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Is random really random? 231 replies

random price movement - reasons why your system was wrong 5 replies

My feeling on price movements - they are random 13 replies

GBP/USD daily pip movement vs. EUR/USD daily pip movement 3 replies

Price action pattern, and random thoughts 6 replies

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Random Price Movement

  • #81
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  • Sep 1, 2006 9:39am Sep 1, 2006 9:39am
Quoting Darkstar
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Money management is irrelevant to a technical trader because in the end their dead anyway. Playing a 50/50 game, for every pip you increase the TP over the stop, you increase the chance of being stopped out proportionately. Going back to Captain Piptastics work, the “Ugly” winner sits squarely on the probability distribution curve even after optimizing the ratios. If more data was utilized, it would be easy to conclude that a return to zero equity would result at some point in the future. And that’s really the key point; money management can help you last long enough for luck to put some cash in your pocket, but if you continue playing, your going to give it all back in the end. Betting strategies don’t work in Vegas, and you shouldn’t expect them to bail you out of the market either.

<o></o>
Wow! I didn't see that coming from you. Espcially since ISO provided some excellent references from professionals who have proven otherwise. They were able to profit from a coin flip. If I had the text file of Captains trades I could run it through some money management software and absolutely show a profit on that data.

The whole point about randomness is that whether you belive it or not (and I will state for the 3rd time that I don't totally believe it) is that your entry has very little to do with the success of your trades.
  • #82
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  • Sep 1, 2006 10:08am Sep 1, 2006 10:08am
Quoting Darkstar
If you insist...

The general premise of TA is that all information is contained in the chart. This is of course technically true, but the unspoken secret is that it only tells you what has already happened. The coin toss experiment and a real market chart look identical, because for the purposes of technical analysis, they are.

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o> </o>

As a TA practitioner, it is irrelevant WHY the prices moved as they did. Without that information, the core decision process relies on the probability of an event occurring. How are those probabilities determined? Through back testing of existing data! So what prevents the technical trader from back testing a 10,000 flip coin chart for recurring themes? Beyond the inherent understanding that a coin toss is truly random, nothing.

<o> </o>

Trading on the basis of probabilities is guaranteed, 100%, indisputably, without question, a losing proposition. Why? Because price can only do two things; move up or move down. 50/50. Once you account for the spread, it becomes 49/49 or worse. Over an infinite number of trades, your account will inevitably drop to zero just as it does in a casino. The post earlier where Captain Piptastic ran a test on gbp highlights this fact with all of his tests losing money once the spread was accounted for.

<o> </o>

Money management is irrelevant to a technical trader because in the end their dead anyway. Playing a 50/50 game, for every pip you increase the TP over the stop, you increase the chance of being stopped out proportionately. Going back to Captain Piptastics work, the “Ugly” winner sits squarely on the probability distribution curve even after optimizing the ratios. If more data was utilized, it would be easy to conclude that a return to zero equity would result at some point in the future. And that’s really the key point; money management can help you last long enough for luck to put some cash in your pocket, but if you continue playing, your going to give it all back in the end. Betting strategies don’t work in Vegas, and you shouldn’t expect them to bail you out of the market either.

<o> </o>

It comes down to: You’re either exploiting inefficiency in the market or you’re providing the liquidity for those that do. Everything else is a roll of the dice…
An interesting post. Thanks for taking the time.

I'm making an assumption here so correct me if I'm wrong. You trade some market inefficiency that you've found? I can respect that. It's a smart way to trade.

You are probably familar with Edward O. Thorp. For those that aren't here is an interesting link about him:

http://webhome.idirect.com/~blakjack/edthorp.htm

Thorp trades inefficiencies in the market. Really, really well in fact.

What I wanted to point out about Thorp is his work on BlackJack (another zero-sum game). He can win at this game consistently purely based on probablity. His counting or mathmatical work or TA (if you will) is soley the reason he can win consistently.

BTW, I won't speak for every person who uses TA but when I say that I'm unconcerned with the why what I mean is this. I'm aware that peoples reaction to fundemantal events is what drives the market. I simply don't believe my best chance at competing lies in directly analyzing those events. Large institutions spend a huge sum of money on staff and technology to do just that. I'm not going to compete with that. Instead I will wait for the winner of the battle to tip their hand and I will join them. I use TA to assist me in entries and exits.
Secret Identity: Bill Sullivan
  • #83
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  • Sep 1, 2006 11:01am Sep 1, 2006 11:01am
So if I have it correct, you are saying that you are trading off of short term inefficiencies in a market. You appear to not be concerned so much with the why of a market move, but the how can I benefit from it... This would also be the point of this thread...

