonsense.
For me MM is just the fact to keep your lot size so the trade size is under 3% of balance.The RR and WR is part of your system not your MM.

I view the market only partially random, in a few segments they are random like in consolidation periods, but they are always key levels which are somewhat predictable = S/R levels, but inbetween S/R levels they are somewhat random,not sure about that.

Quote
This is to me the reason why stocks go up: the value of the money decreases.

I dont think this is the case.Because it is an absolute growth even if the currency is weakening.For example if you dont put your money in a bank deposit which covers inflation your money in the pocket gets worse and worse every second due to inflation,but you still have the same amount of cash there, only the value changed.I dont know how the stock values are calculated but if they are based on the companies assets split in to shares using the gross value then it is just like this, because the company carries its value in that cash, so if a company is doing better its profit increases regardless of inflation because their accumulated money increases which is the count of dollars & other assets.Weather that money accumulated has any value thats another question but just the mere accumulation of money hints a growing tendency (+ not all assets of a company are money),which the inflation will slow down but not reverse.
"There's a sucker born every minute" - P.T. Barnum
Quote
And hyper inflation is an uncommon stuff, we should measure our measurements in normal conditions not in extreme conditions where all rules dont apply by default.
Hyperinflation is an extremely rare event with extreme consequences. This is exactly the definition of 1/f noise (http://en.wikipedia.org/wiki/Flicker_noise)
With fat tail distributions like Cauchy the notion of sigma disappears altogether. 1 sigma is infinite.

If the market was always random like in consolidation periods a monkey would make money.
The question is not whether the markets are random or not. The question is more what kind of randomness and if we can overcome its uncertainty.
No greed. No fear. Just maths.
That's an interesting question.

My opinion:
the forex market is as inefficient as any other market.
The banks provide liquidity and try to match client vs client orders. When they can't they match it with their own money. That's the part when they widen the spread or cut the liquidity to get better prices. And that's also the moment when they build inventory or in other words: it's a good spot to piggyback.
Of course it's a shorter term approach.
On the chart you can only guess where the places are (but with some derivatives feeds you can actually see it).
Sometimes they are also wrong and flatten positions when price moves too far (haha Deutsche Bank ;-) ).

So my point is: there are ways to assume if some moves are random or not.
  • Post #54
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  • Edited 7:02pm Dec 13, 2013 6:43pm | Edited 7:02pm
Quoting jmn5611
{quote} That kind of data will not be forthcoming, because they do not have it. Markets are random to the retail trader in the short term. They believe that if they cobble together enough indicators, they must have some predictive value. It's one of those cognitive blind spots Taleb talks about. You can make money from a random market, but it will be through systematic money management.
I agree with you jmn5611. It seems our trading method may be very similar. The "problem" is that it's not as sexy as pouring over charts or spending hours at a time reading news. Plus, you can't impress your friends over drinks since you don't have an over complicated, convoluted trading method to talk about.

In all seriousness, embracing the chaos and creating a method to exploit it is by far the best approach most retail traders should try. This only my opinion.

Remember, Red. Hope is a good thing, maybe the best of things...
Quoting PipMeUp
{quote} I meant that the "value" of the whole money would be constant (like energy) and it would just flow back and forth. Money would accumulate in gold for some time then flow somewhere else. Like the heat of a hot cup of coffee flows to the air of the room. But in the market there are central banks opening the window or adding hot water in the cup of coffee. FX can go beyond the 5th sigma. Zimbabwe dollar hyper inflation is an historical example: http://commons.wikimedia.org/wiki/File:ZWDvUSDchart.png Anyway I worth shit when it comes...
What I mean by "systematic money management" is the way you place your trades. If price is moving up, I'm a buyer and vice versa. I am a millipeder, so if I have a total position that I want to establish I break that position up into units and I only enter into the direction of the current trend a set number of units per day. I have no idea where price is going, there is no way to know that. I can only make sure I am in the market participating in whatever movement is going on.

If I enter my first unit and it goes against me right away, I just take the stop. In this way you maximize returns and minimize losses. Classic stuff.
If you are good at something, never do it for free--Joker
Quoting ForexFury
{quote} I agree with you jmn5611. It seems our trading method may be very similar. The "problem" is that it's not as sexy as pouring over charts or spending hours at a time reading news. Plus, you can't impress your friends over drinks since you don't have an over complicated, convoluted trading method to talk about. In all seriousness, embracing the chaos and creating a method to exploit it is by far the best approach most retail traders should try. This only my opinion.
I am finding out there are lot of traders here at the factory that trade similarly. But, as Peter Crowns said, a point comes when they realize the power of the long tail and they go quietly into the night. A 1:1 risk reward ratio is ridiculous to me. I am going for at least 1:10....at the very least. But as you said, trading like this is not sexy, there are no pretty charts, I cannot turn it into a 1000 page thread. But I spend 5 minutes in front of the computer each day, 10 if need to adjust my risk profile. So I spend two hours per month in screen time. If I made a mere 200 dollars that month, that is 100 bucks an hour. No day trader can claim anything like that.
If you are good at something, never do it for free--Joker
  • Post #57
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  • Edited 7:59pm Dec 13, 2013 7:45pm | Edited 7:59pm
Quoting jmn5611
{quote} I am finding out there are lot of traders here at the factory that trade similarly. But, as Peter Crowns said, a point comes when they realize the power of the long tail and they go quietly into the night. A 1:1 risk reward ratio is ridiculous to me. I am going for at least 1:10....at the very least. But as you said, trading like this is not sexy, there are no pretty charts, I cannot turn it into a 1000 page thread. But I spend 5 minutes in front of the computer each day, 10 if need to adjust my risk profile. So I spend two hours per month...
Thats impressive, if you have that potential you should maximize it, why to make only 200$ /day, you can make 2000 just as easy or 20000.Of course if you careully select the markets and trade only those in which you are confident then no, but if you dont care where you put your trades then it is really a waste of trading skills.You could be a millionaire for now if you would use your entire potential.

