Is the market random or not ? | Page 9 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Is random really random? 231 replies

Why do indicators not work/work? Why is Forex not truly random? 129 replies

Market Random and Predictable Parts 26 replies

Pro Traders in a Random Market 60 replies

Random Market vs Set Expectancy 8 replies

Attachments: Is the market random or not ?
Exit Attachments

Is the market random or not ?

  • #161
  • Apr 15, 2008 8:41am Apr 15, 2008 8:41am
Because 95% of traders in here lose there accts..The other 5% don't want u to see how much there making LOL


Quoting wattawatta
Why don't ANY TRADERS in this forum show profitable live account statments. I mean, not even a single one.... except Mystic_Genie who had a lucky week.

Would you like to post your statements please...hell, I don't even care if they show that you have made losses every month.

I would like to see them.
  • #162
  • Edited 9:20am Apr 15, 2008 8:52am | Edited 9:20am
Quoting soultrader
you mean like the GBP is going up despite being in the shit deeper than a deep thing?
GBP is going up? GBP/JPY is down from 251 in May to 199 now. EUR/GBP is up from .6970 in October to over .8 now. GBP/CHF is down from 2.45 in May to just 1.96 now.

The only major currency GBP is going up against is the USD, which is trading near 20 year highs. Go figure since the US economy sucks.

+But you're right, GBP is going up.+
  • #163
  • Apr 15, 2008 9:41am Apr 15, 2008 9:41am
I do not know when the next hurricane will approach the gulf and threaten the offshore oil rigs or the next refinery fire that will send oil and gas prices through the roof. Nor do I know when the next bad earnings report will hit wall street sending the markets into a tizzy. But I do know that the vast majority of market players are habitual in their trading. There are certain recognizable patterns in traditional technical analysis that the market consensus views as valid and they are traded pretty much the same way day in and out. Stops are usually set in a certain area, profit targets are similar, so on and so on. This provides a clumping effect (imho) of orders and a general mindset that is exploitable, certainly by those that have the level and volume info. When these patterns break down, the emotional factor kicks in, causing most to run for cover or worse. Herein is the tradable edge.

For the most part we can use statistical modeling in our trading, defining a setup that when reviewed historically shows a statistical edge, this coupled with good money management can grind out a positive earning if the individual can stick to their discipline and the model is valid.

The proper mindset for trading is one of a marathon, not a sprint race. It’s like any business, consistent and calculable steady profit. Sadly most of the forex participants are drawn into this market under capitalized and expecting huge and immediate returns on their minimal investment.

It doesn’t matter if the market is random or structured, the participants trading them move in predictable directions, use that knowledge in your trading.

Fwiw,

a

p.s. If you want to skin the market, you will have to find a way that is contrarian to the norm
  • #164
  • Apr 15, 2008 9:53am Apr 15, 2008 9:53am
In many instances, long term, the market is not random. Will the euro break 1.60? Yes, it will. What about 1.70? Yes, it will. 2.00? Yes, it will. As long as the U.S. stays on its current path of destruction, the dollar will continue to fall. That is really not the question. The question is, what short term path will it take on its way down? George Soros does not care because he has unlimited funds and can withstand almost any drawdown scenario. He is long the euro (and has been for years) and if he has to withstand a 2 year, 4,000 pip drawdown he can and will wait it out. For him, the market is not random. It is about time and pressure and true fundamentals that must, at some point, be borne out. I am not George. I cannot withstand a 2 year draw down. I cannot exploit the long term fundamentals. My account dictates that I need to be able to exploite the market on a more short term basis....and that is where we have a problem. If anyone thinks they can predict where the market is going in the next 5, 10, or 60 minutes, they are sorely misguided. It is quite possible to click your order and be stopped out 10 times in a row. We discussed this in a similar thread several months ago, and the bottom line is...tdion and others are right. For the small retail forex player the market is random. If you feel otherwise it is because you have not traded long enough to learn this painful lesson. It may happen in the first month of trading, or it may take 5 years, but the lesson of short term randomness will be learned by all.
  • #165
  • Apr 15, 2008 10:09am Apr 15, 2008 10:09am
The market going up or down and predicting it's direction is not the issue as long as it goes, as a good trader will have a plan to profit from both and the proper time to set the trap.

