40000 coin toss chart with data from Berkeley University | Forex Factory

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40000 coin toss chart with data from Berkeley University

  • #1
  • First Post: Jan 29, 2015 7:44am Jan 29, 2015 7:44am
SOURCE: http://www.stat.berkeley.edu/~aldous...in_tosses.html

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Click to Enlarge Name: coin toss 1.JPG Size: 52 KB


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Click to Enlarge Name: coin toss 2.JPG Size: 50 KB


I assigned +1 to tails, -1 to heads

Coin Tossing can only work in trading if price and coin toss chart patterns are similar.

notice coin toss chart looks like Forex chart. So are we just trading randomness?
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File Type: xlsx 40000tosses.xlsx   1.8 MB | 680 downloads
All Assets NAS100 GLD BTC AUS JPY GBP All Time Return: 19.8%
  • #2
  • Edited 8:21am Jan 29, 2015 8:04am | Edited 8:21am
"randomness" is a term we use when we can't or don't care to understand all the variables.
  • #3
  • Jan 29, 2015 11:14am Jan 29, 2015 11:14am
Check out my post 630 & 631 here:

http://www.forexfactory.com/showthre...83#post7985283

The markets are indeed random. The first sample of 5 charts is 50:50 coin flip with equal probability. The second set of charts is if you had a fundamental bias, so probability of up is 0.55, down is 0.45. Nice uptrend each time!

Its important to understand fundamentals and what the bias is ... otherwise you are just trading random noise!

EZ
  • #4
  • Jan 29, 2015 1:25pm Jan 29, 2015 1:25pm
NZDUSD has fallen more than 100 pips after yesterday’s rate announcement. Why? RBNZ stated that it would abandon its tightening bias and that they expect the currency to fall further over the coming months. NZD is the blue line in the screenshot, and the blue arrow is the time when the announcement occurred. Coincidence? Only to skeptics who believe that profitable trading is nothing more than fortuitous.

This came on the back of the hawkish Fed comments, just one hour earlier (white arrow). USD is the white line plotted by the strength indy. Up, up, up for the USD.

AUDUSD has likewise dumped more than 100 pips. Why? A dovish article by RBA watcher Terry McCrann saying the RBA will almost certainly cut rates at next week’s meeting, and that Australian OIS are now pricing around a 53% chance for a 25bps cut at the meeting next week from ~7-12%, following the release of the article. So ask yourself this question: what are bank traders likely to do? Sell the AUD in anticipation of a possible rate cut; hence these guys know that the market will meanwhile fall, and their eagerness to get in ahead of the event helps to create further selling pressure: a self-fulfilling prophecy. I heard about the article at the time of the green arrow, and the AUD is the green line plotted by the strength indy.

Just prior to the the USD and NZD rate announcements we had some mildly dovish comments from BoE chief Carney. GBP (red line) appears to have risen in the first screenshot, but when the USD plot is flattened (second screenshot), it is clear that the GBP is bearish relative to the USD; indeed GBPUSD has fallen > 100 pips since the announcement. Which is why you should always look to pair a potentially weak currency against the strongest one(s).

Why has CAD (brown line) been weak recently, relative to the USD? Predominantly due to falling oil prices.

Why has JPY (purple line) been rising? Probably at least partly due to safe haven flows.

And so on.


Conclusions:

1. Is a coin toss random? Yes.

2. Are markets random? Absolutely not. Randomness is merely a euphemism for a lack of information and/or knowledge.

3. Are fundamentals the holy grail? No, because any piece of information can always be trumped by other info that the trader is unaware of, and the market is ultimately a mix of anonymous participants whose agendas are unknown, at any given point. But a basic knowledge of what data the major bank traders currently consider to be important, coupled with a timely news feed, is enough to prove non-randomness, and also provide the savvy trader with an on-balance directional bias.

4. Fundamentals create outcomes in price behavior that can potentially be identified and exploited by TA based systems. In the same way that a biased coin (see ezcurrency’s examples) inevitably generates a biased outcome, and that bias can be deduced by merely reading the plotted outcomes, TA can provide insight into how price moves, if not the reasons why.