A very good point you make here...


Quoting Turveyd
Haven't read all of above but....


To me the markets move based around buyers and sellers ofcourse, but I trade off Micro Trends which I find quite easy to see, based around 30min, 60min, 2hour, 12hour and 24hour SMA's, it's also range bound around the 30mins SMA.

Slap onto a 1min chart GBP , 30SMA, + envelope 30, 0.1% + Envelope 30, 0.2%, and a 60sma ( Minor ) and 120sma ( medium ), 24hour ( Major )

I think you'll see what I mean, follows this kinda pattern going back as far as you like to.

The trick knowing this, is to profit from it, not easy LOL
  • #84
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  • Sep 1, 2006 12:20pm Sep 1, 2006 12:20pm
Well, this is the point exactly. You are take advantage of short term non reandom movements that are caused by self lulfilling prophecies.

I think we are in agreement.

The thread is not about the randomness of markets. It is about the fact that randomly produced charts can make the same patterns.

Greed, fear, hope, indference, ignorance and other factors will always be a part of market movement.
  • #85
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  • Sep 1, 2006 12:26pm Sep 1, 2006 12:26pm
Sorry SMJones, my Bad LOL yes thats what I'm attempting to do.

And I disagree, maybe on a simplistic level, but no, random wouldn't produce any kinda trend or direction, you'd have to program in abit more logic, so it wouldn't be truely random to generate actual chart patterns.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #86
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  • Sep 1, 2006 12:32pm Sep 1, 2006 12:32pm
Please take a moment and read this thread and download the spreadsheet and try it... This point is a statement of fact and is proven...

Try this:
Take a coin and flip it. let heads = +1, let tails = -1.
Now take a piece of paper and make a mark wheather it is + 1 or -1.
Now add the result of the previous fip to this last one and make a mark.
Just keep repeating this over and over and over.

You now have the equivilant of tick data.
Now just segment this graph into time frames and the patterns emerge. this has been proven.

Please read A Random Walk Down Wall Street and Fooled By Randomness

Thanks Scott


Quoting Turveyd
Sorry SMJones, my Bad LOL yes thats what I'm attempting to do.

And I disagree, maybe on a simplistic level, but no, random wouldn't produce any kinda trend or direction, you'd have to program in abit more logic, so it wouldn't be truely random to generate actual chart patterns.
  • #87
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  • Sep 1, 2006 12:56pm Sep 1, 2006 12:56pm
Still got to disagree

If you did it with a Coin for long enough, you'd see you've got a pretty much straight wobbly line, with a slight tendancy ( with UK Coins ) for Tails to come up more as Heads side is heavier, 52% tails honestly, it's been done.

The Excel Code looks impressive, but the random numbers a computer generates, aren't truely random there psuedo random, which I think is skewing the data.


Will look at the code shortly to look for cheats to LOL ( Yep I'm a programmer )
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #88
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  • Sep 1, 2006 12:57pm Sep 1, 2006 12:57pm
I tried the coin toss. keep getting tails everytime (50 flips). I then varied the pressure I use during the flip on each flip and at that point it became somewhat random...
  • #89
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  • Sep 1, 2006 12:57pm Sep 1, 2006 12:57pm
Not saying I couldn't write a computer system, based on psuedo random numbers, to mimic the market, to about a 95% accuracy though.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #90
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  • Sep 1, 2006 12:59pm Sep 1, 2006 12:59pm
Coins and Dice can be Forced Akirax, find someone to play the double or nothing game based around you forcing tales


See how high you can get, hopefully before they back down and give you your millions
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #91
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  • Sep 1, 2006 12:59pm Sep 1, 2006 12:59pm
Quoting Turveyd
The Excel Code looks impressive, but the random numbers a computer generates, aren't truely random there psuedo random, which I think is skewing the data.
Reminds of of an old joke.

"Actually I'm not a Full Modo. I'm only a Quasi Modo."

  • #92
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  • Sep 1, 2006 1:00pm Sep 1, 2006 1:00pm
There is no point in discussing this further until you read the thread. You just stated the very point of the thread, about large numbers verses small samples..