this subject is getting tiresome.

good trading everyone.
  • #166
  • Edited 12:11pm Apr 15, 2008 10:53am | Edited 12:11pm
I cant help but think there are a few people getting emotional about this topic. Let me tell of a trade I took several months ago. I actually wrote about it on this forum. The fixed rate of the USD/HKD is 7.7500 - 7.8500. The market got to 7.7500 and I placed a fairly large trade. Sure enough, the Hong Kong Central Bank intervened, held the price around 7.75 for a couple weeks and then the pair surged upward toward 7.8000. If the foreign exchange market were random, the chances of the market stopping near exactly on the 7.75 mark (just so happens to be an OFFICIAL boundry) would be quite slim. This was a powerful source dictating where the market would go. Guess what, if it went the other way ... it would have been because there was an even more powerful source than Hong Kong to push it that way. Just as this isn't random, neither is it random when Australia intervened last year and sent the market on hundreds of pip runs in matters of a couple hours, nor is it random when the BoJ intervenes.

Yeah, well, what about non intervention moves? These listed above aren't the anomalies, they are just the most blatent examples of non-randomness. See, random requires a lack of purpose or objective. Thus when someone, anyone, decides to move the market in a certain direction ... randomness then becomes a poor label. Every single week day, heck, every hour of every week day there is a fund, bank, firm etc placing large trades, thus transfering wealth, converting currency and ALSO assessing a value to something. Random can't possibly have this structure, direction and consciousness applied. I am using the non statistical definition of random.

The market isn't predictable most, no, 99% of the time (for me anyway, others with connections if trading just USD/JPY for instance may bump that down to 70%). Why is it not predictable? There will always be those other market players involvements, you cant predict what they will always do .. nor can you predict what the populations of the world will do. However, unpredictable doesn't equal random. Unpredictable is not knowing what will happen, random is believing there is no explanation for what will happen.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #167
  • Edited 12:05pm Apr 15, 2008 11:19am | Edited 12:05pm
Price is at 100... 100 - 98 - 101 - 95 - 102 - 107 - 102 - 110 - 112 - 105 - 100 - 99 - 92 - 100 - 103 - 106 - 114 - 120

Is it random or you think its going up? If you "think" then I rest my case. If you "hope" its going up then I rest my case. If you are calculating probabilities then I "rest" my case.

In Quantitative Analysis this price chart will be termed as random. Now you can draw ogive or frequency polygon leaf and plot crap or ask Bill Williams how his alligators are eating shorts blah blah etc and it is still darn random.

On the other hand, let me tell you something. As a smoker Mr. X smokes 1 pack of lights cigarettes, its his habit. I can bet he will be smoking tomorrow and for next couple of weeks even if he is trying to quit. So I've a good chance of winning that bet. But, can he die tomorrow? Yes, can he really stop smoking just from tomorrow? Yes he can. Those things can happen still we can play at those probabilities thats why we can trade the market with our bias not with statistical rational.

My conclusion is, price is random but price has equilibrium (this is basic demand and supply) as a trader our job is to find the relative equilibrium and measure if this thing is above E or below E. Is there any ceiling or floor in the market and work those around.

Price is random.
  • #168
  • Apr 15, 2008 11:27am Apr 15, 2008 11:27am
This is my last post in this thread for the argument FOR the market being random:

We take the definition of the word "random":

"Having no specific pattern, purpose, or objective: random movements."

Most will say "I see patterns all the time and governments have objectives, so therefore the market is non-random"But if the market is non-random, then the possibility exists that its every movement could be predicted based upon recognizable patterns, objectives, and purposes. The truth is though, that the future will always be different than the past, and therefore different patterns, objectives, and purposes will make forex random unless you are able to know things in advance. Who believes this is possible to predict forex's every move? I don't. Why? Because everybody loses at one point or another.