5. Just because coin-toss generated charts might exhibit some similar characteristics to price charts (e.g. ‘trends’ exist, or the graph appears to yield patterns like channels or head-and-shoulders), this in no way supports an argument that price charts are random. It merely demonstrates that any random process will necessarily generate what appear to be trends and patterns, as a matter of course. There is no reasonable basis to conclude that a coin toss is analogous to the way that markets behave.
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  • #5
  • Jan 29, 2015 2:15pm Jan 29, 2015 2:15pm
Quoting ezcurrency
Check out my post 630 & 631 here: http://www.forexfactory.com/showthre...83#post7985283 The markets are indeed random. The first sample of 5 charts is 50:50 coin flip with equal probability. The second set of charts is if you had a fundamental bias, so probability of up is 0.55, down is 0.45. Nice uptrend each time! Its important to understand fundamentals and what the bias is ... otherwise you are just trading random noise! EZ

great post seems you have studied this in some depth.

So what I'm gathering from the coin toss with fundamental bias, we don't want to look at indvidual daily news we want the overall fundamental sentiment, not whether last months jobs were slightly lower or higher. Just trade the pull backs with trend on until we get a fundamental game changer that changes overall bias. If only was that easy...or is it?

since price is random with kicked in bias we only need 54%-55% to biased in a direction to get mega trends in that direction.

post some more coin flip charts if you got any...goes 4 anyone else

one thing that supried me is that sum of coin tosses did'nt hit zero, i was expecting a kind of oscilation around zero where sum of heads and tails are the same.
All Assets NAS100 GLD BTC AUS JPY GBP All Time Return: 19.8%
  • #6
  • Jan 29, 2015 2:28pm Jan 29, 2015 2:28pm
Quoting hanover
NZDUSD has fallen more than 100 pips after yesterday’s rate announcement. Why? RBNZ stated that it would abandon its tightening bias and that they expect the currency to fall further over the coming months. NZD is the blue line in the screenshot, and the blue arrow is the time when the announcement occurred. Coincidence? Only to skeptics who believe that profitable trading is nothing more than fortuitous. This came on the back of the hawkish Fed comments, just one hour earlier (white arrow). USD is the white line plotted by the strength indy. Up,...
good info never looked into those correlation indys b4. Have you tried Pitview? they have something similar using an institutional data feed, got about 20 market makers, anyway they summarise the order flowfrom 1 mins - 24hrs to see which Pairs are strongest weakest.
All Assets NAS100 GLD BTC AUS JPY GBP All Time Return: 19.8%
  • #7
  • Jan 29, 2015 2:56pm Jan 29, 2015 2:56pm
Quoting Phil_GMT
{quote} good info never looked into those correlation indys b4. Have you tried Pitview? they have something similar using an institutional data feed, got about 20 market makers, anyway they summarise the order flowfrom 1 mins - 24hrs to see which Pairs are strongest weakest.
Phil,

No, sorry, I wasn’t aware of Pitview. There are many currency strength indicators around. Henry Liu developed one, which first aroused my interest in them, then there’s Tom Yeomans’ AccuStrength, Mark Boardman’s Apollo, PointZero’s Currency Meter — and no doubt many others.

For something that’s free, there’s Oanda’s Heatmap, or MT4 indicators like CCP (info here and here), and plenty of others on FF (e.g. here), including some I wrote myself (here and here).

Anyway, back on topic, here and here are a couple of old threads on randomly generated charts that might be of interest (can’t remember exactly why I bookmarked them now, but apparently I considered them a worthwhile read at the time!)

All the best,
David
  • #8
  • Jan 29, 2015 3:15pm Jan 29, 2015 3:15pm
Quoting Phil_GMT
{quote} So what I'm gathering from the coin toss with fundamental bias, we don't want to look at indvidual daily news we want the overall fundamental sentiment, not whether last months jobs were slightly lower or higher. Just trade the pull backs with trend on until we get a fundamental game changer that changes overall bias. If only was that easy...or is it?
It is not that easy of course. You have to look at the fundamental data, and how price reacts to it (Sentiment analysis) I remember a year or two ago, AUD had a jobs report out ... something like 5k was expected for jobs creation, but it was like 50k. AUD spike up (against all other pairs it trades ... AUDUSD, EURAUD, AUDJPY, etc). 24 hours later, AUD was back below it was for the news release. This showed something underlying which made AUD have negative sentiment. It proceeded to downtrend after that for weeks/months.

So we can't just look at the fund. data ... you have to look at price action and how it reacts to it. Both right away and 1-2 days later.

