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Pro Traders in a Random Market

  • #21
  • Edited 2:54pm Aug 31, 2010 2:42pm | Edited 2:54pm
Quoting FX Compass
jamjamjam

"The key is to be rigorous about defining probabilities, not just using intuition.
I know there are others who only rely on pure intuition, but for me personally, most of the time, the only type of rational intuition that has worked reliably is backwards. Therefore I prefer to use probabilities and rigorous empirical tests based on historical behavior to make inferences about the future. "

Interesting concept, can you give some examples.
Sure, there's a paper I referenced along those lines in this thread if you wish to stop by:
http://www.forexfactory.com/showthread.php?t=253224
#7

The most difficult and time consuming process for me is to generate the actual hypothesis (through intuition or other means) to test itself.
There are a million roads to ruin or profit, most lead to ruin. The trick is to find the other ones (and it ain't easy, no matter what anyone tells you). The time consuming part is sifting through the paths to find a small nugget of edge every now and then (and having a parachute handy in case you should happen upon a sinkhole).
  • #22
  • Aug 31, 2010 2:44pm Aug 31, 2010 2:44pm
Quoting jamjamjam
Sure, there's a paper I referenced along those lines in this thread if you wish to stop by:
http://www.forexfactory.com/showthread.php?t=253224
#7

The most difficult and time consuming process for me is to generate the actual hypothesis (through intuition or other means) to test itself.
There are a million roads to ruin or profit, most lead to ruin. The trick is to find the other ones (and it ain't easy).
Thanks jamjamjam, I'll check it out.
  • #23
  • Aug 31, 2010 4:03pm Aug 31, 2010 4:03pm
Quoting zamanib
Find and edge that has no ambiguity -- example trendline is ambiguity there is some manyways to draw a trend lines the problem which one is correct which one will hold which one price will bounce off which one price break
this is one example
Not if you have enough of the chart going only with it at the time. There are so many ways to draw a TL because there are an infinite number of chart patterns, angle degrees, and lengths of affect that go with a TL. At the time you look at the chart, what you see is concrete and thus so is your TL's, when drawn with as much as possible of the chart in logical consideration of the chart's various shapes.
It's more accurate on a chart to deal with what is rather than force-fit several ideas, such as an ordinary lagging indicator, that piece-meal the chart into separate, if concrete, reasons. How the separate reasons are measured decreases accuracy, which TL's excel in.
  • #24
  • Aug 31, 2010 11:50pm Aug 31, 2010 11:50pm
@ FX COMPASS

I look at it this way, I'm fairly certain that most people don't blow accounts on the basis of markets being random, or non random. Accounts are blown from poor habitual actions. So for example, a doji forms and the books tell us that it's a statistically viable entry formation. An impatient trader with a habit of pulling the trigger too early may see the doji forming and will fire off an order prior to satisfying his confirmation rules. Oddly enough, even though the trade starts to move in his direction, he gets impatient and closes the trade out early.

In essence his bad habit reared it's ugly head twice.

1. The first time entering early it worked out for him - price moved in a favorable direction.
2. The 2nd time it did not. Even though he closed in profit, he was too impatient and did not wait for his predefined TP level. This drastically skewed his risk/reward ratio.

It's safe to say that his bad habit is evident in every single trade execution. If you were to repeat that scenario 100 times, the obvious outcome is account depletion.

Notice how the statistical hit rate for Dojis (aka - the market randomness debate) has nothing to do with the outcome. His bad habit is responsible for consistently sloppy executions, which eventually deplete his account.

I hope that makes sense.

@ waves

I understand your frustration with all of this. You seem to grasp some fairly complex mathematical concepts. Unfortunately, the market does not care about your rule based ideologies - that's why mathmaticians and engineers are some of the biggest market losers per capita.

Real estate investing may be worth a look... it's a bit more formulaic and its stuff you can wrap your head around.
  • #25
  • Sep 1, 2010 12:29am Sep 1, 2010 12:29am
I'll let my investors know and ask them to return their returns over the last year+
  • #26
  • Sep 1, 2010 12:58am Sep 1, 2010 12:58am
Quoting waves
I'll let my investors know and ask them to return their returns over the last year+
Investors? You mean grandma and uncle Mike?