Thanks Scott
  • #93
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  • Sep 1, 2006 1:04pm Sep 1, 2006 1:04pm
Quoting Turveyd
Coins and Dice can be Forced Akirax, find someone to play the double or nothing game based around you forcing tales


See how high you can get, hopefully before they back down and give you your millions
  • #94
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  • Sep 1, 2006 1:05pm Sep 1, 2006 1:05pm
Just reviewed the Data, on that XLS thingy, errrrr 10 heads picked in a row, definately a bad psuedo random number generator going on there.


Do you you know the odds on doing that ?? 2047 : 1.

It does it a few times aswell, so not just a 1 off coincidence.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #95
  • Quote
  • Sep 1, 2006 1:06pm Sep 1, 2006 1:06pm
This is not a reasoned arguement.. I suppose I am done here.



Quoting Turveyd
Coins and Dice can be Forced Akirax, find someone to play the double or nothing game based around you forcing tales


See how high you can get, hopefully before they back down and give you your millions
  • #96
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  • Sep 1, 2006 1:20pm Sep 1, 2006 1:20pm
Looks like a thread can last about 5 pages before some clown comes in and tells us about their college education and/or their system. Follow that up by the properties of a coin and whether excel can generate random numbers and we all forget what started all this.

Have a nice weekend!
  • #97
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  • Sep 1, 2006 1:23pm Sep 1, 2006 1:23pm
Nice article, DS. Thanks for posting!

My only real comment is that isn't the main difference between a coin-flip and markets is that the former is random, while the latter isn't? i.e. the coin has no memory, and each event is truly independent whereas markets do have memory of prior support and resistance levels which they retest many times and break occasionally.

On smaller timeframes then the randomness is more pervasive for sure. But on larger tf's then you have more meaningful moves in the markets driven by fundamental events.

It also extends to trendlines - markets have memory of direction so you will see them also serving as support or resistance. Of course these are more subjective than s & r levels

Again quoting Van Tharp here:

. Randomness bias. People like to assume that the market is random and has many tops and bottoms that they can trade easily. Yet the markets are not random. Distributions of prices show that markets over time have infinite variance, or what statisticians call “long tails” at the end of the bell curve. Furthermore, people fail to understand that even random markets can have long streaks. As a result, top and bottom fishing is the most difficult type of trading there is.

Quoting Darkstar
If you insist...
...
As a TA practitioner, it is irrelevant WHY the prices moved as they did. Without that information, the core decision process relies on the probability of an event occurring. How are those probabilities determined? Through back testing of existing data! So what prevents the technical trader from back testing a 10,000 flip coin chart for recurring themes? Beyond the inherent understanding that a coin toss is truly random, nothing.
…
  • #98
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  • Sep 1, 2006 2:49pm Sep 1, 2006 2:49pm
"This is not a reasoned arguement.. I suppose I am done here."


It is reasoned arguement, it's just not arguement you agree with.


The data, you are looking at to come to your conclusions is just skewed and inaccurate due to the computers inability to generate real random numbers, it kinda has a memory, unlike a coin flip, as it bases it's random on the previously generated number, or a time event.

IMHO I will add!! to be fair.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #99
  • Quote
  • Sep 1, 2006 3:08pm Sep 1, 2006 3:08pm
Well, I have to say I've greatly enjoyed this thread... a very interesting debate, and some great resources / articles / references included. Seems like some folks have gotten a bit peeved about the - dare I say it - random directions it has flowed in (heheh), but what are you gonna do? When you start a conversation, people bring themselves to it and make their own connections, no?

Let's start flipping coins to bet on what directions forum threads will take!

Actually, more than that, let's just take it easy, enjoy ourselves, and keep open minds.

Thanks to all who have contributed.
Et ecce equus pallidus...
  • #100
  • Quote
  • Sep 1, 2006 3:11pm Sep 1, 2006 3:11pm
Please read post 91 again. this is not a computer program. But if you feel a coin toss is not random what is the point of discussing this? Please read this thread before you post on it's content.

However, I will just say lets agree to disagree, because it would appear we will not see eye to eye on this one... Thanks again, Scott


Quoting Turveyd
"This is not a reasoned arguement.. I suppose I am done here."


It is reasoned arguement, it's just not arguement you agree with.


The data, you are looking at to come to your conclusions is just skewed and inaccurate due to the computers inability to generate real random numbers, it kinda has a memory, unlike a coin flip, as it bases it's random on the previously generated number, or a time event.

IMHO I will add!! to be fair.
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