As for the 1:1 RR, that maybe exagerated but you have to understand that unless you use mechanical approaches (fix SL and TP), the RR is independent of your WR, it if the expectancy comes right you could make money even with a 1 : 100 RR, but much more unlikely.I would also vote for higher reward than risk (but only to keep the DD small, otherwise it has no other meaning), but thats not always as you come out.The spread + slippage will ruin sometimes that, and if you not trade mechanically but rather let it flow, with a trail stop and manual close the outcomes become independent of eachother, so you get only what the market gives you, dont try to beg the market for more.And in this case you cannot wish for 10 :1 RR, if the trail stop ends at 1:5, thats it you have to tolerate that.

That is why it is important to put up the statistics of your trade to have a good picture of your status in the markets.
"There's a sucker born every minute" - P.T. Barnum
Quoting Proximus
{quote} Thats impressive, if you have that potential you should maximize it, why to make only 200$ /day, you can make 2000 just as easy or 20000.Of course if you careully select the markets and trade only those in which you are confident then no, but if you dont care where you put your trades then it is really a waste of trading skills.You could be a millionaire for now if you would use your entire potential. As for the 1:1 RR, that maybe exagerated but you have to understand that unless you use mechanical approaches, the RR is independent of your...
It has nothing to do with potential. I just do what the market tells me to do. As far as making 2000 or 20000 just as easily, that is true, but that takes time enough to build a position that is making 10 dollars or 100 dollars per pip. I do care where I put my trades. I do not trade against the trend at any time. The way that I trade works on any kind of market, because in reality I am not a trader, in reality I am a money manager. Trading techniques are only a tool to help us manage our money. Once you understand the power of the long tail, the quest for being a millionaire becomes a mundane task of doing the same thing over and over again for an extended period of time.

Edit: I missed your point about spread and slippage. The way I trade spreads, slippage and carry have no meaningful impact. I do not measure my profit by the day, I measure my profit by the quarter, just like the big boys do.
If you are good at something, never do it for free--Joker
Quoting jmn5611
{quote} It has nothing to do with potential. I just do what the market tells me to do. As far as making 2000 or 20000 just as easily, that is true, but that takes time enough to build a position that is making 10 dollars or 100 dollars per pip. I do care where I put my trades. I do not trade against the trend at any time. The way that I trade works on any kind of market, because in reality I am not a trader, in reality I am a money manager. Trading techniques are only a tool to help us manage our money. Once you understand the power of the long...
Agreed, but since i`m a technical trader with a bias towards EA's, i`m curious wheather you could automatize your system, in which case you could make money 10x faster.I mean if looking at the main currencies : the majors and the crosses there are atleast 20 markets that can be traded which have enough liquidity.

And if you say your positions are big then its true that slippage and spread doesnt affect it that much, but some of use here are intraday scalpers like me and we do care about them very much, since on us it has a big influence

So you could trade 20 markets + gold (which is a good in uptrend) + silver (which is in a moderate uptrend) , there are plenty of signals there.You could theoretically make your money gathering faster right?
"There's a sucker born every minute" - P.T. Barnum
Quoting Proximus
{quote} Agreed, but since i`m a technical trader with a bias towards EA's, i`m curious wheather you could automatize your system, in which case you could make money 10x faster.I mean if looking at the main currencies : the majors and the crosses there are atleast 20 markets that can be traded which have enough liquidity. And if you say your positions are big then its true that slippage and spread doesnt affect it that much, but some of use here are intraday scalpers like me and we do care about them very much, since on us it has a big influence...
That is correct, the more markets traded, the more millipedes created. As far as making money X times faster, the market determines that. But your main point is correct, the more markets the more millipedes. In fact, in that thread, it is advocated that instead of increasing lot size to make more money, one should increase the amount of markets traded instead. The effect will be the same, and the risk will be reduced due to the ability to diversify more effectively.

Edit: Yes, the way I trade can be automated as it is completely mechanical, but I lack the skills to do so, therefore I have to give my 5 minutes each day. The caveat is that while the entries are mechanical, the exits are quite discretionary. If my risk profile goes askew, I have to decide which legs to break off, and that is a deeply personal decision for each trader involved.
If you are good at something, never do it for free--Joker
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