Look junior, instead of getting all edgy and shit, you may want to spend a little time reconsidering that AUD/USD short recomendation. That pair happens be interest positive on the long side... remember. This is why I recommended real estate.

I'm going to stop this here.
  • #27
  • Sep 1, 2010 1:35am Sep 1, 2010 1:35am
LOL dude, do you know me? do you know my track record? apparently you think you know where the money I trade comes from...even though you are dead wrong....... I have said nothing about how you trade, I get such a kick out of the folks in here that attack others with no clue on who they are or thier history of trading. I am done to. mr has this market cornered with his unbelievable market knowledge, sense and the inate ability to dertermine others ability to trade. as far as the aussie trade goes.....if it works I have 500 pip potential win with a 35 pip potential loss. isn't that what we are all after?....if it works, what will you say then? lucky? and when it happens again dumb luck? what about my last call on here? did you see that? 3 positions and almost 600 pips between them.....that was from throwing darts..........if you don't understand it attack it...that is also a human trait and a mistake made by the masses over and over agian....good trading............
  • #28
  • Sep 1, 2010 2:01am Sep 1, 2010 2:01am
Quoting waves
I'll let my investors know and ask them to return their returns over the last year+
That has been said by same person who in May 2010 posted

Quoting waves
1,2,3????? exactly what am I looking for and how do I trade it???
hmmm
  • #29
  • Sep 1, 2010 2:21am Sep 1, 2010 2:21am
that was a leading question my friend..I was probing for some answers off remarks made off another thread...read my profile...6 yrs doing this, I think I would hacve a grasp on 1,2,3's.......it got moved by the moderators and I sent twee (or whoever the moderator is here) a couple strong IM's about moving it...ask him, he may remember
  • #30
  • Sep 1, 2010 3:04am Sep 1, 2010 3:04am
[quote=mr.marketz;3991895]@ FX COMPASS

I look at it this way, I'm fairly certain that most people don't blow accounts on the basis of markets being random, or non random. Accounts are blown from poor habitual actions. So for example, a doji forms and the books tell us that it's a statistically viable entry formation. An impatient trader with a habit of pulling the trigger too early may see the doji forming and will fire off an order prior to satisfying his confirmation rules. Oddly enough, even though the trade starts to move in his direction, he gets impatient and closes the trade out early.

In essence his bad habit reared it's ugly head twice.

1. The first time entering early it worked out for him - price moved in a favorable direction.
2. The 2nd time it did not. Even though he closed in profit, he was too impatient and did not wait for his predefined TP level. This drastically skewed his risk/reward ratio.

It's safe to say that his bad habit is evident in every single trade execution. If you were to repeat that scenario 100 times, the obvious outcome is account depletion.

Notice how the statistical hit rate for Dojis (aka - the market randomness debate) has nothing to do with the outcome. His bad habit is responsible for consistently sloppy executions, which eventually deplete his account.

I hope that makes sense.

----------------------------------------

Yes it does, and thanks for your explanation.
  • #31
  • Sep 1, 2010 3:08am Sep 1, 2010 3:08am
Quoting waves
I have said nothing about how you trade, I get such a kick out of the folks in here that attack others with no clue on who they are or thier history of trading. .........
Just as you have attacked me with your very first post on this thread.

Wave, leave it to the grown ups to discuss more advanced issues and go outside and play.
  • #32
  • Sep 1, 2010 4:25am Sep 1, 2010 4:25am
Quoting FX Compass
Just as you have attacked me with your very first post on this thread.

Wave, leave it to the grown ups to discuss more advanced issues and go outside and play.
  • #33
  • Sep 1, 2010 8:07am Sep 1, 2010 8:07am
I'll do that....you guys enjoy yourselves............one question for you guys..........is the market random or not????????
  • #34
  • Sep 1, 2010 9:02am Sep 1, 2010 9:02am
The markets can "appear" to be random if you are not looking at it from the right perspective. I do believe there is a science and an art to knowing how to draw trend lines and using moving averages for instance. I have found that, in some cases, the market will not hit the trendline support/resistance exactly, in an effort to seemingly throw off traders or to not allow them to see the correlation. Also, in a lot of cases, you have to completely redefine how to actually draw a trendline or how to use moving averages (think outside the box). It might surprise you. In summary, I don't believe the markets are random, but there is just enough randomness to throw off a lot of traders.
  • #35
  • Sep 1, 2010 4:15pm Sep 1, 2010 4:15pm
Hello Everyone,

I have to agree with Troikaone1 in that the markets are not random (something which would make them efficient) something which is demonstrated by the simple fact that some traders have collected net profitable returns for long amounts of time (20-30 years).