Now some will say, just because the market is non-random, doesn't mean there is a possibility that every move could be predicted. But if it is not random, patterns exist, and where patterns exist there's a possibility of an equation though as you would say it would have to be complex. I might agree with this that this equation would be very complex, and that's why the market APPEARS to be random. But my guess is that this super equation would have random variables. Variables that we as humans don't even know yet. Some might call it the chaos theory, but I believe it could be anything.

To me this argument is like saying that the universe is non-random because there are inherent chemical bonds, etc. (I'm not a science major here). But the question still remains, where did matter come from? It's this random factor that exists in all things that we believe to be structured.
  • #169
  • Apr 15, 2008 11:43am Apr 15, 2008 11:43am
Quoting Xaron
The market isn't random because it's the sum of human decisions. Psychology is very important.

I agree that there is a lot of noise in the lower timeframes.

Regards - Xaron
And there is no noise in the monthly charts? Define noise. 1 minute chart what is noise? 10 - 29 pips movement? Monthly chart - 500 - 2000 pips movements? So which TF doesn't have noise IYHO? Noise is what you think is irrational movement to your normative expectations of market direction. Noise is why we have FF and this thread. Noise is randomness.

End of my contribution to this inane thread.
  • #170
  • Apr 15, 2008 12:02pm Apr 15, 2008 12:02pm
Quoting kharvell
This is my last post in this thread for the argument FOR the market being random:

We take the definition of the word "random":

"Having no specific pattern, purpose, or objective: random movements."

Most will say "I see patterns all the time and governments have objectives, so therefore the market is non-random"But if the market is non-random, then the possibility exists that its every movement could be predicted based upon recognizable patterns, objectives, and purposes. The truth is though, that the future will always be different than the past, and therefore different patterns, objectives, and purposes will make forex random unless you are able to know things in advance. Who believes this is possible to predict forex's every move? I don't. Why? Because everybody loses at one point or another.

Now some will say, just because the market is non-random, doesn't mean there is a possibility that every move could be predicted. But if it is not random, patterns exist, and where patterns exist there's a possibility of an equation though as you would say it would have to be complex. I might agree with this that this equation would be very complex, and that's why the market APPEARS to be random. But my guess is that this super equation would have random variables. Variables that we as humans don't even know yet. Some might call it the chaos theory, but I believe it could be anything.

To me this argument is like saying that the universe is non-random because there are inherent chemical bonds, etc. (I'm not a science major here). But the question still remains, where did matter come from? It's this random factor that exists in all things that we believe to be structured.
That statement is very wrong. All because something is not random, does not mean it can be predicted with absolute certainty.

Put yourself in this scenario. I tell you to predict the next number in the sequence, and also tell me if the market is random or not.

Here is the sequence: 1 - 2 - 3 - 4 - X.

Logic would tell you that the next number will be 5, but watch as I play out the rest of the sequence.

1 - 2 - 3 - 4 - 3 - 4 - 5 - 6 - 5 - 6 - 7- 8 - ....

You say this is a random market because we could not predict the future movement. In fact it is actually a very structured market. The pattern is to go up 3, down 1, then up 3 again, down 1, up 3 again, etc..

All because you weren't able to predict the future movement does not mean it is a random market. It just means you weren't able to accurately see the whole picture.

The same thing happens in the market. It moves up and down based on events, transactions, etc. that we can not accurately PREDICT. Is the market random though? No. It is the sum of all those events, transactions, etc..


The universe is also not random. You're making the same mistake in comparing where the matter came from. You're saying we are unable to predict future events that affect the market. The market is still structured around those events though. As I mentioned, if it were random then the USD would be able to appreciate no matter how terrible the US economy is doing.

You're saying the universe is random because we don't know where the matter came from. The universe itself is not random though. There are very structured rules set in place that govern the creation of new planets, stars, etc.. Physics. What caused the creation of physical laws is irrelevant to the fact that the universe is governed by those rules, and therefore it is not random.

We're making two different arguments. I'm arguing the market is not random. You're arguing that the market can not be predicted. There is a big difference.
  • #171
  • Apr 15, 2008 12:10pm Apr 15, 2008 12:10pm
Quoting permanentjaun
That statement is very wrong. All because something is not random, does not mean it can be predicted with absolute certainty.

