Do you believe this market is random? | Page 11 | Forex Factory

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  • #201
  • May 17, 2014 6:35am May 17, 2014 6:35am
Factoring randomness does not imply that a person is not profitable.
Not factoring randomness implies that risk of getting caught by the unexpected event is high.

People who believe they can predict price like they can predict tomorrow weather by using high tech, are in for a big surprise, as they probably haven't been in long enough to taste the unexpected.

We trust levels, and strategies, to give us an edge, so that we can take a favorable "bet", as it's not an investment.
If then you add to this years of chart's analysis and a good chunk of mathematics and discipline, you have a good chance to be on the profitable side.

But to believe that you can be ahead, and figure out where the price is going, is to put it kindly, naive.

But then, it's a zero sum game, for me to make profit a counterpart is needed, so it's very good that a large number of people don't believe in randomness,
so that I can be positioned to take advantage of any of the unexpected, by not putting at risk my all account in case this randomness goes against me, and by ripping profit when I am right.
  • #202
  • Edited 7:11am May 17, 2014 6:53am | Edited 7:11am
Quoting 60minuteman
Human beings do not like to deal with uncertainty, especially when it comes to risk and money. Our brains do not want accept that the markets are random - you're just trading peoples future emotions. SR levels are ignored as often as they are respected - the biggest magic trick the market does is in your own head, and it fools the majority day after day. http://www.youtube.com/watch?v=Od_R6Nbi5Ho
And people who are losing don't want to accept that other people are winning. They want to believe no one is winning instead of accepting they don't know how to trade (profitable trading is hard so no surprise for me that 95% are losers).

You can't guess whether a strong box resistance area will be broken or not. But you can wait for a close above the resistance area to buy and put a stop loss below resistance area that should be acting as support if it's a true breakout. And you may skip trading the breaokout if you have no space (something that most forums, books, training sites refuse to talk about, paying attention to space can make the difference between a loser and a winner). You don't need to win all the time, if you have 1:1 RR anything higher than 50% is enough.

A book for those who think you can't have an edge in the markets is The Encyclopedia of Chart Patterns 2nd edition. It seems today the patterns aren't respected as well as in 2005 when the book was written but you can see in that book there were a lot of edges to be exploited. At least until 2005 there were edges to be exploited (and you have prove in that book). Remember, if you can't win the highest chances are you don't know how to trade.

I think the question most are interested in is if you can have edges in the market not if the market is random (if 100% doesn't exist the market is random and forex trading is gambling, isn't it?).
  • #203
  • May 17, 2014 7:01am May 17, 2014 7:01am
This term " Zero sum", only means that there are losers in the game when the global gross production of wealth is not more than the increase in the number of people to share it.

GDP sum might be more accurate. The other guy does not have to be losing money in order for you to make more.

The fact that 3/4ths of the people (not 95% : that's one of those internet false "facts") lose money in the forex who dabble in it is an unfortunate accident.

Only in "Hard times", specifically when the total money exchanged in the forex shrinks, do there have to be losers.

I think that the best techniques for trading the forex are already well known and have been for decades.

It would be good for people to realize that the more equity you have, the less of it you have to risk to make the same, or even a little bit more, money.

If all you have is $100, and you lose it all, you still have lost less than someone with $100,000 who loses only ten percent.

If you risk it all, you are daring. If he risks it all, he is a fool.

See the difference?

Take that into account:

Use some well known indicators and old, established techniques on the best few of the many pairs offered at the time.

The good pilot gives the plane all it's got when taking off. When he reaches altitude, he throttles back and relaxes.

The real question is how random the market is.
  • #204
  • May 17, 2014 7:11am May 17, 2014 7:11am
Quoting str8
{quote} And people who are losing don't want to accept that other people are winning. They want to believe no one is winning instead of accepting they don't know how to trade (profitable trading is hard so no surprise for me that 95% are losing). You can't guess whether a strong box resistance area will be broken or not. But you can wait for a close above the resistance area to buy and put a stop loss below resistance area that should be acting as support if it's a true breakout. And you may skip trading the breaokout if you have no space (something...
Nobody has said you can not have an edge or that nobody can make money trading, thats obvious.