EZ
  • #9
  • Jan 30, 2015 6:41am Jan 30, 2015 6:41am
Quoting hanover
Conclusions: 1. Is a coin toss random? Yes. 2. Are markets random? Absolutely not. Randomness is merely a euphemism for a lack of information and/or knowledge. 3. Are fundamentals the holy grail? No, because any piece of information can always be trumped by other info that the trader is unaware of, and the market is ultimately a mix of anonymous participants whose agendas are unknown, at any given point. But a basic knowledge of what data the major bank traders currently consider to be important, coupled with a timely news feed, is enough to prove...
I had to reply to this thread as the subject has been brought up by many traders in the past. Some even tried to develop a system based on coin toss...that didn't went well as you can imagine.

Hanover, not only is an old member of FF (been reading through a lot of his posts in the last couple of years), but Hanover also brought a lot of good information to all the traders. I don't know Hanover personally, I don't know how Hanover trades the markets, but I like the way he thinks regarding the markets and I strongly agree with point no.2 - lack of knowledge brings fear, loss and other feelings and statements...

How can anyone believe that the markets are random? Is coin tossing random? Doesn't it depend on the force applied, gravity, etc?
When a trader thinks that the markets are random, is high time to stop trying to trade the markets in my opinion.

I could say that there is indeed at least one similarity (or almost) between the markets and coin toss but probably just very few of the traders will know it.

And I can say with all conviction by own experience as a trader that the markets are not even close to being random. There is tremendous order in the markets. Price has the truth.
  • #10
  • Jan 30, 2015 3:24pm Jan 30, 2015 3:24pm
Quoting ezcurrency
{quote} It is not that easy of course. You have to look at the fundamental data, and how price reacts to it (Sentiment analysis) I remember a year or two ago, AUD had a jobs report out ... something like 5k was expected for jobs creation, but it was like 50k. AUD spike up (against all other pairs it trades ... AUDUSD, EURAUD, AUDJPY, etc). 24 hours later, AUD was back below it was for the news release. This showed something underlying which made AUD have negative sentiment. It proceeded to downtrend after that for weeks/months. So we can't just...
This is the problem with fundamental analysis, there is nothing fundamental about it. Even the so called "experts" get it wrong and look at the time and resources they put into research, models and weightings of key economic information. I am not arguing that fundamentals do not drive currencies. To argue otherwise is really a useless exercise as what else is there? The ultimate arbiter of the competitiveness of an economy is it's currency. For a day trader though, a path of frustration. For me anyway, this is the fundamental truth.
Audentes Fortuna Juvat
  • #11
  • Jan 30, 2015 8:31pm Jan 30, 2015 8:31pm
Quoting hanover
NZDUSD has fallen more than 100 pips after yesterday’s rate announcement. Why? RBNZ stated that it would abandon its tightening bias and that they expect the currency to fall further over the coming months. NZD is the blue line in the screenshot, and the blue arrow is the time when the announcement occurred. Coincidence? Only to skeptics who believe that profitable trading is nothing more than fortuitous. This came on the back of the hawkish Fed comments, just one hour earlier (white arrow). USD is the white line plotted by the strength indy. Up,...
'Academics cannot conclusively prove or agree on whether the stock market truly operates via a random walk or based on predictable trends because there are published studies that support both sides of the issue.'
tradewith60
  • #12
  • Jan 30, 2015 8:36pm Jan 30, 2015 8:36pm
Quoting pinktrade
{quote} I had to reply to this thread as the subject has been brought up by many traders in the past. Some even tried to develop a system based on coin toss...that didn't went well as you can imagine. Hanover, not only is an old member of FF (been reading through a lot of his posts in the last couple of years), but Hanover also brought a lot of good information to all the traders. I don't know Hanover personally, I don't know how Hanover trades the markets, but I like the way he thinks regarding the markets and I strongly agree with point no.2 -...
So you have evidence that the future can be predicted based on historical information or is it just your bias?
tradewith60
  • #13
  • Jan 30, 2015 8:50pm Jan 30, 2015 8:50pm
Quoting 60minuteman
{quote} So you have evidence that the future can be predicted based on historical information or is it just your bias?

also... TA traders like to harp on about 'lack of knowledge' - well unless you know every element acting on the market at that precise tick then YOU also have lack of knowledge...

Markets are uncertain - what happens next will always be uncertain and therefore we as traders have to look elsewhere to increase our probabilities of success.
tradewith60
  • #14
  • Edited 12:42am Jan 31, 2015 12:27am | Edited 12:42am
Quoting ezcurrency
Check out my post 630 & 631 here: http://www.forexfactory.com/showthre...83#post7985283 The markets are indeed random. The first sample of 5 charts is 50:50 coin flip with equal probability. The second set of charts is if you had a fundamental bias, so probability of up is 0.55, down is 0.45. Nice uptrend each time! Its important to understand fundamentals and what the bias is ... otherwise you are just trading random noise! EZ
WALLAH.........