Put yourself in this scenario. I tell you to predict the next number in the sequence, and also tell me if the market is random or not.

Here is the sequence: 1 - 2 - 3 - 4 - X.

Logic would tell you that the next number will be 5, but watch as I play out the rest of the sequence.

1 - 2 - 3 - 4 - 3 - 4 - 5 - 6 - 5 - 6 - 7- 8 - ....

You say this is a random market because we could not predict the future movement. In fact it is actually a very structured market. The pattern is to go up 3, down 1, then up 3 again, down 1, up 3 again, etc..

All because you weren't able to predict the future movement does not mean it is a random market. It just means you weren't able to accurately see the whole picture.

The same thing happens in the market. It moves up and down based on events, transactions, etc. that we can not accurately PREDICT. Is the market random though? No. It is the sum of all those events, transactions, etc..


The universe is also not random. You're making the same mistake in comparing where the matter came from. You're saying we are unable to predict future events that affect the market. The market is still structured around those events though. As I mentioned, if it were random then the USD would be able to appreciate no matter how terrible the US economy is doing.

You're saying the universe is random because we don't know where the matter came from. The universe itself is not random though. There are very structured rules set in place that govern the creation of new planets, stars, etc.. Physics. What caused the creation of physical laws is irrelevant to the fact that the universe is governed by those rules, and therefore it is not random.

We're making two different arguments. I'm arguing the market is not random. You're arguing that the market can not be predicted. There is a big difference.
I see what you are saying, and there are valid points within mainly about physical laws, but there is something beyond physical laws. This boils down to a matter of personal opinion. The first and last part I still disagree with you on, but for the sake of tediousness (I'm tired of the discussions about this) I will say nice post, and appreciate your time.
  • #172
  • Apr 15, 2008 12:16pm Apr 15, 2008 12:16pm
Quoting kharvell
I see what you are saying, and there are valid points within mainly about physical laws, but there is something beyond physical laws. This boils down to a matter of personal opinion. The first and last part I still disagree with you on, but for the sake of tediousness (I'm tired of the discussions about this) I will say nice post, and appreciate your time.
Get ready for a thread named "god move the price? or price is secular" and other theological aspect of trading as well.
  • #173
  • Apr 15, 2008 1:55pm Apr 15, 2008 1:55pm
Quoting StockKJay
However, unpredictable doesn't equal random. Unpredictable is not knowing what will happen, random is believing there is no explanation for what will happen.

That's an excellent way to describe the distinction.
  • #174
  • Apr 15, 2008 3:31pm Apr 15, 2008 3:31pm
Who gives a shit whether it's random or not!

What's important is, can money be made from it?
  • #175
  • Apr 15, 2008 4:01pm Apr 15, 2008 4:01pm
I see there are some eloquent discussions and then forexmoments chimes in with a well thought out thesis to another discussion. Another thread please.

Jay nailed it as usual. If you are clued in it is predictable about <5% of the time (in my case). Outside that it's a war zone being faught by metaphorical bulls and bears. Notice at the end of every 15minute candle there is an increase in volume in an attempt to sculpt the candle. Now if you are clued in you know how to connect tops and bottoms to make what Tom DeMark so selflessly calls Tom DeMark lines. (That was a pointless joke. He calls them that but we all call them trendlines.) So when the 15minute close goes across the trendline you get in. There is a successful school of us that also play the other side of the coin. I did today as a matter of fact and it's a more exact science trading the rejection of a trendline. So you ask do I know if price will bounce down 30 pips from my 4hr trendline I say, "yes, 95% of the time after a corrective pattern plays out that will happen, quite certainly yes in the absence of news. Unequivocally yes."
It really is that easy.
  • #176
  • Apr 18, 2008 2:43pm Apr 18, 2008 2:43pm
The key here is to develop a system that works for you, something you have created with your own thoughts and hard work. When you trust your system you trust the trades you take, and the probability for success increases.
  • #177
  • Edited 11:14pm Apr 20, 2008 10:45pm | Edited 11:14pm
this is a funny question, because it can only be answered with "yes and no." you cannot predict day-to-day human behavior, but at the same time you have long-term "trends." i guess it really just depends on what type of trader you are - because what affects a long-term investor, and in no way resembles randomness (long term trend,) has no bearing on a day trader who just wants to know where price action will be 3 hours from now and trades according to indicators that "supposedly" take away the randomness. oh, the irony
  • #178
  • Edited 6:36pm Jun 27, 2008 5:02pm | Edited 6:36pm
Just discovered this thread courtesy of a link in Soultrader’s clinic.

