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Can you tell with naked eyes?

  • #61
  • Apr 14, 2010 1:00pm Apr 14, 2010 1:00pm
Bah, its a closed case but I'll throw some thoughst in...

You can distinguish it by the limitations on random behavior imposed. All your bars will be a random distribution between 0 and 51 pips in length. That alone is enough to pick out a random chart. Real markets exhibit long tail behavior in maximum price movement. For example 95% of the bars may be <51 pips. 97% will be below 75 pips, 99% will be below 100 pips and 100% will be <~250pips.

Another key point is time sequencing. In the short time frames, real data will exhibit recurring sequences of price volitility that correlate to prime market hours. IE - 8am to 2pm est will be volatile while 4pm - 7pm will be relatively stable.

On longer time frames, real data tends to trend more due to the impact of marcoeconomic fundamental factors.

Finally, the number of samples will dramatically impact ones ability to notice these discrepencies. Any random 100 bar sequences would be fundamentally indistinguishable from real data. Once you get out to 1000 bars, it's almost impossible NOT to notice the differences.

PS - Hank, thats an awesome forum name you have there.
  • #62
  • Apr 14, 2010 1:09pm Apr 14, 2010 1:09pm
Quoting Mr J
The test is very easy. The smoother is usually real, and I guess most of us would go with it due to the inertia/momentum in the markets, while the noisier option looks like it better reflects common random distribution. I imagine the examples are picked for that reason. Much harder if someone is hand-picking samples of random data that look more realistic.

Course, it could all be a joke to make us look like fools!
Actually, in the studies, different data sets behaved differently.

Some of the instruments (real) used: USD/CAD spot, gold spot, DJI corp bond index, Russell 2000.

We know not all of these instruments 'behave' the same way, and in fact in some study examples, the real data set was smoother with less volatility, while in other examples the real data set was more volatile. However, through practice participants were able to distiniguish between them either way.

Gotta get back to work, but let me leave it with this, which is part of the conclusions drawn from the researchers in the study: if you just take one real price chart (unlabeled) and compare it to a randomized price chart, it's a 50/50 guess. There's no basis for being able to distinguish between the two, because different instruments and markets behave differently. However, given experience with a certain instrument (let's say the EUR/USD), and then doing the experiment with randomized data sets, one can accurately predict which is real and which isn't.

So to the OP, no, nobody here can reliably tell you what the difference is between an unlabeled 'real' chart and a randomized price chart.

But that is utterly irrelevant to real trading, I don't know one trader who doesn't say that 'knowing your market' isn't of the utmost importance.
  • #63
  • Apr 14, 2010 1:16pm Apr 14, 2010 1:16pm
I think the problem is the human eye->brain, it will see patterns, or price will look random. Using a computer to "look" at the prices using various measurements may reveal "patterns" that the human eye simply cant see in a naked chart.
Economists have forecast 9 out of the last 5 recessions
  • #64
  • Apr 14, 2010 1:17pm Apr 14, 2010 1:17pm
Quoting Darkstar
Bah, its a closed case but I'll throw some thoughst in...

You can distinguish it by the limitations on random behavior imposed. All your bars will be a random distribution between...
Excellent and precise points - I was under the assumption though that we are to look at charts (random or not) without having any reference points (time or price scale).

Nevertheless I am with you on the sample differences.

Now we should ask the OP if he can construct a model that would tell him/her on any given 'real' price chart where to apply the 'technical tools' (as cited) based on that knowledge - we can of course wait if he/she follows through and investigates the mental functions behind the perceptional differences induced by random data vs. real data.

There is something referred to as 'automatic' vs 'controlled' attentional processes - those have the ability to influence our perception and resulting responses. (check out 'the Stroop-effect on google)

My Avatar: yes, I am a believer in the philosophy of objectivism.

H. Rearden
  • #65
  • Apr 14, 2010 1:24pm Apr 14, 2010 1:24pm
There should be volume to recognize it.
  • #66
  • Apr 14, 2010 1:30pm Apr 14, 2010 1:30pm
Quoting H. Rearden
Excellent and precise points - I was under the assumption though that we are to look at charts (random or not) without having any reference points (time or price scale).
I should have clarified that either time scenario would exhibit certain behaviors that could be picked out (even if you werent sure what time scale you were looking at). Over 1000 bars, a long time frame would show a consistent trend (up or down) while a short one would show alternating sequences of volatility and price stability. Random sequences would exhibit neither.

