NexusFi: Find Your Edge


Home Menu

 





Random Line Theory


Discussion in Traders Hideout

Updated
      Top Posters
    1. looks_one Big Mike with 58 posts (218 thanks)
    2. looks_two Fat Tails with 41 posts (172 thanks)
    3. looks_3 trendisyourfriend with 36 posts (38 thanks)
    4. looks_4 bobwest with 14 posts (75 thanks)
      Best Posters
    1. looks_one bobwest with 5.4 thanks per post
    2. looks_two Jigsaw Trading with 4.5 thanks per post
    3. looks_3 Fat Tails with 4.2 thanks per post
    4. looks_4 Big Mike with 3.8 thanks per post
    1. trending_up 231,147 views
    2. thumb_up 835 thanks given
    3. group 117 followers
    1. forum 367 posts
    2. attach_file 100 attachments




 
Search this Thread

Random Line Theory

  #21 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,539

Here is after the close, day 1 random lines.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Attached Thumbnails
Click image for larger version

Name:	12-28-2010 5-18-59 AM.png
Views:	1566
Size:	40.7 KB
ID:	27389  
Follow me on Twitter Visit my NexusFi Trade Journal Started this thread Reply With Quote

Can you help answer these questions
from other members on NexusFi?
Build trailing stop for micro index(s)
Psychology and Money Management
NexusFi Journal Challenge - April 2024
Feedback and Announcements
Better Renko Gaps
The Elite Circle
Futures True Range Report
The Elite Circle
New Micros: Ultra 10-Year & Ultra T-Bond -- Live Now
Treasury Notes and Bonds
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
59 thanks
Funded Trader platforms
37 thanks
GFIs1 1 DAX trade per day journal
22 thanks
NexusFi site changelog and issues/problem reporting
22 thanks
The Program
20 thanks
  #22 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,539

For day #2, I used a random number generator:
RANDOM.ORG - True Random Number Service

On the right, I just plugged in low and high (like 8800 and 9300) and then plotted the lines based on its output.

Here are the lines for day #2. These are prior to the open. Will update either during the day or after the close. These lines are 100% random, there is no chance I was "influenced" this time by logical levels.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Attached Thumbnails
Click image for larger version

Name:	12-28-2010 5-24-36 AM.png
Views:	1408
Size:	28.8 KB
ID:	27390  
Follow me on Twitter Visit my NexusFi Trade Journal Started this thread Reply With Quote
  #23 (permalink)
 
Fat Tails's Avatar
 Fat Tails 
Berlin, Europe
Market Wizard
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
Posts: 9,888 since Mar 2010
Thanks Given: 4,242
Thanks Received: 27,102



Big Mike View Post
For day #2, I used a random number generator:
RANDOM.ORG - True Random Number Service

On the right, I just plugged in low and high (like 8800 and 9300) and then plotted the lines based on its output.

Here are the lines for day #2. These are prior to the open. Will update either during the day or after the close. These lines are 100% random, there is no chance I was "influenced" this time by logical levels.

Mike

Hi Mike,

I think that it is clear what you want to demonstrate and I agree. Our brain is hardwired for pattern recognition, and even when there is no pattern it will complete the picture to produce an analysis that shows some regularities.

However, by your demonstration, you do violate the law of large numbers. You need to repeat the process at least a hundred times to draw any conclusions, and I doubt that any of the members of the forum will support the pain to evaluate 100 charts with random lines.

Your first random chart, as it contains random lines, may well have lines that are not random at all. But let us have a look at your lines

92.21, 91.53, 90.29 -> out of range, not hit

90.73 -> although it looks like it acted as support (brain wash), price ignored this line and went down to 90.51. 90.51 however was a logical support level close to prior day's low, which was at 90.48. The fact that the bulls stepped in above prior day's low is a clear bullish signal.

91.27 -> this random level correctly predicted the high of the day LOL. Did you ask an old woman with a crystal ball, or was it by chance that one of your 5 levels chosen finally made it?

By observation I have noticed that some levels are used as exits which creates a first price reaction. The second approach sees an overshooting of price (bull trap or bear trap) before price reverses. In general, it is the first high or low that defines the support or resistance. In this case the first high was at 91.24 and the second high at 91.28. I actually had shorted the first high, because it was 50% retracement from the day's high in confluence with the main pivot, both at 91.21, so this random level fell together with a non-random level that works.

Random levels become tradeable levels, if there is a sufficiently large number of traders that uses them. Technical Analysis is a pseudo-science that mostly relies on self-fulfilling prophecy. In a way it is similar to the Keynesian beauty contest. You do not select the girl (S/R level) which is most beautiful, but the girl of which you think that the other agents think that all agent will think (n recursions -> find convergence level) that it is the most beautiful girl. This is subject to fads, so technical analysis means identifying the current fads that work.

I know that it was not your intention to discuss these levels, but just to show that our brains that have been hardwired by evolution, will trick us into pattern recognition and attribute a meaning to something which is meaningless. There is a number of cognitive biases related to this, including Clustering Illusion and Illusory Correlation.