Ive been looking at the market this way for some time,

and averaged it remains a constant 50 % the deviation from this is ,as you have said is the up or down trend ,this in its self corrects the deviation for that particular series .the market is constantly battling with its self to remain efficient.the increase in probability ,which cannot always be determined by the unfolding fundamentals for all the obvious reasons .so trading the fundamentals is as random as trading T A ,BUT,if you trade the probability when favoring the fundamental your erasing some of the randomness.

from range ,which remains constant ,trend ,causes conflict ion,corrects one series of deviation only to create one,hence range to correct.the path may be random to us,but the conflict is quite visible and far from random,afterall it strives to be efficient.

technically you can determine enough bias to gain advantage.if were to believe price takes the path of least resistance.thriving to be efficient it will take that path
  • #15
  • Feb 3, 2015 8:40am Feb 3, 2015 8:40am
Quoting ezcurrency
Check out my post 630 & 631 here: http://www.forexfactory.com/showthre...83#post7985283 The markets are indeed random. The first sample of 5 charts is 50:50 coin flip with equal probability. The second set of charts is if you had a fundamental bias, so probability of up is 0.55, down is 0.45. Nice uptrend each time! Its important to understand fundamentals and what the bias is ... otherwise you are just trading random noise! EZ
How do you know the probability of up is 0.55 when you have a fundamental bias? Actually, how do you know when you have a fundamental bias? Sometimes even when fundamentals point in one direction the price can go in the opposite direction for quite some time before it reverses to follow fundamentals
  • #16
  • Feb 3, 2015 11:21am Feb 3, 2015 11:21am
Quoting Trenderer
{quote} How do you know the probability of up is 0.55 when you have a fundamental bias? Actually, how do you know when you have a fundamental bias? Sometimes even when fundamentals point in one direction the price can go in the opposite direction for quite some time before it reverses to follow fundamentals
I don't know the probability of up is 0.55 ... I was just using it as an illustration point. If there is some fundamental bias which makes price direction not 50:50 anymore, it will trend in that direction.

Yes, you are correct ... its difficult to have a correct fundamental bias. I've seen AUD jobs report expected to be 5k, and it was 50k ... AUD immediately spiked up which was expected, but AUD was down below the news 24 hrs later. This is AUD trading against all pairs (EUR, CHF, USD, etc).

I think its important to watch the fundamentals ... but also watch the price action on how it reacts to data (this is called sentiment analysis). If you can get the correct overall sentiment right, that will give you a higher probability of knowing the trend direction ... then trade in the trend.

Regards,
EZ
  • #17
  • Feb 3, 2015 11:50am Feb 3, 2015 11:50am
I agree that the market is random, it maybe true that some great people/institutes have such power to move the price, but it will take a great amount of power and resource to move the global-scale fx into one particular direction.
OrderSend(Symbol(),OP_BUY,10,Ask,30,SL,TP,"",0,0,clrGreen);
  • #18
  • Nov 18, 2015 5:43pm Nov 18, 2015 5:43pm
Quoting hanover
{quote} Phil, No, sorry, I wasnt aware of Pitview. There are many currency strength indicators around. Henry Liu developed one, which first aroused my interest in them, then theres Tom Yeomans AccuStrength, Mark Boardmans Apollo, PointZeros Currency Meter and no doubt many others. For something thats free, theres Oandas Heatmap,...
From your experience on Strength Currency Meters which is your favorite?
  • #19
  • Last Post: Nov 18, 2015 9:50pm Nov 18, 2015 9:50pm
Quoting thjw
{quote} From your experience on Strength Currency Meters which is your favorite?
I use RS, CSM and PSA, i.e. the three that I wrote myself. But I don't think any strength meter is necessarily better than another: either the concept of pairing a strong currency against a weak one is robust or it isn't. I merely use those three because I'm familiar with the calculations that underpin them, and I can fix or enhance them if I need to. I also like the simplicity of finviz futures display; or Oanda's heatmap to obtain strength of currencies outside of the top 8. In this post there are a list of several strength meters (see the text in green typeface).

I use D1/W1 readings from strength meters to confirm macroeconomic biases. My analysis for longer term trends is based predominantly on FA, not TA. If you want to use strength meters in an intraday context, e.g. scalping, this thread might help you.
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