IMHO it depends on how one defines "random". The crowd sentiment that causes price movement is unquestionably the result of underlying rationale, but for me – as a technical analyst – all I see is a pattern of numbers, summarized by candles, that I’m hoping I can somehow exploit for profit.

I find it curious that folk believe that the probability of the next tick being an uptick is exactly 50/50, but also believe that by "cutting losses short and letting profits run", it’s possible to be a long-term profitable trader. If (and I stress IF) a "trend" has an equal probability of ending at one point as at any other, then ALL exit strategies have a statistical expectancy of zero.

A coin toss is exactly 50/50, and it will produce trends of heads and tails, but these trends have no predictive value. For "cutting losses short and letting profits run" to provide any kind of edge, the market has to somehow "trend" in a manner that is qualitatively different from a coin toss.

There are folk that believe that it’s possible to succeed using "random" entries. A completely random entry system would trade "against the trend" 50% of the time. And it would also completely ignore S/R, momentum, rejection, breakouts, statistical deviation, volatility, sessions, timing of news announcements, and any other concept that arguably provides an edge.

The forex market supposedly has no structural bias, and also doesn't care whether I'm entering or exiting. Consequently, if there's such a thing as an entry technique that provides me with an edge, then I should be able to apply the same technique (in reverse) to gain a similar edge with my exits.

If it is possible for at least one technical trader, by applying any kind of technique(s) in systematic fashion, to profit indefinitely, then price movement must in some small way be "predictable", even if he is oblivious as to exactly how. To me, that is mathematically self-evident.

David
  • #179
  • Edited 6:37pm Jun 27, 2008 6:20pm | Edited 6:37pm
Quoting hanover
Just discovered this thread courtesy of a link in Soultrader’s clinic.

IMHO it depends on how one defines "random". The crowd sentiment that causes price movement is unquestionably the result of underlying rationale, but for me – as a technical analyst – all I see is a pattern of numbers, summarized by candles, that I’m hoping I can somehow exploit for profit.

I find it curious that folk believe that the probability of the next tick being an uptick is exactly 50/50, but also believe that by "cutting losses short and letting profits run", it’s possible to be a long-term profitable trader. If (and I stress IF) a "trend" has an equal probability of ending at one point as at any other, then ALL exit strategies have a statistical expectancy of zero.

A coin toss is exactly 50/50, and it will produce trends of heads and tails, but these trends have no predictive value. For "cutting losses short and letting profits run" to provide any kind of edge, the market has to somehow "trend" in a manner that is qualitatively different from a coin toss.

There are folk that believe that it’s possible to succeed using "random" entries. A completely random entry system would trade "against the trend" 50% of the time. And it would also completely ignore S/R, momentum, rejection, breakouts, statistical deviation, and any other concept that arguably provides an edge.

The forex market supposedly has no structural bias, and also doesn't care whether I'm entering or exiting. Consequently, if there's such a thing as an entry technique that provides me with an edge, then I should be able to apply the same technique (in reverse) to gain a similar edge with my exits.

If it is possible for at least one technical trader, by applying any kind of technique(s) in systematic fashion, to profit indefinitely, then price movement must in some small way be "predictable", even if he is oblivious as to exactly how. To me, that is mathematically self-evident.

