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Long term Profits within Negative Expectancy

  • #241
  • Edited 10:07pm Aug 23, 2009 10:02pm | Edited 10:07pm
Quoting pipmutt
Ok, now this is interesting. So why did you decide to go that route instead of saying you've had more blacks so it's about time for another red.

I might be misreading this, I see so out of 18 spins you take the leader? Do you wait for all 18 before you make a bet? And what happens if you lose the bet, do you keep going according to the plan ie every 18, and would you double up (martingale)?

Edit: (thinking about it it's your edge so you might not want to say which is fair enough)
I love to share everthing I know or believe. Let me try to articulate it in better words, you probably missed the point.

1. Martingale is sure suicide. I started my research with martingale, but now I hate it.

2. No. The idea is not to go for balance, but imbalance. If you see more reds, play reds. If you see more blacks, play blacks. Why? because black and reds will balance in "long-run" and we do not stay in casino for long enough, nobody does and nobody can ever stay that long in a casino......... human life is limited and therefore cannnot see a "long-run" in a game of 38 outcomes (37 in many countries)

3. As soon as I find a table, check last 9 from the display, pick the leader from last nine and follow this leader for next nine. If same leader, again follow this leader for next block of 18........ these 18 spins now become my blocks. Since 18 is an even number, I do not change my leader unless it is "defeated"

First nine = red is leader
Next nine = I play red, everytime
If red still leader out of total 18 = play red for next 18
If red no more leader = still play red (because it was leader in the first block of 18 but not in the next and therefore not defeated yet.)
If red no more leader = change to new leader (black) and play black for next 18 spins.

4. I consistently bet same amount on every spin, do not vary my bets.
The Thief of Wall Street
  • #242
  • Edited 1:15am Aug 24, 2009 1:01am | Edited 1:15am
Quoting FX-Petra
I have previously stated my postion on market randomness. It is certianly not random to some players...and most certainly is to others. To everyone invloved in this discussion, it is random. It is random with negative expectancy, which is about the worst game you can play. I know many posters do not believe the market is random. For their evidence they present their past results. Even the US Govornment (a sorry bunch of sots if ever there were) makes financial instutions warn that "Prior results are not predictive of future performance". It does...
Quoting GlobalMacro
Hi FX-Petra,

Correct me if I'm wrong...my conclusion-- reading your comments -- is that your stance regarding trading the markets for profits is mainly based on the pillars that the markets are random and that anyone able to extract profits is either doing it by chance or relying on his/her skills.
If so, how can you, as a mathematician, prove that markets are random in specific and certain terms?
And to your second point:
If a trader does not primarily rely on his/her skills, what then do you suggest he/she should...

Your emotionality in a difficult environment such as trading is understandable.


However you haven't unfortunately responded to any of my questions at all yet.

Again:

1) How do you prove that the markets are "random" in specific and certain terms?

2) if, in your opinion, trading success implies trader applying skills in a "random" environment --
how then that environment can be a "random" one?

i.e.
if your assertion were to be true, could you apply skill just as well in winning
the lottery, and if yes how?

regards,
GM
Hear the music before the song is over ...
  • #243
  • Aug 24, 2009 1:35am Aug 24, 2009 1:35am
Quoting FX-Petra
If anyone can predict price action on any kind of consistent basis they are already rich beyond imagination.

I am still trying.
I understand your frustration, maybe you need to look at the market and trading from a different perspective as there are several common misconceptions in your posts. Good luck!

Quoting FrankenPip
The placement of the food is randomly determined
Right, so there's the difference.

Quoting FrankenPip
And you are also denying the market the chance to take back what you took.
That's a fairly common psychological problem among traders and it can lead to all sorts of problems. It's relatively easily to overcome by thinking of each trade as just one of a series of trades, individually it's outcome is irrelevant win, lose, or draw.

Quoting Chicky
The idea is not to go for balance, but imbalance
Thanks for the explanation Chicky, I'm going to try that out to satisfy my own curiosity (research is a good excuse for a night out at the casino!). capitalist88, thanks for the link!



