Your Market Beliefs - page 2
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My profitability came after a "market perception" change.
MMThats what made the difference with me too.
As you can see beleif is like religion you must have it and it must be well defined to play this game. It must also be derived from markets not what you wish to see. I happen to agree with iGoR on every thing we may have a difference in our differention of presistance, however. Never saw it explained as rainy days and nights.
Theres one more thing you may want to make note of with this poll I will PM you with the idea so as not to bais the results till your done here.
Keit
I believe that its mostly random, however those random events create situations that experienced operators may choose to respond to and exploit on a strategic level, and its the effects of those responses that lead to systematic patterns that are exploited through technical analysis.
I agree with you. That is why each of technical indicator will work nicely in certain market and time frame.
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Pregnant Care
...My profitability came after a "market perception" change. ...
Isn't this the proof that the market is not 100% random ?
An other good experiment in this random theorie is the persistence rule. Ex. if today it is a sunny day then the chance that tomorrow will be a again a sunny day is bigger then it will be a rainy day...and vice versa.
I have done a lot of test on this rule with the help of metastock professional. If the current bar is an up bar then go long on the next bar or vice versa. Over a longer period of time (where you have as much bullish and bearish market) the results were clear that this is a not working system (B/E). On what ever kind of time frame.
Regards...iGoR
I think that we would both agree that on a microstructure level anything can happen at any time, and markets are pretty much random. I'd also agree that analysing on a bar by bar basis as in your example yields at best a break even scenario.
However, I believe that its persistance that actually gves us a tradable edge. If there's no persistance in market moves, how do you account for kurtosis in the distribution of size of market moves, and fat tails to the right of the mean ?
I think that we would both agree that on a microstructure level anything can happen at any time, and markets are pretty much random. I'd also agree that analysing on a bar by bar basis as in your example yields at best a break even scenario. However, I believe that its persistance that actually gves us a tradable edge. If there's no persistance in market moves, how do you account for kurtosis in the distribution of size of market moves, and fat tails to the right of the mean ?
Hi Zupcon,
I see that you ask me a question.
Bu I'm sorry my english is not good enough to understand the following: "how do you account for kurtosis in the distribution of size of market moves, and fat tails to the right of the mean "...
Could refrase this if it is possible ?...tnx
regards...iGoR
What is the "random walk theory" and what does it mean for investors?
As this article says there are 2 camps.
The believers of the random walk theory who believe and where studys proof, that it is impossible to predict the markets.
And the believers of the Technical analysis who say and with studys proof that true TA one can predict the market.
As it says also academics can not conclusivly prove or agree with one or the other because there are studies that support both sides.
As I have been a technical analist for nearly 13 years now ( and sorry to say so myself--a good one) I can not say that one can predict the markets with a higher probability then 50% true TA.
I have seen as much support or resistances or H&S that indeed did what they predicted to do as they failed to do so also.
Fact is that some people very quickly confuse the market movements (for ex. cycles or by news or by greenspan that talks or bullish and bearish cycles or trends) with PREDICTING the market.
It is not because one market is moving in cycles like ( the grain and wheat and corn market that are related to the weather and this way to the seasons) that one can say that in GENERAL the markets can be predicted and this way are not random.
So I sujest that if we continue this discussion that we would agree on the terminology of the word "RANDOM".
Are the markets (in general) moving randomly?.... I would sujest that people would think about that question and make their posting based on: can the price action of the markets (in general) be predicted?
That would prevent of making postings where people try to say that certain events influence the markets. That has nothing to do with randomness.
Bill gates knows that if he would anounce to sell all his stocks that HE KNOWS that the price is going to seriously drop. So he can predict that certain market movement. Does that mean that he can predict the markets in general ?...no.
As said, a croupier will spin the ball of a roulette tabel. He can spin that ball to the left side. He can spin that ball to the right side. He can be drunk and the ball slips continiously out of his fingers. He can spin the ball hard. He can spin the ball soft. That wil all lead to different outcomes. But that still makes that the outcome will be random. Or better that the outcome is NOT predictable.
If technical analist proof with studys that they can indeed predict the markets then the edge they will have will be a very small one.
So small that first you need to be in that elite group of technical analists and secondly the % edge will also be very small (the 2 combined that small that in my point of vieuw compared what they have to all the rest of the people don't have, can be neglected).
If 99.99% of the people can not predict the markets and only 0.1% can predit future price action, then I believe the random walk theory is the most acceptable one.
This topic is an intersting one but I have a feeling that it will end up in some sort of a discussion like does GOD exist yes or no ?...
Regards...iGoR
Hi Zupcon,
Could refrase this if it is possible ?...tnx
regards...iGoRsorry about the bad english
Perhaps its best to compare markets against things that are perhaps random, for example test scores in an exam taken by 1000 people. If we analyse the scores we can calculate an average score (lets assume the average was 50/100) and a minimum score ( again lets assume its 20/100) and a maximum score (lets assume its 80/100). If we plot the distribution of scores, they'll be normally distributed, half of the people taking the exam will score less than average, and half will score more than average.
However, if we look at the size of moves in a market this isnt the case, we find that the distribution is asymetrical, and there are significantly more larger moves than we might expect from random chance. I'm suggesting that these larger moves, indicate there is a tendancy for persistance.
Did everybody here understood what iGor means by "markets are moving randomly" ?
An other posting for the people who would not realy know what is ment by markets moving randomly ...
I would like to explain the random walk theory for those who would not know that theory or for those who still think in trend or in market cycles...
The random walk theory comes to this: A drunken man comes late at night out of a bar. We can predict that he will go home. But each of his steps that he will take or witch side of the road or where he will fall will be completely random.
In terms of trading: the guy walks to his house is as price can move in cycles or bullish or bearish market periods and will reach certain price levels...but how and where he will place his steps to get home ( for all the same he can arrive first in hospital) is as price can be all over the place before it reaches certain levels.
Some people will now say yeah but that is easy to defend the randomness of the markets but there is no other way. Because otherwise someone can say I predict that the eur/usd will go back to parity. Indeed it happens but 5 years from now and that person says ..You see I predicted that it would go to parity.
And that same persons says: I see the Dow-Jones going to 14000 within 10 years. There are not a lot of people who will disagree with him. But these kind of predictions do not proof that the markets are not random or predictable.
regards...iGoR
Market is being 100% random and being able to 100% predict the movement of price are 2 totally different things.
Now if you are asking if we can 100% predict the exact movement of prices, well, obviously not! That's as stupid as saying we will reach parity, or is it?
You see, the market is not 100% random because it involves human behavior. Individually, you cannot predict what the next person is going to do, he may hit the buy or sell button, yes this is random. But when you pull away from the noise level, prices are more than likely to stop or at least slow down in areas of support and resistance because of collective human behavior. Is it going to obey it 100% of the time? No. But the probability is much higher that you see prices head into zones of previous buying or selling, and prices will seem to stall before making its next decision. Also, macroeconomic forces will not let currency get out of balance because they need to purchase in baskets of currencies.
There is also a great study of the above with market profile and reversion to the mean.
Also, it is not 100% random because we all know the relationship between crude and the dollar. You cannot have 100% random when you have outside forces with direct relationship to its movement. 100% random means that the prices just move completely by itself without any relationship or disregard for past price movements, then that is just not true.