Do you believe this market is random? | Page 20 | Forex Factory

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  • #381
  • May 22, 2014 3:35pm May 22, 2014 3:35pm
Quoting 21vs7
{quote} But how one can become better knowing this? Plus knowing what? That they hedge? that MM plays the market all around? or what?
Hey i`m just explaining how the market works, i`m not revealing you the holy grail lol

Quoting saneblane
{quote} I am not going to assume that all market makers conduct their businesses the same because they don't. But they can make money on spread alone, heck if I was a MM right now I would make money hand over fist. I would market to retailers and since 90 percent of them lose anyway I would charge them spread, and then wait for them to lose the account to me by being a counter party, if someone comes in that can trade then I just charge them fee (spread or commission) and pass them straight through the market and let them be someone else's problem,...
Yeah, but there is always a slight chance of thing going very very wrong, and then bankruptcy can happen.Because if they hedge like they do, if the general herd goes crazy and in 1 direction, then the market maker is pretty much f*ked, and if he cant predict the direction or doesnt have any more funds to hedge, then it gets bankrupt.

Just look at Lehman what they did, selled some crappy CDS's but because the fkin house bubble got too wild, and were too overleveraged, they got bankrupt, and that caused the popout of the bubble.So they probably didnt have enough capital left to counterhedge in gold or something if they foresaw the crisis, and got fked.

So for market makers there is always a risk of bankruptcy, though small, but its there during wild crowd behaviour.As for the prop trader the risk is that he will not make money forever.His system will become obsolete and he must constantly research the markets.
"There's a sucker born every minute" - P.T. Barnum
  • #382
  • May 22, 2014 3:35pm May 22, 2014 3:35pm
Quoting PipMeUp
5- Despite they are deterministric I don't know the process generating the chaotic components so I can only consider them statistally. That is assimilating them as stochastic. Thx for the links, I'll read them more thoroughly
Read the Osler paper. When you understand it, it will be a true eye opener. Microstructure is the key to knowing shor term price movements and short term price movements will sometimes (with larger percentage than 50% that is) lead to larger price movements, that's why people are talking about s/r levels (which actually are just levels where people place their stops).
  • #383
  • May 22, 2014 4:11pm May 22, 2014 4:11pm
Quoting PipMeUp
1- Random walk holds, especially when using a good distribution not the Normal one [...] (charts are built from the tick return empirical PdF of E/U, NOT a Normal distribution) 3- Those reliable components are randomly appearing, with random amplitude and random duration, immerged in random movement of price (returns contain predictable components = there are also other non predictable components). 4- The non predictable components are either random or chaotic or both. 5- Despite they are deterministric I don't know the process generating the chaotic...
You can't model the market based on simple probability density function. Hell, you can't even model the market with simple markov process (because of volatility clustering). If it would be that easy, trading volatiltiy options would be trivial. See all the work written of volatility surface for example.

Everything is random to a degree - read the Osler paper, it'sthe single most important paper I have personally read about trading, it explains many of the actually predictable components (ie. placement of some order types) of the microstructure when you understand what she's talking about.
  • #384
  • May 22, 2014 4:37pm May 22, 2014 4:37pm
Quoting Proximus
{quote}Yeah, but there is always a slight chance of thing going very very wrong, and then bankruptcy can happen.Because if they hedge like they do, if the general herd goes crazy and in 1 direction, then the market maker is pretty much f*ked, and if he cant predict the direction or doesnt have any more funds to hedge, then it gets bankrupt. Just look at Lehman what they did, selled some crappy CDS's but because the fkin house bubble got too wild, and were too overleveraged, they got bankrupt, and that caused the popout of the bubble.So they probably...
Lol if anything Lehman brothers was a case of not using your PHD, they were over leveraged like a bastard. The crazy thing is that was business as usual could you imagine that? That's why I said you don't need a PHD with good information, not one of those PHD holder advised against what they were doing because they couldn't see the crash coming. And the crazy thing is, they weren't the only ones over leveraged, it just shows how fragile the system is. That situation was just crazy, but I can assure you that they are back to their old ways. Too big to fail is not a joke, they got bailed out and they will get bailed out again. That's what you call corporate socialism. Those guys make money no matter what, but I get your point about risk.

I know the MM Assumes some risk, but some of them really don't need to, the more the hang there necks out the more money the make, the more risk they take that's just the way it goes. Lol That Lehman thing really made me laugh.
Being a trader is lonely, but being a great trader is lonelier still
  • #385
  • May 22, 2014 4:58pm May 22, 2014 4:58pm
say you have currencies A,B, and C. You notice and AB is going up and BC is going up, and you expect AC to go up. (Value flowing from C through B into A). better than eighty percent of the time this is true.

Say you have two big boys, one pushing AB up, one Pushing BC up. But you have a really big boy who has to get rid of his AC in a hurry.