Unless there's anything new I think I'm going to leave you guys to it, thanks for the great thread and discussions
  • #244
  • Edited 3:54am Aug 24, 2009 3:39am | Edited 3:54am
Quoting hanover
Unless a roulette wheel is physically biased in some way, or there are otherwise 'external forces' that defy mathematical reasoning, then a distribution of spins must respect both expectancy theory and the law of large numbers. The latter dictates that any apparent trendlines or S/R levels have neither mathematical basis nor objective statistical significance. To suggest otherwise effectively means that, for whatever reason, the wheel does not deliver a truly random 50/50 red/black outcome, which is crucial to casinos' continuing to grind out a...
Hi Hanover and Global Macro and Chicky,

Great posts. I think we might be getting somewhere here.

As many others, especially thread starter Petra, I do respect mathematics as the 'power behind the throne'.

When bringing up the 'law of large numbers' though, I believe that often a small but important aspect gets left outside the field of consideration:

Momentum

Everybody who is familiar with the law of large numbers knows that effectively after a large enough sample (1000 attempts to 'flip a coin' for arguments sake), the result will be very near or 50/50.

The above does not exclude the regular occurrence of finding long sequences of one side of the 'coin', 'even or red on the roulette wheel' and in our context prolonged directional moves in the financial markets ususally defined as trends.

According to many traders, MOMENTUM is what lies behind those sequences of 44 times red on the roulette wheel, 35 times heads during a large sample of coin flips and possible trends developing in the markets.

While Global Macro called this behaviour 'regularities in an otherwise random environment' or something similar, it nevertheless is a regular occurrence. Someone I know has written once in connection with trading that he witnessed in a casino (pardon the reoccurring analogy) that by the time red had come up 11 times on the wheel, 50% of the players had now placed there money on black - because they believed (according to the law of large numbers) that the chance of red continuing could only decrease.

After another 30 times of red had come up uninterrupted, the majority of the evenings participants had lost their stakes for that game and the groupier said that this happens all the time - suddenly, one specific occurrence repeats in an uninterrupted sequence....but only a minority on the table takes advantage of what is referred to during that phenomenon as momentum.

So, the law of large numbers means only that at the end of the LARGE sequence either side will be balanced - what happens during that large sample though can be classed as biased at times, especially when momentum gathers. As I mentioned in one of me previous posts, that type of momentum is what (in the fin. markets) gets these sequences (trends) going - however short lived they might be: when one side of the market takes over - so to speak - the noise levels on the floor would indicate so.

For the purpose of this thread (and this is for you, Petra), if you are able to gauge when the momentum builds up (during your hypothetical 10K trade sample series), that is when you put on your bets - but if you are like the punters in the casino judge each and every single trade as balanced (in terms of chance) and ignore the occurrence of momentum (leaving or not leaving out the negative spread - it does not matter), then your own belief stops you from participating in the game when it matters most.

regards
daytrading

P.S. ....it has become interesting again.
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  • #245
  • Aug 24, 2009 4:48am Aug 24, 2009 4:48am
Quoting daytrading
the law of large numbers means only that at the end of the LARGE sequence either side will be balanced - what happens during that large sample though can be classed as biased at times, especially when momentum gathers.
So winning and losing streaks can be attributed to a kind of "probability momentum", so to speak? Makes sense - if I'm understanding it correctly.

Really interesting thread guys.
  • #246
  • Aug 24, 2009 5:19am Aug 24, 2009 5:19am
Quoting FXSurfer
So winning and losing streaks can be attributed to a kind of "probability momentum", so to speak? Makes sense - if I'm understanding it correctly.

Really interesting thread guys.
Hi,

I would in case of the roulette wheel not use the term 'probability' because almost like in the coin flip exercise, one outcome (red or heads) is as likely as the other outcome (black or tails) - of course there is the skew in roulette with the zero that tilt's the chances slightly as well.

Mathematically, the player has no means of influencing either the coin or the wheel. By the same token, the small retail trader (as per Petra's definition for the purpose of the thread) has no means of influencing the market (or its direction).

There is one important difference between the game of roulette, the coin flip and the markets though:

It does not matter how many people during the game of roulette put their money on one coulour - even if the majority of players would bet on red before the next spin, it would have no bearing on the probability of red actually being the next spin's result (same for the coin flip).