As for chart patterns, I can get as good if not better results than all of them taking random entries.
tradewith60
  • #205
  • May 17, 2014 7:12am May 17, 2014 7:12am
Uh..

If you have 1 million$ and no one in this world grow apple to sell it to to you . Do you think you can buy even 1 apple?


In forex you use currency to buy OTHER currency. So when you buy exactly 100,000 euro that mean you have to give up an EQUAL value of currency of your choice USD (as example).

The result = zero sum.

You can NOT buy high and buy HIGHER without anyone selling you the exact amount you want.

There are price that is so high in forex that you think "no one is idiot enough to buy this high price" . Yes there is one person.. your broker take the hit and buy high while you sell...



-------
That's all..........
  • #206
  • Edited 7:35am May 17, 2014 7:24am | Edited 7:35am
Quoting 60minuteman
{quote} Nobody has said you can not have an edge or that nobody can make money trading, thats obvious. As for chart patterns, I can get as good if not better results than all of them taking random entries.
If the charts were chaotic patterns shouldn't be formed with the frequency they form today. If the charts were chaotic there wouldn't be any edge you can have (maybe you can find only if someone offers you a bigger payoff than what payoff would be correct for an event, for example you say price will reach 100 before it will reach 50, you make your bet when price is 75, you will be right 50% of time and you need bigger payoff than 1:1).

If you generate a chart with a RNG (random number generator) the chart would surely look very chaotic. It's true you can't know if this level will be rejected or maybe will be broken this time but the charts are far from being chaotic.
  • #207
  • May 17, 2014 7:30am May 17, 2014 7:30am
Quoting str8
{quote} If the charts were chaotic patterns shouldn't be formed with the frequency they form today. If you generate a chart with a RNG (random number generator) the chart would surely look very chaotic. It's true you can't know if this level will be rejected or maybe will be broken this time but the charts are far from being chaotic.
so just wait for your pattern, trade it everytime, you should get the same result? right?

As for random numbers, it can only be +1 or -1 surely? isn't that how the charts are made anyway?
tradewith60
  • #208
  • May 17, 2014 7:34am May 17, 2014 7:34am
I don't know if you guys are aware of this, but with today technology you can manage risk on a 10$ account.
So the old story that you need to be capitalized to be profitable is relative. The Turtle experiment proved to make hundreds of thousand from a 5k account.

If you can make money with a big account, you can make it with a small one, and viceversa.
There are brokers out there who let you trade in single units, and you can deal with SL of few pips... so there's no excuse for not managing risk.
Oh.. and compound, if you are patient of course.

We often trade with market makers, so they act as counterpart until they have to "trade against" a position to cover the imbalance in their book.

But the fact is, that the market itself needs a counter part, then it can be your broker, or another trader.

One thing that I notice by reading the thread is that for some it seems there's only one way to be profitable: perfection in knowledge, which is not true.

When it comes to randomness, I don't think anybody is saying that the market is "always" random, but to believe that is never random and it's a perfect predictable science... oi oi oi, is like saying "I am always right", and if that's the case, we're wasting time here.

Who does not believe in randomness, one day will fall victim of it. The best traders out there do not believe they can predict, they just know they can make more then they lose. That simple.

If the market did not contain randomness, you'd be buying one good EA and off to your villa with a ferrari.

Then you can be trading off a coin toss, fundamentals, astrology, guts, algorithm, grid, baskets or old school technicals (still my favorite because is fun and makes you feel like you're "doing" something).
  • #209
  • May 17, 2014 7:45am May 17, 2014 7:45am
"If you put an INFINITE number of monkeys on typewriters one of them will eventually produce Hamlet, Shakespeare". Although there's no chance that the same monkey will produce Romeo and Juliet if given time.