Quote
Now we should ask the OP if he can construct a model that would tell him/her on any given 'real' price chart where to apply the 'technical tools' (as cited) based on that knowledge - we can of course wait if he/she follows through and investigates the mental functions behind the perceptional differences induced by random data vs. real data.

I'm with you that this is little more then mental masterbation on the OPs part. Amusing to talk about but of no practical value.

Quote
My Avatar: yes, I am a believer in the philosophy of objectivist.

Seem to be lots of us 'round these parts.
  • #67
  • Apr 14, 2010 1:45pm Apr 14, 2010 1:45pm
Quoting Darkstar
I should have clarified that either time scenario would exhibit certain behaviors that could be picked out (even if you werent sure what time scale you were looking at). Over 1000 bars, a long time frame would show a consistent trend (up or down) while a short one would show alternating sequences of volatility and price stability. Random sequences would exhibit neither.



I'm with you that this is little more then mental masterbation on the OPs part. Amusing to talk about but of no practical value.



Seem to be lots of us 'round these...
Who's John Galt?
  • #68
  • Apr 14, 2010 5:33pm Apr 14, 2010 5:33pm
Chart #2: short with the break of the line on the fourth touch.
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Twitter: MrC_Forex ; Facebook: /pages/MrC-Forex/197693770247397
  • #69
  • Apr 14, 2010 5:35pm Apr 14, 2010 5:35pm
Always like to see this discussion=)

Aside from statistical tests, there is a very simple way to determine a random chart from true markets (don't tell anyone=).

Just display the data as sequential changes instead of the integrated series.
You'll quickly notice the difference without a lot of heavy math.

Does that mean markets are random? Mostly yes, and sadly, far worse.
That doesn't mean you can't make $$.
  • #70
  • Apr 14, 2010 5:53pm Apr 14, 2010 5:53pm
Quoting AstonDan
It's all pretty irrelevant, whether random or not.

If you know it's going to move, it's 'tradeable'.
Not if it moves randomly.
  • #71
  • Apr 14, 2010 6:50pm Apr 14, 2010 6:50pm
Quoting Ted1983
Not if it moves randomly.
Not true, there are many different kinds of 'random', some more trade-able than others.

I'm always surprised how everybody falls into two mutually exclusive camps on this issue. When it is perfectly obvious that neither extreme is completely true, the presence of profitable traders and measurable effects means that not all markets are completely random, yet there is enough randomness in markets to send most traders broke.

If one runs an Variance Ratio profile over various markets and time-frames, one sees everything from trending to mean reverting to random. The traders job is to find the non-random parts whist maintaining a healthy respect for the amount of randomness that does, no-doubt, exist.

My own personal view is that by the definitions I have set the markets are 'mostly' random, non-random islands do exist, but they are hard to find in terms of any mathematically rigorous definition.
The breaking of a wave cannot explain the whole sea.
  • #72
  • Apr 14, 2010 7:05pm Apr 14, 2010 7:05pm
Quoting Darkstar


Seem to be lots of us 'round these parts.
hmmm?

  • #73
  • Apr 14, 2010 7:38pm Apr 14, 2010 7:38pm
Hi kk007,

I don't trade naked charts, but I would like to know how did I go. Could you please PM my results. Thanks

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  • #74
  • Apr 14, 2010 7:58pm Apr 14, 2010 7:58pm
Yes, I can tell with a naked eye. 1st thing you need to understand is all the examples of great trades are off trending moves...since the market trends 30-40% of the time, that means I can see what I look for 5-10 times a month max......thats plenty to make a nice return on my money every month..trying to trade non-trending markets will make you go broke. stop thnking you need to trade everyday, this is a fallacy brought to you from the brokers, and Initiating brokers, getting a piece of your action when you pay spreads. learn what the beginining of a trend looks like, the price action it creates and the repeating patterns that give you an extremely high percentage of being correct. and keep your rear end out of flat and corrective markets.....there are no patterns or price action that can help you there, they are incosistant by nature, take your money, and designed to make you lose faith in what you see when you should be looking.
  • #75
  • Apr 14, 2010 11:29pm Apr 14, 2010 11:29pm
Quoting Jhig
I must have missed a trading class .... what are "Random Charts:?
when i started to read this thread, that was the big question in my mind too.
i think by 'random charts', he means 'non-price-based' &/or false/generated charts
  • #76
  • Apr 15, 2010 5:12am Apr 15, 2010 5:12am
Quoting H. Rearden
Now we should ask the OP if he can construct a model that would tell him/her on any given 'real' price chart where to apply the 'technical tools' (as cited) based on that knowledge - we can of course wait if he/she follows through and investigates the mental functions behind the perceptional differences induced by random data vs. real data.in the philosophy of objectivism.
The thread objective is not just to know whether it is possible to distinguish between real and random movement but to gain the ability to distinguish between them. So, the objective has not been achieved. Also, I did not said I can arrive the point you stated after the thread objective achieved, but surely the achieving of the thread objective can help one step forward to the point you stated.