In the financial market though, if the majority ( in terms of numbers as well as volume) bets on red (selling), the price will decline as a result. While traders (or market participants) have the ability to have a graph (chart) in front of them to gauge the overall participation level of one particular side of the bet, he/she can decide to participate in the possible building of momentum that in turn would start to create a trend by more and more participants trying to take advantage of it.

Again, on the roulette table, one player observing 18 out of 20 players betting in one direction and subsequently placing a bet in the same direction will make no difference at all - in roulette, if momentum occurs, the player has to pay attention to the amount of times one specific result (red, for example) has happened. Although, as I mentioned, these sequences happen in spite or regardless of the law of large numbers, they are much harder to exploit in a game of roulette than in playing the markets.

regards
daytrading
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  • #247
  • Edited 9:04am Aug 24, 2009 8:33am | Edited 9:04am
Quoting GlobalMacro
Your emotionality in a difficult environment such as trading is understandable.


However you haven't unfortunately responded to any of my questions at all yet.

Again:

1) How do you prove that the markets are "random" in specific and certain terms?

2) if, in your opinion, trading success implies trader applying skills in a "random" environment --
how then that environment can be a "random" one?

i.e.
if your assertion were to be true, could you apply skill just as well in winning
the lottery, and if yes how?

regards,
GM...
As to question # 1: Proving randomness in any forum, market or otherwise, is an exercise in futility. Many great minds have written papers and proofs trying to prove or disprove it's exisitence. Holes can be poked in all of them. I do not care if the market is random in a holistic fashion. As I have stated earlier, it is certainly not random to some players. I only care that it is random to small retail traders, of which I am one. I base my assertion of randomness on the following 2 principals:
1) system tests-- I have tested a large number of systems, many found here at the factory. I have not found one that can accurately predict price action to a statiscally significant degree. Obviously, my efforts are not exhaustive. If you know of such a system I will be happy to test it. I will sign a letter of confidentiality and a agreement of non-use to protect your proprietary system. In the alternative, I can point you toward some independant, third party tester---but they will charge a fee for testing.

2) deductive logic-- if, as a daytrader, you have devised a way to decipher price action and can accurately predict market direction, you are either on your way to being fabulosly rich, or you are already there. In either case, you are not hanging around the message boards questioning the serfs. Unless you enjoy masochistisim (in a good way!)

As to question #2
There are people who have made a lot of money in forex. There are people who have made a lot of money in roulette. Just because you play a game that is random and has negative expectancy does not mean that you cannot win, it just means that if you continue to play long enough, you will certainly lose. You may predict price action correctly 10 times in a row. I may flip heads 10 times in a row. Does that mean your 10 correct predictions were all based on luck? Maybe, maybe not. There is no way to know until you rigidly test your system over a statiscally significant number of trials.

I hope I have answered your questions. If not, please let me know and I will try again.

Regards
  • #248
  • Aug 24, 2009 8:49am Aug 24, 2009 8:49am
Quoting FX-Petra
As to question # 1: Proving randomness in any forum, market or otherwise, is an exercise in futility.
............
1) system tests-- I have tested a large number of systems, many found here at the factory. ........If you know of such a system I will be happy to test it. I will sign a letter of confidentiality and a agreement of non-use to protect your proprietary system. In the alternative,...you enjoy masochistisim

Well...very to the point and analytic academic argumentation you just delivered there (just in case, I highlighted them for easier review).

Yes! you have completely answered my questions.

Now that I know where you're coming from:

Good Luck To You In Your Quest!

regards,
GM
Hear the music before the song is over ...
  • #249
  • Aug 24, 2009 9:11am Aug 24, 2009 9:11am
I will agree with you on one point. If you had access to true market volume data, you could work out an edge. I know some brokers offer volume data from their little bucketshops, but as to total market (or anythng close to that) volume data I am not aware of where to find it. If know where to access such information, I would be forever grateful for a point in the right direction.

Regards
  • #250
  • Aug 24, 2009 9:17am Aug 24, 2009 9:17am
Quoting FXSurfer
So winning and losing streaks can be attributed to a kind of "probability momentum", so to speak? Makes sense - if I'm understanding it correctly.