However - to make it more interesting - if you analyze the market from a statistical perspective you will find that the lower the time frame, the more normally distributed the market it. That is, if you go to time frames like the 5 or 15 minute ones you will notice that the number of pips in one direction or another is normally distributed and seems to follow a "random walk" while price on the higher time frames tend to follow logarithmic distributions that seem to be made up of many of the smaller "random" movements.

Interestingly enough the market seems to be very random in the short term but with very small elements of "non-randomness" that in the longer time frames compound to give us what we would call "inefficiencies" which are merely setups that point to certain outcomes with a positive statistical probability.

So is the market random ? Imagine that you look at your desk through an electronic microscope, the arrangement of particles in the surface seems chaotic and random (which it is) but as you zoom out you see that they arrange themselves into what appears to be an organized macroscopic structure that did not happen randomly : your desk. This is a good analogy of how the market looks like from a mathematical perspective (from what I have found).

I hope this helps

Daniel
  • #36
  • Sep 1, 2010 7:06pm Sep 1, 2010 7:06pm
Quoting danielfppps
However - to make it more interesting - if you analyze the market from a statistical perspective you will find that the lower the time frame, the more normally distributed the market it. That is, if you go to time frames like the 5 or 15 minute ones you will notice that the number of pips in one direction or another is normally distributed and seems to follow a "random walk"...
I do not agree on your statement that price is normally distributed on lower time frames.
  • #37
  • Edited 7:54pm Sep 1, 2010 7:11pm | Edited 7:54pm
Quote
I do not agree on your statement that price is normally distributed on lower time frames.
Well this is easily settled as it is based in actual analysis. I was referring to a 3 year analysis of EUR/USD 5 minute bars specifically from 2007-2010. I will do my best to get things organized and share some of the graphs and data with you guys here

It is also worth saying here that I am aware that no price feed - in any given time frame - forms a normal distribution. They all have kurtosis (normally fat tails) to some extent. What I am trying to say is that price in the higher time frames tends to be less normally distributed than in the lower time frames. Of course, no price action movement on any time frame perfectly fits a Gaussian curve. Do you agree or do you believe that there is a stronger kurtosis in short time frames ?

Do you have any analysis that refutes this strongly ? I will obviously welcome any evidence so that we can draw conclusions !
  • #38
  • Sep 1, 2010 7:50pm Sep 1, 2010 7:50pm
Quoting danielfppps
Well this is easily settled as it is based in actual analysis. I was referring to a 3 year analysis of EUR/USD 5 minute bars specifically from 2007-2010. I will do my best to get things organized and share some of the graphs and data with you guys here

Do you have any analysis that refutes this strongly ? I will obviously welcome any evidence so that we can draw conclusions !
EUR/USD, 5min, total 65535 bars somewhere begin from 2007.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: EURUSD 5Min Distribution.jpg Size: 29 KB
Click to Enlarge Name: EURUSD 5Min QQPlot.jpg Size: 19 KB
  • #39
  • Edited 8:16pm Sep 1, 2010 8:01pm | Edited 8:16pm
Finally as this thread is about the inherent randomness of the market and the actual efficiency of forex currency pairs I want to share with you a study that looks into this and gives us some insight into the trading on the lower time frames. Particularly it comes to the conclusion that the different time frames do behave quite differently. The study can be found here.

I it helps further make the point that the markets aren't indeed totally efficient,

Daniel
  • #40
  • Sep 1, 2010 8:08pm Sep 1, 2010 8:08pm
Quoting danielfppps
Finally as this thread is about the inherent randomness of the market and the actual efficiency of forex currency pairs I want to share with you a study that looks into this and gives us some insight into the trading on the lower time frames. Particularly it comes to the conclusion that different the different time frames do behave quite differently. The study can be found here.

I it helps further make the point that the markets aren't indeed...
The randomness has been discussed in FF many times and always end up with heavy cross fire.
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