This does not usually happen, but you should be aware that it does occasionally happen. I used to think it didn't happen until I had some examples pointed out to me, and then I observed some for myself.

So you can play the AC buy with a good chance of making money, but don't over commit.
  • #386
  • May 22, 2014 5:00pm May 22, 2014 5:00pm
I'm finishing reading Osler. It is indeed a very interesting reading. I should try reproducing her experiment if I get the time. I wonder if it still holds nowadays. I doubt because she writes that the majors in 2003 were not strongly correlated (?)

She says page 13:
Quote
If exchange rates do react to take-profit orders, on average, as these results suggest, then one might infer that non-informative order flow affects rates.
"non-informative" means noise (here I refer to Shannon), so at least a part of the price movement is made of pure noise.

Quoting mikkom
You can't model the market based on simple probability density function.
Unless you exchange the sampling over time for the sampling over price range. Did you read http://www.forexfactory.com/showthread.php?t=481691 ?
The model is a 3rd order gaussian randowm walk. σ is almost constant over time (= no volatility clustering). The chart post#10 is quite well kept inside the 3σ boundaries.
No greed. No fear. Just maths.
  • #387
  • May 22, 2014 5:02pm May 22, 2014 5:02pm
Quoting Rap Skallion
say you have currencies A,B, and C. You notice and AB is going up and BC is going up, and you expect AC to go up. (Value flowing from C through B into A). better than eighty percent of the time this is true. Say you have two big boys, one pushing AB up, one Pushing BC up. But you have a really big boy who has to get rid of his AC in a hurry. This does not usually happen, but you should be aware that it does occasionally happen. I used to think it didn't happen until I had some examples pointed out to me, and then I observed some for myself. So you...

That's it man. that's trading in a nutshell.
Being a trader is lonely, but being a great trader is lonelier still
  • #388
  • May 22, 2014 5:06pm May 22, 2014 5:06pm
Quoting Rap Skallion
say you have currencies A,B, and C. You notice and AB is going up and BC is going up, and you expect AC to go up. (Value flowing from C through B into A). better than eighty percent of the time this is true.
It actually happens in 100% of the cases. Otherwise you would have an arbitrage. I checked in my history with E/U, A/U and E/A, and at no point in time over the last 10 years the difference was over the 1 pip. Doesn't cover the spread.
No greed. No fear. Just maths.
  • #389
  • May 22, 2014 5:06pm May 22, 2014 5:06pm
Quoting PipMeUp
She says page 13: {quote} "non-informative" means noise (here I refer to Shannon), so at least a part of the price movement is made of pure noise. {quote} Unless you exchange the sampling over time for the sampling over price range. Did you read http://www.forexfactory.com/showthread.php?t=481691 ? The model is a 3rd order gaussian randowm walk. σ is almost constant over time (= no volatility clustering). The chart post#10 is quite well kept inside the 3σ boundaries.
I'm sorry but a take profit order is noise? Lol and that lady wrote a book? My goodness anyone can write book these days. I am not going to lie that statement doesn't make a lick of sense.
Being a trader is lonely, but being a great trader is lonelier still
  • #390
  • Edited 5:21pm May 22, 2014 5:11pm | Edited 5:21pm
And that brings another question to the mix. What do trader consider "Noise", because your very definition of this, and the more things you consider noise, can make you more bias to the subject at hand RE: "Do you believe this market is random". what you consider noise could make you believe that the market is less/more random.

Pipmeup, I didn't mean any disrespect man, but that lady I don't know who she is, she might very well know way more about the market than me. But on the Take profit thing, she just don't make much sense. You need liquidity to both get in or get out of a trade. I guess some people only care about buy and sell orders. I guess everyone is different.
Being a trader is lonely, but being a great trader is lonelier still
  • #391
  • May 22, 2014 8:42pm May 22, 2014 8:42pm
  •  EDG
  • | Joined Feb 2007 | Status: Nothing is fixed. Keep an open mind | 229 Posts
unless price occur in the market naturally without any human intervention (which is impossible), the market will never be considered random. We dont know where the mkt is heading does not mean that mkt must be random. The mkt is dynamic becos every minute every seconds deals are made behind the scene. To those who are involved in the deals, mkt is not random becos they are manipulated to move in a certain way at a certain price and this will continue to evolve as the big boys play their games on the chessboard leading their pawns(retail traders) by the nose.
Hindsight is useless if you never learn anything out from it
  • #392
  • May 22, 2014 11:32pm May 22, 2014 11:32pm
some really good posts !

it seems most except that this market can be less random for some

i liked , pick me ups, post referring to the coin in which it remains random for the guy who is going to guess but known by the flipper.it reminded me of the Barclays recent problems regarding the overnight libor rates.there was certainly nothing random about that,or certainly not for the futers and option traders who were placing trades on these rates.not sure what stochastic probability theory could find this to be random.which raises my point...