Really interesting thread guys.
What you are talking about is finding patterns within randomness. Yes, patterns do occur. Problem is, no one can predict where those patterns occur, to what degree they occur, or even know why they occur at all. Posters have correctly pointed out that there is no way (save for cheating) to win long term at roulette. A short term strategy may well work but if you continue to play winnings will reverse.
  • #251
  • Aug 24, 2009 9:51am Aug 24, 2009 9:51am
Quoting FX-Petra
I will agree with you on one point. If you had access to true market volume data, you could work out an edge. I know some brokers offer volume data from their little bucketshops, but as to total market (or anythng close to that) volume data I am not aware of where to find it. If know where to access such information, I would be forever grateful for a point in the right direction.

Regards
Petra,

You don't need to know the data as such. It manifests itself in either a rising of falling graph on your (and more importantly everyone elses) charts.

The 'old' higher high's and higher low's pattern is only one of the ways to get a sense of what is happening in the market place.

Another fact of life in the markets is that you can't apply precision in what is an all around fluid medium of liquidity - the only precision is in the money management and tayloring of the position sizes and numbers, etc.

regards
daytrading
Enter Signature
  • #252
  • Aug 24, 2009 10:12am Aug 24, 2009 10:12am
Quoting daytrading
Petra,

You don't need to know the data as such. It manifests itself in either a rising of falling graph on your (and more importantly everyone elses) charts.

The 'old' higher high's and higher low's pattern is only one of the ways to get a sense of what is happening in the market place.

Another fact of life in the markets is that you can't apply precision in what is an all around fluid medium of liquidity - the only precision is in the money management and tayloring of the position sizes and numbers, etc.

regards
daytrading
If I understand what you are saying, I cannot agree. Price action has nothing to do with volume. During periods of low liquidity, a 100 million dollar order to buy Euro/Usd could move the market 10, 20, maybe even 50 pips. During periods of high liquidity it would be lucky to move it 5 pips. Since you have no knowledge of what true market liquidity is at any moment, you have no way of knowing what affect a certian volume of orders will have at any given point in time. In your defense, I will say that the big gun stop hunters seem to have a good handle on liquidity, and often use periods of low liquidity to run stops. How do they gauge market liquidity accuratley so as to succesfully flush out weak postions and line their pockets? They have access to market information that we do not. As I said earlier, I keep emailing BOA and Citi for their trading plan.... but those greedy bastads just keep ignoring me!
  • #253
  • Aug 24, 2009 10:49am Aug 24, 2009 10:49am
Quoting FX-Petra
If I understand what you are saying, I cannot agree. Price action has nothing to do with volume. During periods of low liquidity, a 100 million dollar order to buy Euro/Usd could move the market 10, 20, maybe even 50 pips. During periods of high liquidity it would be lucky to move it 5 pips. Since you have no knowledge of what true market liquidity is at any moment, you have no way of knowing what affect a certian volume of orders will have at any given point in time. In your defense, I will say that the big gun stop hunters seem to have a good...
Petra,

We are talking two different rivers here - I might have not made this clear enough for readers to understand.

First of all, it is absolutely irrelevant who can or does move the market intentionally or unintentional (yes, there ar plenty of times when a corporate giant, bank or institution HAS to trade in the FX market because of a hedge, an option expiry or a simple cross country business transaction). All the stop hunting in the world is miniscule against those events. Forget stop hunting - its an imaginary process most of the time, believe me.

The main focus should be on the fact that the market is moving, period.

In the same way that you can measure and apply statistics to completed trades based on whatever model you have chosen, one can also measure over a significant enough period of time that markets do neither advance nor decline in a mirror image fashion, i.e. up as much as previously down and vice versa.

It is the cumulative amount of buying (or selling) that is responsible for most of the price moves (what type of buyers or sellers, whether excution of corporate fx trades or deliberate stop hunt doesn't make the smallest difference when looking at the overall picture).

When you are trying to isolate each day as a closed spin of the wheel, it is very easy to overlook that a large part of entering into new positions (as well as liquidating existing positions) is not part of that daily road map but ongoing business of which you will not find any reference point on any intraday chart (just because you have a bucket and take some water from the river at your house, does not make the river stop flowing).

You don't need insider information to trade profitably - you need to understand market behaviour on a larger scale than intraday - especially if you want to trade intraday.

regards
daytrading
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  • #254
  • Aug 24, 2009 10:59am Aug 24, 2009 10:59am
Isn't the question whether or not one can make long term profits with a negative expectancy?