There is one critical weakness in the research. Participants may have memoried historical price movement of the real financial assets during the learning, and so they can distinguish between the random and real in the testing. I did not find the researchers have done anything to prevent this.

"The data sets consist of returns of eight commonly traded financial assets: the NASDAQ Composite Index, the Russell 2000 Index, the US Dollar Index, Gold (spot price), the Dow Jones Corporate Bond Price Index, the Dow Jones Industrial Average, the Canada/US Dollar Foreign Exchange Rate, and the S&P GSCI Corn Index (spot price)."

web.mit.edu/alo/www/Papers/arorassrn.pdf
  • #77
  • Apr 15, 2010 5:16am Apr 15, 2010 5:16am
I don't know what their "tradable" means, but random and predictable are two mutually exclusive concepts. If it is random, it is not predictable. If it is predictable, it is not random. And if it is not predictable, there is no edge. To find an edge, we need to exploit non-randomness.

Quoting Craig
I'm always surprised how everybody falls into two mutually exclusive camps on this issue. When it is perfectly obvious that neither extreme is completely true, the presence of profitable traders and measurable effects means that not all markets are completely random, yet there is enough randomness in markets to send most traders broke.
  • #78
  • Apr 15, 2010 5:18am Apr 15, 2010 5:18am
Hi CP,

It was not my intention to test people's ability in the first 2 posts on this thread. I posted 10 randomized charts in the first two posts to ask people if they can tell they are randomized. You made me know that even a guy with 6.5 years + high IQ cannot distinguish.

cheers,


Quoting CrucialPoint
Hi kk007,

I don't trade naked charts, but I would like to know how did I go. Could you please PM my results. Thanks

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  • #79
  • Apr 15, 2010 5:44am Apr 15, 2010 5:44am
Quoting kk007
random and predictable are two mutually exclusive concepts. If it is random, it is not predictable
Wrong, consider a stationary Gaussian Random walk, it's generated via random numbers (or as random as a computer can), when it gets more than 2 standard deviations from the mean, what are the chances of the next step being closer to the mean? (hint: it isn't 50%).
The breaking of a wave cannot explain the whole sea.
  • #80
  • Apr 15, 2010 5:47am Apr 15, 2010 5:47am
Quoting kk007
The thread objective is not just to know whether it is possible to distinguish between real and random movement but to gain the ability to distinguish between them. So, the objective has not been achieved. Also, I did not said I can arrive the point you stated after the thread objective achieved, but surely the achieving of the thread objective can help one step forward to the point you stated.

There is one critical weakness in the research. Participants may have memoried historical price movement of the real financial assets during the...
This was your first post (and the title of your thread):

Can you tell with naked eyes?

I need help from experienced traders. I have generated random price movement and plot OHLC charts. I wonder if it is possible to distinguish them they are random price charts with naked eyes?

In a concerted effort, we have answered that question and hence the objective was achieved.

The only person who can answer your second question (which is nowhere in your original post), i.e. whether you personally have gained the ability (or any other participant in this thread has gained the ability and shared the technique of 'how to' with you) is yourself.

Unless you of course restate your question to: 'Can you tell with naked eyes AND can you tell me how to do it so I possess the ability to distinguish between randomly generated and real charts?'

I cannot tell you how to arrive at the point of being able to truly answer the second question (if that is the question) since I am trading without the help of this ability. I am interested though to see how your endeavour goes and whether there will be a result that could be universally helpful to any trader.

Best wishes.

H. Rearden
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