David
What may be predictable is not so much the markets, but the players in it.
Edit: When I say market, I am refering to a random or perhaps non random game. In this case Rock paper scissors.
Dopey posted an interesting article in the trader forum about the NN trader IOCAINE POWDER. It did not predict markets, it predicted compeditors actions, based on their intentions. Using a riskier approach of the third level of a stance to prediction called intended stance. This approach was remarkably successful and the author has made the source C code available. Dan Egnor

Here is the post.
http://www.forexfactory.com/showthread.php?t=93671

And here is the article and source code I found on the net. Note that it is open source as long as the credit is given.

http://www.ofb.net/~egnor/iocaine.html
Attached File(s)
File Type: txt iocaine.txt   6 KB | 488 downloads
File Type: txt iocaine powder strategy.txt   8 KB | 558 downloads
  • #180
  • Jun 27, 2008 7:52pm Jun 27, 2008 7:52pm
Quoting smjones
What may be predictable is not so much the markets, but the players in it.
Edit: When I say market, I am refering to a random or perhaps non random game. In this case Rock paper scissors.
Dopey posted an interesting article in the trader forum about the NN trader IOCAINE POWDER. It did not predict markets, it predicted compeditors actions, based on their intentions. Using a riskier approach of the third level of a stance to prediction called intended stance. This approach was remarkably successful and the author has made the source C code available. Dan Egnor

Here is the post.
http://www.forexfactory.com/showthread.php?t=93671

And here is the article and source code I found on the net. Note that it is open source as long as the credit is given.

http://www.ofb.net/~egnor/iocaine.html
Scott, thanks very much for these links. Dopey’s post is a very thought provoking read.

Since I can’t post in the Trading Room, I’ll respond here.

Paper-scissors-rock is a game of trying to outguess your opponent. There are two thought streams in process simultaneously: I’m trying to predict what my opponent will do, and make the correct counter-play, while he’s doing likewise. It ultimately becomes a question of who’s thinking at what level. For example, I expect that he will play scissors, so I choose rock. But then I realize that he will have anticipated all of this, and will therefore choose paper, so I choose scissors. But wait: he will have gone to the next level, and will choose rock, so now I’m back to paper. And so on in an infinite circle. In other words, any result is no better than a randomly chosen guess, which would be effectively have the same result as pitting Iocaine Powder (or any bot) against itself.

And that’s just one of the two simultaneous thought streams. Should I be playing "defensively" (start from the standpoint of what I think he will play) or "offensively" (start from the standpoint of what he is likely thinking that I will play)?

[Edit: OK, I’ve read the second link now, and I note that he’s picked up on the two "thought streams" P0, P1, P2, etc and P’0, P’1, P’2, etc. and the "infinite circle". There’s subsequently some very interesting material as to how he overcomes all this…]

IMHO, the chess playing algorithm, although more complex in that it must analyze future permutations of the different moves of the different pieces, is less sophisticated in this sense: it doesn’t have to outguess its opponent, but merely make the best possible move, according to a set criteria, at each point.

I’m probably missing something, but to be fair, I don’t see how this is relevant to technical trading. Firstly, how do we determine the participants’ collective intentional stance, other than by looking at price (assuming there is no useful volume or market depth data available)? Secondly, even if we knew that pattern A in context B on a price chart is the result of a certain (crowd-based) intentional stance, how does that benefit us? What we need to know is: Does it result (on balance of probability) in a certain outcome?: in which case we need look no deeper than a statistical back-test to satisfy ourselves of that fact. Moreover, the bottom line is that, regardless of any intentional stance, we must buy and sell at a price, and price is the objective measure that’s shown on the chart.

If I understand correctly, Iocaine Powder attempts to "understand" an underlying motivation ("intentional stance"), and then exploit the situation by taking appropriate counter-measures. I guess that’s somewhat akin to "contrarian" trading. If price movements are a result of a bias in the supply-demand equilibrium, i.e. that if buying enthusiasm is currently greater, causing prices to rise, then it makes sense to move with the herd, but (somehow) with as little "lag" as possible. I assume that’s why many profitable traders recommend entering in the direction of the current move.

"What may be predictable is not so much the markets, but the players in it."
I’m not sure that I understand you here. If the players’ collective intention can be predicted (and this would supposedly require some kind of omniscient window into their thought processes), then the result will be some kind of predictable pattern in the subsequent price movement, i.e. the market.

Anyway, I’m not trying to challenge either you or Dopey here, just attempting to get my head around "intentional stance", and how it might possibly be helpful to the technical trader. I will continue to read and ponder.

Thanks again for the links.

David
0 traders viewing now