all the applied theories are worked from the assumption of a fair game.my small example above of which there are many more ,not to mention the simple fact the book representing clients and companies intensions certainly deems this as unfair game.especially to us retail .to a certain extent that would make this random to most retail.

the last couple of pages of posts imho ,can help to take some of or smooth out this randomness when making decisions on our trades . determining these flows in and out of currencies coupled with key locations of clustering and interest levels is certainly the way i have managed to make my trades slightly less random.

anyways good debate
  • #393
  • May 23, 2014 2:51am May 23, 2014 2:51am
Quoting saneblane
{quote} Lol if anything Lehman brothers was a case of not using your PHD, they were over leveraged like a bastard. The crazy thing is that was business as usual could you imagine that? That's why I said you don't need a PHD with good information, not one of those PHD holder advised against what they were doing because they couldn't see the crash coming. And the crazy thing is, they weren't the only ones over leveraged, it just shows how fragile the system is. That situation was just crazy, but I can assure you that they are back to their old ways....
I wish someone would bail me out if i get forced liquidation.I would martingale all day like a madman
"There's a sucker born every minute" - P.T. Barnum
  • #394
  • May 23, 2014 2:56am May 23, 2014 2:56am
Quoting EDG
unless price occur in the market naturally without any human intervention (which is impossible), the market will never be considered random. We dont know where the mkt is heading does not mean that mkt must be random. The mkt is dynamic becos every minute every seconds deals are made behind the scene. To those who are involved in the deals, mkt is not random becos they are manipulated to move in a certain way at a certain price and this will continue to evolve as the big boys play their games on the chessboard leading their pawns(retail traders)...
Exactly the market isnt random, because you have a dealing desk.The mere fact that you cant get executed at any price makes it non-random.Because anything under the spread cant be filled, and there is a minimum spread of atleast 0.1 pip at any broker or bank even if you trade at Wallstreet.

And inside the spread, the dealer executes you on any price he wants, so it is human intervention.
"There's a sucker born every minute" - P.T. Barnum
  • #395
  • May 23, 2014 3:06am May 23, 2014 3:06am
Quoting saneblane
{quote} I'm sorry but a take profit order is noise? Lol and that lady wrote a book? My goodness anyone can write book these days. I am not going to lie that statement doesn't make a lick of sense.
She means that the take profit is not coming from a rational decision based on economy facts like crisis, employment, interest rate, news or whatever. Objectively 1.3700 is nothing more special than 1.3697. The 00 level is choosen because it is expected to be used by the others as well and you want to take profit before the price retraces. You can call it self-fulfilling profecy or herd effect, fear of losing some of the floating profits or greed of getting the last penny. It isn't rational.

The funniest is that if nobody took profit more especially at this price, the level might break more easily, and the profits would be bigger. That's a kind of 2 prisoners dilemma. But as I already said (post #2075) with the riddle to proximus "Mary is pregnant of her third child. There will be two boys in the brotherhood. What's the probability Mary is expecting a girl?". Human brain is very bad at incorporating information to correctly manage probabilities. A lot of people will wrongly answer 50%.

Quote
What do trader consider "Noise", because your very definition of this, and the more things you consider noise, can make you more bias to the subject at hand
Noise is to be taken in the sense of the information theory. The noise depends on what you consider the signal.
See http://en.wikipedia.org/wiki/Noise_%..._processing%29
I consider the noise to be random because if it could be explained it should be included in the model. That's why I'm getting more and more interested in order flow. If the clustering of orders explains a part of the move I must include it. Or said in trader words I must not disregard or overlook this element.

Quote
But on the Take profit thing, she just don't make much sense. You need liquidity to both get in or get out of a trade.
Her point is that the SL and TP are assymmetric in their effects. Let's say you're long and you have big money in a not so liquid market. When your SL is triggered it pushes the price lower. When your TP is reached is also pushes the price lower. But if a lot of traders have their SL at the same place as yours or slighly below when your SL is hit and the price goes down it triggers theirs. In turn if they are big enough or numerous enough they will push the price even lower, etc... Like dominoes. With the TP it's different. When your TP is reached, all the TP below your price have already been triggered and all the TP above your price won't be because you pushed the price down away from them. The cascade doesn't happen.
No greed. No fear. Just maths.
  • #396
  • May 23, 2014 3:16am May 23, 2014 3:16am
Quoting Proximus
{quote} Exactly the market isnt random, because you have a dealing desk.The mere fact that you cant get executed at any price makes it non-random.Because anything under the spread cant be filled, and there is a minimum spread of atleast 0.1 pip at any broker or bank even if you trade at Wallstreet. And inside the spread, the dealer executes you on any price he wants, so it is human intervention.
I had to stop hitting arbitrage on few pairs for 0,5 - 1,5 pips difference, regurarly. If one has multiple providers, there is no problem finding arbitrage.