Clustering Illusion

This is the tendency to erroneously perceive small random data samples as containing significant information, caused by a human tendency to underestimate the amount of variability that can appear in a small sample of random data. I remember that question about the birthday: If you have 25 randomly selected people invited for a party, what is the likelyhood that two of them have them have the same birthday (day of year)? The correct answer is 56.87%. It is actually more likely that there are at least two of them having the same birthday than otherwise. There is another study about basket ball players that shoot successfully in streaks - called the hot hand phenomenon. The so called hot hand however is a fallacy based on clustering illusion. It simply does not exist, as was shown by Gilovich, Vallone and Tversky.

clustering illusion - The Skeptic's Dictionary - Skepdic.com


Illusory Correlation

Illusory Correlation

Reply With Quote
  #24 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,539

So far today, the random lines have predicted the opening price within 1 tick and the 30m opening range high/low within 1 tick.

I hope you guys do understand what I am trying to do here... we rationalize lines on a chart after-the-fact, that is what I am doing here, assigning value to them.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Attached Thumbnails
Click image for larger version

Name:	12-28-2010 8-38-18 AM.png
Views:	1094
Size:	31.3 KB
ID:	27396  
Follow me on Twitter Visit my NexusFi Trade Journal Started this thread Reply With Quote
  #25 (permalink)
 
trendisyourfriend's Avatar
 trendisyourfriend 
Quebec Canada
Market Wizard
 
Experience: Intermediate
Platform: NinjaTrader
Broker: AMP/CQG
Trading: ES, NQ, YM
Frequency: Daily
Duration: Minutes
Posts: 4,527 since Oct 2009
Thanks Given: 4,171
Thanks Received: 6,018


Big Mike View Post
So far today, the random lines have predicted the opening price within 1 tick and the 30m opening range high/low within 1 tick.

I hope you guys do understand what I am trying to do here... we rationalize lines on a chart after-the-fact, that is what I am doing here, assigning value to them.

Mike

i think most 'guys' understand what you are trying to prove, ie, rationalize lines on a chart after-the-fact. But what are you going to do with this information ? How are you going to transform this information into actionable knowledge ? Are you gonna eliminate all lines on your chart ? No more support/resistance or diagonal trend lines on your chart ? No more channel ?

Do you consider the CCIPivot line projection you use on your chart in the same league as random lines ? Are you giving more weight to these lines ?

Reply With Quote
Thanked by:
  #26 (permalink)
 
cory's Avatar
 cory 
virginia
 
Experience: Intermediate
Platform: ninja
Trading: NQ
Posts: 6,098 since Jun 2009
Thanks Given: 877
Thanks Received: 8,090

here is before the fact

Attached Thumbnails
Click image for larger version

Name:	CL 02-11  12_28_2010 (3 Min).jpg
Views:	874
Size:	69.5 KB
ID:	27397  
Reply With Quote
  #27 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,539


trendisyourfriend View Post
i think most 'guys' understand what you are trying to prove, ie, rationalize lines on a chart after-the-fact. But what are you going to do with this information ? How are you going to transform this information into actionable knowledge ? Are you gonna eliminate all lines on your chart ? No more support/resistance or diagonal trend lines on your chart ? No more channel ?

Do you consider the CCIPivot line projection you use on your chart in the same league as random lines ? Are you giving more weight to these lines ?

I have zero intention of trying to make random lines useful.

What I am trying/attempting to demonstrate is the rationalization of lines on a chart. Some people attempt to assign value to these lines after-the-fact. So, now knowing the lines I have generated are random, and yet I can still easily assign the same values that someone would assign a non-random line, what does that tell you?

BTW, no I do not consider CCI Pivot random nor do I consider pivot points random. I do give them more weight than a random line. However, I firmly believe I give them much less weight (much, much, much less) than most traders who eagerly download them and place them on their chart, who then believe they have found an edge.

So to that point, I use the CCI Pivot as a way to frame the price, just like a moving average or etc. But I used to think differently. I used to think "only short when MA is down" and etc. In fact I still catch myself with those thoughts, and while I do firmly believe in trading with the trend, I don't think you can assign a black/white hard/fast rule to any indicator, even a simple moving average and a rule such as trade short when falling and long when rising.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Started this thread Reply With Quote
  #28 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,539

So now price came down and attempted to test the 90.88 marker, coming within 5 ticks before reversing and re-testing the 91.35 line.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Attached Thumbnails
Click image for larger version

Name:	12-28-2010 9-53-31 AM.png
Views:	847
Size:	32.8 KB
ID:	27403  
Follow me on Twitter Visit my NexusFi Trade Journal Started this thread Reply With Quote
Thanked by:
  #29 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,399 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,539

Here we can clearly see that at first the line acted as resistance. But once the line was broken, resistance became support.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Attached Thumbnails
Click image for larger version

Name:	12-28-2010 11-48-06 AM.png
Views:	907
Size:	31.6 KB
ID:	27407  
Follow me on Twitter Visit my NexusFi Trade Journal Started this thread Reply With Quote
  #30 (permalink)
 dutchbookmaker 
NYC
 
Posts: 187 since Dec 2010


What is interesting about this is it is food for thought about how ill defined most setups are that you read about.
Consider with these 5 lines, candle body/wick and no defined number of ticks for how close price needs to come to a line to have meaning..you basically have the entire chart area practically covered no matter where price goes without a massive trend.
On the other hand with tens of thousands of ticks per day, each being a potential trade you could be entering or exiting, a random line I would imagine is still better than nothing if only to act as a random filter.

Reply With Quote




Last Updated on September 26, 2019


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts