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Long term Profits within Negative Expectancy

  • #181
  • Aug 22, 2009 2:09am Aug 22, 2009 2:09am
Quoting mrjtdude
Just google "brownian motion einstein" or "radioactive decay randomness".

Better yet view this video.
http://video.google.com/videoplay?do...+devaney&hl=en

Another good link.
http://math.bu.edu/people/bob/
LOL, let me refresh the original question.

"Is there a chance you can explain randomness in a way the masses can understand?"

I'll answer it for you, no there is NOT....
  • #182
  • Aug 22, 2009 3:05am Aug 22, 2009 3:05am
Quoting FrankenPip
Hi pipmutt:

It's a definition game. It's not a question of repeating patterns and exploitation, it is a question of whether or not the market is random. If pattern A always results in outcome B then it is not random. If only a probability exist that pattern A will have a result of outcome B then it is random.

Unless, of course, you want to change the definition of random.

Hi FrankenPip

It's an information game. The market isn't random, there are clear and concise reasons for every change in price, price doesn't just change on it's own for no reason.

I think it was you who asked earlier if we could predict every tick. Yes we could, if we had sufficient information. We obviously don't have all that information so at times it appears random to us and at other times it doesn't, we can see clear patterns in participants behavior and exploit them based on probability.
  • #183
  • Aug 22, 2009 6:19am Aug 22, 2009 6:19am
Quoting pipmutt
Hi FrankenPip

It's an information game. The market isn't random, there are clear and concise reasons for every change in price
Perfectly put and all the maths in the world don't change the market structure and how price forms.

If the market is random, then:
- there is no link between where price is going and where price has been (ergo, there is no support and resistance)
- the reasons for entering a trade across the world are so in balance all the time (fundamental, technical, quantative, sentiment, functional) that the market is never tilted to one side or another, so you cannot exploit those gaps
- humans do not show any form of collective behaviour which can be exploited
- there are no price inefficiencies, only illusions. Everything is factored into the market price right at this current moment.

You don't need a single equation to pick holes in that argument. And for the record, Taleb never said the market is random, only the people underestimate the role of randomness in the markets/life. There's a big difference.
  • #184
  • Aug 22, 2009 7:20am Aug 22, 2009 7:20am
Quoting triphop

If the market is random, then.......

- humans do not show any form of collective behaviour which can be exploited......
A very significant point, and one which retailers for example spend billions of dollars every year on analysing in order for them to exploit it, even down to finding patterns in consumers unpredictable impulses.
  • #185
  • Aug 22, 2009 7:45am Aug 22, 2009 7:45am
Quoting yonnie
dont you mean: the difference between the day`s high and the low?
if not, please explain.

thanks
No, Yonnie.

Although there are more than one formula to calculate price volatility, I will give you something to ponder on:

If (as you say) the difference between HIGH and LOW is the correct way of proceeding, what does the result tell you?

Would it tell you anything about price direction? No, it would only tell you that daily ranges are either increasing or decreasing over time.

If in contrast you calculate the the difference between the HIGH and the CLOSE, what would be possible logical conclusions you could draw from the resulting levels?

You could find that in a rising market, the HIGH (of the bar or candle) will be at or very near the CLOSING price. If that relationship changes, i.e. the distance between the HIGH and the CLOSE gets bigger, the price is more likely to turn and prices will start to closing further away from the high, in fact they will start CLOSING nearer to the LOW.

I hope this helps.

regards
daytrading
Enter Signature
  • #186
  • Aug 22, 2009 11:24am Aug 22, 2009 11:24am
Quoting TwoBuckChuck
Interesting that we have these fictitious claims about randomness when an adequate definition of randomness cannot be agreed upon by the smartest minds on this planet. It's even argued that randomness doesn't even exist.

If you can define it and prove its existence, congrats, you're guaranteed the next Nobel Prize Award. What are you doing here stroking your Ego on a public forum?!?!
That's because the smartest minds sometimes act like a bunch of bloody wankers trying to one-up each other.

Doesn't tossing a coin prove randomness?
  • #187
  • Aug 22, 2009 11:27am Aug 22, 2009 11:27am
Quoting triphop
Perfectly put and all the maths in the world don't change the market structure and how price forms.

If the market is random, ...
The image is getting clearer. How about this:

The market may or may not be random but the outcome of any particular trade is.
  • #188
  • Aug 22, 2009 11:31am Aug 22, 2009 11:31am
Quoting pipmutt
I think it was you who asked earlier if we could predict every tick. Yes we could, if we had sufficient information. We obviously don't have all that information so at times it appears random to us and at other times it doesn't, we can see clear patterns in participants behavior and exploit them based on probability.
Based on statistics not probability. May appear that I am splitting hairs but statistics entail the past and probability entails the future.

A coin toss has a probability and it does not change. The statistics of the last X coin tosses may or may not equal the probability. The statistics have no bearing on the next flip and hence have no effect on the probability.

I'll vouch for you. Good work, Mate.
  • #189
  • Aug 22, 2009 1:43pm Aug 22, 2009 1:43pm
Quoting gbppip
Based on statistics not probability. May appear that I am splitting hairs but statistics entail the past and probability entails the future.
Yep, fair point, I stand corrected!
  • #190
  • Aug 22, 2009 3:44pm Aug 22, 2009 3:44pm
Quoting gbppip
The image is getting clearer. How about this:

The market may or may not be random but the outcome of any particular trade is.
The market is neither random nor necessarily is the outcome of a given trade. The market would not exist if these things were true: the market exists because it can be predictably manipulated by certain players.

I have a hard time believing that people who have experience trading would say that this is a random market. One of the easiest trades to undertake, one any beginner should immediately learn, relates to the predictable momentum shown by price in certain situations - the breakout trade during news events is typical. If the price (of E/U, for instance) is in a ranging mode and a big set of news favorable to the EZ hits the wire, then E/U price will go up. Bull or bear-flag break-outs are also relatively predictable.

I successfully trade these and other scenarios based on predicting short-term price momentum all the time. I will dare myself to document a running tally of these trades and report them here periodically. Every trade I correctly predict and complete is another brick in the wall of proof that the movement pf price is predictable. Math is great, but the increase in the bottom line P/L of my accounts is the only proof that matters to me.

(if anyone is interested - I will document trades in my trading journal so as not to clutter this thread, & will report results here, until this thread peters out.)
"If The Fool persists in his Folly he will become wise." - William Blake
  • #191
  • Aug 22, 2009 6:30pm Aug 22, 2009 6:30pm
Early in my trading while I was studying trend lines and S/R, I was very curious what those two things were and what they meant. I got tired of looking at price charts and wanted to generate some oscillating data myself that I could study and try to glean some insights from. There was a nickel or penny sitting next to me on the desk, I can't remember which, but I grabbed the thing, and began flipping it while recording the results over time. On account of my ADD I gave up at 842 flips (I know, lazy scotty b), but then I charted my results and since I was studying TLs and S/R, I was fascinated at what I found.

Instead of doing what most of you stat guys do (record data linearly), I assigned heads a +1 value and tails -1 (I needed oscillating data)
(heads: H) (tails: T)
HHHTTHHHTTHTHHTTTHHHTTHTHTH

Instead:

+1+1+1-1-1+1+1+1...

Also, most of you would look at the Heads and tails data as being on either side of a 0 line.
HH HHHHH HHHHHHHH
0-----------------------------------------------------------------
TTT TTTTTTT

The mistake you then make (in the context of being able to predict the future) is chop the data up and separate the heads and tails for the sake of your stat analysis, instead of 'playing the ball as it lies.' When you take the data out of it's natural setting, you ruin the picture that data/time paints and you are left to your probabilities. You fail to see the trends in the data and only see occasional long runs of heads or tails, or profits and losses.

Like I said though, I was studying TLs and S/R trying to figure out what those things really were. (yes this has to do with whether or not there is randomness in the market/life). Many traders would beleive that at an extreme high for example (resistance) that lots of selling preassure came into the market and 'pushed' the market down. You might even expect to see a ton of sell volume at or near that high. I can tell you all from experiance that the volume in these places is really the exact opposite of this, and often pretty light. Hmmmmm. Interesting huh? You think because you are trading off of S/R that you are trading with the 'big players?' This is a fallacy. Look at volume data for yourself if you are interested (There are other ways to trade along with the big guys if thats really your thing).

Anyways...A little bit about S/R..based on my own private observations. I beleive that these areas on our charts (even our coin flipping) are governed by natural law. Price must move either up or down from it's last current positon and forward in time. Those S/R levels to me, are like natural balance points or places that the data itself cannot forget. There are places where the market naturally can and cannot go based on it's own natural limitations/resources.

There is much more to it than that, but I am going to stop here. So is the market random? It all depends on the way in which you deal with the data. So to answer my own question, yes and no. Thats the beauty of it though.

I'll attach my coin flipping chart and also a shot of euros swing low on friday so you can see a differant perspective on S/R in regards to the volume.

Regards,

Scotty B
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  • #192
  • Aug 22, 2009 6:32pm Aug 22, 2009 6:32pm
Quoting The Fool
The market is neither random nor necessarily is the outcome of a given trade. The market would not exist if these things were true: the market exists because it can be predictably manipulated by certain players.

I have a hard time believing that people who have experience trading would say that this is a random market.
It doesn't matter whether on not the market is random. What matters is what happens after you enter the trade, Mate.

I have a hard time believing experienced traders think they can predict the outcome of their next trade. It is the belief that the market can be predicted that is part of the reason 95% of traders fail.

I'll apologize to the thread starter if the discussion of expectancy is taking a backseat to randomness at the moment.
  • #193
  • Aug 22, 2009 6:36pm Aug 22, 2009 6:36pm
Quoting Scotty B
Early in my trading while I was studying trend lines and S/R, I was very curious what those two things were and what they meant. I got tired of looking at price charts and wanted to generate some oscillating data myself that I could study and try to glean some insights from. There was a nickel or penny sitting next to me on the desk, I can't remember which, but I grabbed the thing, and began flipping it while recording the results over time. On account of my ADD I gave up at 842 flips (I know, lazy scotty b), but then I charted my results and since...
Interesting post, Mate. Read it twice over. You are not suggesting that coin flips have memory or are you?
  • #194
  • Aug 22, 2009 6:53pm Aug 22, 2009 6:53pm
Quoting gbppip
Interesting post, Mate. Read it twice over. You are not suggesting that coin flips have memory or are you?
I'm not sure I would necessarily call it memory or not, my point was simply that you need to consider where price is in the context of where it's been.
  • #195
  • Edited 7:24pm Aug 22, 2009 7:00pm | Edited 7:24pm
Hummmmmmmmmm.

This chart from Scotty B is the greatest food for thought I ever had in trading business.

That means we can continue "trading" in Vegas over the weekend.

A closer look however shows that:

1. It looks like a one minute or five second chart with a lot of noise.
2. Trend-lines of a coin flip are not as precise as we normally see in a currency pair
3. There are trends and consolidtions but "CA" (Coin Action) does not conolidate for a "reasonable" period of time as in the case of currencies .
4. Horizontal resistances are not very visible

This is indeed based on just one series of coin flips but gives me confidence that currency or commodity trading is different from coin toss.

Ps. I am not sure if I had same analysis if wasn't aware that this was a chart of coin flips. Will apprecite if someone shows it to a trader to get an opinion without telling that this chart is a result of coin flips
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The Thief of Wall Street
  • #196
  • Aug 22, 2009 7:13pm Aug 22, 2009 7:13pm
there seems to be a lot of confusion what the term "random" actually means. i suggest that, before you argue about randomness of the markets, you first agree on a definition of what "random" means.

some of you seem to define "random" as something that is completely random, lacking any sort of bias or correlation.

another definition would be, that "random" is everything, that is not deterministic. (deterministic system is such a system where every outcome can be exactly determined before the outcome occurs, without any uncertainty)

i actually prefer neither of these two definitions when talking about randomness in the context of financial markets. what i would describe as "random" in this context is something, that one could call a "deterministic chaos". By that i mean, that if we would have the complete information about every participant and every process that is influencing the workings of the markets, then we could make a deterministic predictions about the price movement. But of coarse we do not have such information, and the complexity of the system is so wast, that in the end we have no other choice than to treat the market as if was a stochastic (opposite of deterministic) process.

my two cents
I'm not insane; my mother had me tested.
  • #197
  • Aug 22, 2009 7:47pm Aug 22, 2009 7:47pm
Wow, I do not know what has happened to my little thread over the last couple of days, but we have had some very substantial posts. I have some thoughts, but 2 or 3 of the posts are so rich that I am going to have to give them further thought before I comment. I don't want to pop off without a clear understanding of what I want to say. l know we have floated off into randomness. That is ok, because randomness lies at the core of our problem. I will say this as about randomness. The market is random, and it is also not random. For some players it certainly is not. If a large hedge fund decides to run stops becuase it has the muscle to do so, for them the market is not random. They have the power to push price in a known direction. However, for small retail daytraders the market has, what I like to call, practical randomness. By that I mean that some players on higher levels might not be experiencing randomness, but to the small trader without inside knowledge the practical experience is random price action. Gaining knowledge about what banks or hedgefunds are doing is one way to gain the edge I am talking about... hence changing negative expectancy to positive. I keep emailing Citi, BOA, and HSBC about their trading plan for the day... but so far they aint talking.
  • #198
  • Aug 22, 2009 7:58pm Aug 22, 2009 7:58pm
Quoting Chicky
Hummmmmmmmmm.

This chart from Scotty B is the greatest food for thought I ever had in trading business.

That means we can continue "trading" in Vegas over the weekend.

A closer look however shows that:

1. It looks like a one minute or five second chart with a lot of noise.
2. Trend-lines of a coin flip are not as precise as we normally see in a currency pair
3. There are trends and consolidtions but "CA" (Coin Action) does not conolidate for a "reasonable" period of time as in the case of currencies .
4. Horizontal resistances are...
I never said anything about the trading of the coin flip data, it is there to show places of S/R and how new flips respond in those areas. But if you did trade that data where would you take positions and why?
  • #199
  • Aug 22, 2009 11:50pm Aug 22, 2009 11:50pm
Quoting FX-Petra
I just heard from BigFoot, Santa Claus, and the Easter Bunny

I keep emailing Citi, BOA, and HSBC about their trading plan for the day...
You might have taken "thinking outside the box" just a little too far outside, you may want to re-think your strategy
  • #200
  • Edited 12:10am Aug 23, 2009 12:01am | Edited 12:10am
Quoting Scotty B
I never said anything about the trading of the coin flip data, it is there to show places of S/R and how new flips respond in those areas. But if you did trade that data where would you take positions and why?
Neither I. I was just trying to say that some of our trading tools seem to work in pure gambling situations.

For example, I would have played the following two trendline breaks with 1:1 risk /reward .......... and interestingly both of these "trades" would have been a success

Next time, I will try this in a Casino
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The Thief of Wall Street
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