I still see arbitrage on the market. Im talking currency market. Prices from MM.
Souvereign on the other hand are arbitrage all the way, especially second rated ones.
  • #397
  • May 23, 2014 3:29am May 23, 2014 3:29am
From Pipmeup:
"Her point is that the SL and TP are assymmetric in their effects. Let's say you're long and you have big money in a not so liquid market. When your SL is triggered it pushes the price lower. When your TP is reached is also pushes the price lower. But if a lot of traders have their SL at the same place as yours or slighly below when your SL is hit and the price goes down it triggers theirs. In turn if they are big enough or numerous enough they will push the price even lower, etc... Like dominoes. With the TP it's different. When your TP is reached, all the TP below your price have already been triggered and all the TP above your price won't be because you pushed the price down away from them. The cascade doesn't happen."

That could be one of the reasons why price tends to go down more rapidly than when it climbs.

Or haven't you noticed that. "The plunging rock versus the weary climb."

An informal survey of my trades this month indicate a better than 6:5 ratio of sells to buys closed in profit.

Anybody else notice this? or is it my imagination?
  • #398
  • May 23, 2014 3:33am May 23, 2014 3:33am
Quoting PipMeUp
{quote} Her point is that the SL and TP are assymmetric in their effects. Let's say you're long and you have big money in a not so liquid market. When your SL is triggered it pushes the price lower. When your TP is reached is also pushes the price lower. But if a lot of traders have their SL at the same place as yours or slighly below when your SL is hit and the price goes down it triggers theirs. In turn if they are big enough or numerous enough they will push the price even lower, etc... Like dominoes. With the TP it's different. When your TP...
snowball effect

Japs, always looked in this way.
Plus, lets say MM is definately afraid to get such a big order down there when everything is falling. SL are down, price is eating lower numbers and MM has a strong SL levels there from their clients.

Client gets the price on the SL, MM is getting a strong position to play out when market is going against him.
MM aint stoopid. As he sees this before SL are hit, he already starts to liquidate his future SL positions.

So he is a dynamically hedging/selling towards SL which effectivaly brings the price down..
2008/2009 years visible

or intraday strong moves
  • #399
  • May 23, 2014 3:34am May 23, 2014 3:34am
Quoting Rap Skallion
From Pipmeup: "Her point is that the SL and TP are assymmetric in their effects. Let's say you're long and you have big money in a not so liquid market. When your SL is triggered it pushes the price lower. When your TP is reached is also pushes the price lower. But if a lot of traders have their SL at the same place as yours or slighly below when your SL is hit and the price goes down it triggers theirs. In turn if they are big enough or numerous enough they will push the price even lower, etc... Like dominoes. With the TP it's different. When your...
Of course, it is usualy business.Thats why i have a long on USD/JPY till 102, and a sell stop lower, just wait to see how the price will reverse after it hits 102

It will be a perfect hedge.
"There's a sucker born every minute" - P.T. Barnum
  • #400
  • May 23, 2014 3:58am May 23, 2014 3:58am
Quoting 21vs7
{quote} snowball effect Japs, always looked in this way. Plus, lets say MM is definately afraid to get such a big order down there when everything is falling. SL are down, price is eating lower numbers and MM has a strong SL levels there from their clients. Client gets the price on the SL, MM is getting a strong position to play out when market is going against him. MM aint stoopid. As he sees this before SL are hit, he already starts to liquidate his future SL positions. So he is a dynamically hedging/selling towards SL which effectivaly brings...
Well besides the mortgage stuff, what i think happened in the EUR/USD in the crisis was very simple the 2001-2006 bubble popped out.Just simple as that, dealers dealed too much EUR/USD and they were in the sell side, sicne the herd got too wild and bought the EUR like mad, the MM got scared that this will go very far and risk would go to the sky.Some banks really got in trouble, while the clever ones had enought reserves to survive the bullish move, and when the buyers finally left, they sold the EUR/USD like a madman exactly to the point of 2002-2003.Now they probably dint recovered all their money, either exited the short with a loss or they opened up bigger positions on the short because the crash was a 100% sure bet, and just simply sold the initial EUR/USD with a small loss, and at the top of the mountain sold 10x more of that and made huge piles of money.

And in 2010 it went even lower, so every MM could exit their positions safely.So because of this didnt happened yet in the gold, i would want to see the gold fall to the roots.

Like you see every amateour trader in news or on analysis sites looking for long of the gold, bad US economy bla bla, doesnt imply long GOLD, now i dont trade gold, but if i would i wold look for a massive short on gold like down to 995$ atleast

So this looks random to you PipMeUp?
"There's a sucker born every minute" - P.T. Barnum
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