Pattern exist because humans form them, but then, are all pattern valid? no, we wait for confirmation.... so, an H'nS is never that if the neck is not broken. When it is, is not science, is mass behavior, which often works and it's relative easy to read, but is not enough to exclude randomness. To exclude randomness you need facts, research, proof that when 2+2 the result is always 4. Can you do that with the market?
  • #210
  • May 17, 2014 7:50am May 17, 2014 7:50am
Quoting cesare76fx
When it comes to randomness, I don't think anybody is saying that the market is "always" random, but to believe that is never random and it's a perfect predictable science... oi oi oi, is like saying "I am always right", and if that's the case, we're wasting time here.
So true, I was only able to find a low frequency strategy that gives me a profit, sometimes I take only one trade per month (I'm sure there are more profitable strategies than the one I'm using). But if the market was always random (chaotic charts, maybe someone could generate a chart with a RNG to show us the differences between a completely random chart and a forex, stock chart) I couldn't find any edge. Most of times I have no idea where price will go and only some times (in fact very few times) I can make an estimation of where price will go (but never with 100%).

It's good that market has randomness because winning traders make money by buying/selling to losing traders. If no one lose how can you make money? In order to win other traders must lose. And if they sometimes also win they have the illusion they can be profitable and they stay in the game (I'm not sure I'm 100% right here, there are some differences between trading and other gambling games like poker, traders aren't the only one who buy/sell).
  • #211
  • May 17, 2014 8:05am May 17, 2014 8:05am
Quoting str8
{quote} So true, I was only able to find a low frequency strategy that gives me a profit, sometimes I take only one trade per month (I'm sure there are more profitable strategies than the one I'm using). But if the market was always random (chaotic charts, maybe someone could generate a chart with a RNG to show us the differences between a completely random chart and a forex, stock chart) I couldn't find any edge. Most of times I have no idea where price will go and only some times (in fact very few times) I can make an estimation of where price...
that research has already been done (a quite famous bit of research on random markets).. maybe you should google it

http://en.wikipedia.org/wiki/Random_walk_hypothesis
tradewith60
  • #212
  • May 17, 2014 8:30am May 17, 2014 8:30am
This discussion about random or not random seems to miss the point. If you think it's random, how do you strategize your trades? If not random, how do you strategize your trades? In my mind, since the market clearly demonstrates times of non-randomness, then the market is not random. During these times, you have an enormous set of tools to use to help you set entry and exit points. During times of randomness, not so much, or at least, fewer. The truth in the matter is, however, that there is a real structure to the market at all times. If you don't understand the structure, your actions are random events in what will seem to be a random, unpredictable market place.

The forex market is massively manipulated, with controlling interests imposing their will on the market at various times throughout the day. You can trade with them by measuring their intent and actions, which can only be done by studying structure.
  • #213
  • May 17, 2014 8:42am May 17, 2014 8:42am
Quoting 60minuteman
{quote} Nobody has said you can not have an edge or that nobody can make money trading, thats obvious. As for chart patterns, I can get as good if not better results than all of them taking random entries.

head and shoulders anyone?

http://cfr.statslab.cam.ac.uk/public.../H&S-part2.pdf

....................best to skip to the summary :nerd:
  • #214
  • May 17, 2014 8:54am May 17, 2014 8:54am
Quoting stricky1967
{quote} head and shoulders anyone? http://cfr.statslab.cam.ac.uk/public.../H&S-part2.pdf ....................best to skip to the summary :nerd:
tradewith60
  • #215
  • Edited 9:15am May 17, 2014 9:02am | Edited 9:15am
Quoting stricky1967
{quote} head and shoulders anyone? http://cfr.statslab.cam.ac.uk/public.../H&S-part2.pdf ....................best to skip to the summary :nerd:



Here are other statistics:

In the encyclopedia of chart patterns 2nd edition it says that head and shoulders bottoms has 3% break even failure for bull markets and 4% break even failure for bear markets (74% meeting price target and 58% meeting price target) and tops 4% break even failure and 1% break even failure (bull and bear markets), and they meet price target 55% and 56% (bull and bear markets).

http://samuraitradingacademy.com/7-b...tion-patterns/

"The statistics on the price action patterns below were accumulated through testing of 10 years of data and over 200,000 patterns."

"The head and shoulders patterns are statistically the most accurate of the price action patterns, reaching their projected target almost 85% of the time."

2 traders can trade the same pattern, one can be winning, one can be losing. No surprise for me as trade management is extremely important. For example in the study where head and shoulders are losing it seems they were using trailing stops (don't know if MT4 trailing stops, I think MT4 trailing stops is a big mistake to use them).
  • #216
  • Edited 9:22am May 17, 2014 9:10am | Edited 9:22am
Quoting 60minuteman
{quote} that research has already been done (a quite famous bit of research on random markets).. maybe you should google it http://en.wikipedia.org/wiki/Random_walk_hypothesis
I don't believe random walk hypothesis is true all the time (it's just coincidence that s&p 500 has raised a lot compared to 100 years ago)? But if I thought it is true I clearly wouldn't be trading because I wouldn't be able to find an edge.
  • #217
  • May 17, 2014 9:38am May 17, 2014 9:38am
Whether you believe the market is random are not it still doesn't change THAT the market isn't random, the market could care less what we believe. Again like I said before it goes back to experience, trading style and if a person is successful or not. My trading style and tools that I use has stripped the market bare and shown that most things that people put weight on the market doesn't put the same weight on them. S/R, Trend, Range, Patterns, doesn't matter one bit, if you remove all of that information you would just be left with the raw market data of buying and selling. At all times you just need to know how much buying and selling is going on, I probably won't post much of my research on the net but Forex is one big calculator, it's not magic or some random walk. Every movement in the market results in a calculated outcome whether you can see it or not.
Being a trader is lonely, but being a great trader is lonelier still
  • #218
  • May 17, 2014 10:17am May 17, 2014 10:17am
Let me explain a little a about what I just said so there isn't any misunderstanding. The reason S/R, Trend, Patterns, or whatever you use can become unreliable are two fold, for example S/R since the market is designed to take out as many people as possible, S/R tend to be the place on the chart where these people place the trades, so you are at risk already, it takes skills to trade these places and It's a reason why I say the market doesn't care about them much but I should have said respect them much, that would be a better way to say it.

Support is only confirmed when it can reject the move lower, but this is a bit of false sense of security because even though it rejected prices before it doesn't mean it is going to do it again, so you are back to where you started of not knowing what is going to happen. Now this is assuming that you believe the market is random, if you don't then, there would be testing and retesting until you can see that all the buyers have left and the buying has dried up. But it's a term that by its very nature is lagging and it's the reason why some people only trade break outs because they can tell when support is not support anymore,but that's another story. Like I said you can trade these but you have to know what you are doing, then you might be able better understand what I am talking about. Just my two cents.

And then there is the trend, the the trend is your friend until it ends, but how many traders again can see this? Climatic buying or selling can calm this trend down, but what happens when you have climactic buying or selling on more than one currencies, which one do you follow? it's rare but it does happen. Again skill is needed, or you are going to be spun around more than cinderella before the midnight hour struck. Someetimes I am more amazed that people think the market is random and still make money, but again some people are born luckier than others.
Being a trader is lonely, but being a great trader is lonelier still
  • #219
  • May 17, 2014 11:09am May 17, 2014 11:09am
Quoting saneblane
Let me explain a little a about what I just said so there isn't any misunderstanding. The reason S/R, Trend, Patterns, or whatever you use can become unreliable are two fold, for example S/R since the market is designed to take out as many people as possible, S/R tend to be the place on the chart where these people place the trades, so you are at risk already, it takes skills to trade these places and It's a reason why I say the market doesn't care about them much but I should have said respect them much, that would be a better way to say it. Support...
it amazes me still that people think their approach is the only approach, it's incredibly naive.
tradewith60
  • #220
  • May 17, 2014 11:12am May 17, 2014 11:12am
Quoting str8
{quote} I don't believe random walk hypothesis is true all the time (it's just coincidence that s&p 500 has raised a lot compared to 100 years ago)? But if I thought it is true I clearly wouldn't be trading because I wouldn't be able to find an edge.
the conclusion of the research is that the market can be considered random sometimes, and sometimes not, so you are right.

As for your edge, it is most likely an illusion if it is based purely on a chart pattern, if it is an edge at all then there are other factors at play that you are just not noticing
tradewith60
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