Yes. Just do what the rat does.
If you only trade long, then you can't always be wrong.
  • #255
  • Aug 24, 2009 1:11pm Aug 24, 2009 1:11pm
Quoting FX-Petra
I will agree with you on one point. If you had access to true market volume data, you could work out an edge. I know some brokers offer volume data from their little bucketshops, but as to total market (or anythng close to that) volume data I am not aware of where to find it. If know where to access such information, I would be forever grateful for a point in the right direction.

Regards
Market Delta lets you see the real volume data, even total buy vs sell at each price and time. They are located right across the street from CME as well. I have to disagree with daytrading about the importance of the information. There is a lot you can glean from it. You can see when volume starts to shift from the buy to the sell side, where the volume sits in the bars, where the daily high volume was...ect ect ect..Go read a thread called "principles of market movements" here on FF by a poster names AlexS. He lays out one of the most solid trading techniques here at the site, yet no one is really that interested because all the data you need for trading volume is expensive. Often close to a hundred bucks a month or more - and that should tell you something.

I'll attach a couple more screen shots of my market delta so you can get a glipse as to what I am talking about.

Regards,

Scotty b
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  • #256
  • Aug 24, 2009 2:19pm Aug 24, 2009 2:19pm
Quoting Scotty B
Market Delta lets you see the real volume data, even total buy vs sell at each price and time. They are located right across the street from CME as well. I have to disagree with daytrading about the importance of the information. There is a lot you can glean from it. You can see when volume starts to shift from the buy to the sell side, where the volume sits in the bars, where the daily high volume was...ect ect ect..Go read a thread called "principles of market movements" here on FF by a poster names AlexS. He lays out one of the most solid trading...
Scotty,

You're talking futures right?

regards
daytrading
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  • #257
  • Aug 24, 2009 2:32pm Aug 24, 2009 2:32pm
Quoting FX-Petra
Price action has nothing to do with volume.
Huh
  • #258
  • Aug 24, 2009 2:38pm Aug 24, 2009 2:38pm
Quoting daytrading
Scotty,

You're talking futures right?

regards
daytrading
Yes sir,

Although, the FX futures and retail are always close to 100% correlated. It is no doubt useful information in our little retail realm.

I think it was you daytrading who mentioned the different market participants..One thing the volume data can do is give you some idea on who is making certain trades. large volume accumulates all day long that I can only hope are not speculators. i.e. buying huge volumes at extreme highs and selling at extreme lows. It sometimes baffles me, but all I can conclude it was some real exchange of money for use somewhere in the realworld and not a speculative position.

Look at the high from Friday in EU. 818 contracts were purchased at the upper most 4 prices. I know lots of us might look at those uppermost prices and think that must be where all the smart money sold, while we would be somewhat right, lots of buying also happened there. Makes you scratch your head a little bit.
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  • #259
  • Aug 24, 2009 2:38pm Aug 24, 2009 2:38pm
Quoting daytrading
a large part of entering into new positions (as well as liquidating existing positions) is not part of that daily road map but ongoing business of which you will not find any reference point on any intraday chart
Am I misreading this?

The market's ebb and flow is clearly visible on an intraday chart.
  • #260
  • Aug 24, 2009 2:50pm Aug 24, 2009 2:50pm
Quoting Scotty B
Yes sir,

Although, the FX futures and retail are always close to 100% correlated. It is no doubt useful information in our little retail realm.

I think it was you daytrading who mentioned the different market participants..One thing the volume data can do is give you some idea on who is making certain trades. large volume accumulates all day long that I can only hope are not speculators. i.e. buying huge volumes at extreme highs and selling at extreme lows. It sometimes baffles me, but all I can conclude it was some real exchange of money for...

Yes, yes, Scotty - but you are already at extreme points of the graph and time. I am not saying there are no opportunities to be created by building a framework around open interest and volumes in futures.

My angle of explanation was supposed to highlight the simple nature of a market rising or falling in a market that has liquidity around the clock and is to some degree constantly in motion.

Of course one can ponder about the fact that the price can go up because there are no more sellers OR because the buyers' volume outperforms that of the sellers (but that is at this point secondary)...at least to understand my previous reasoning.

regards
daytrading
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