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Are markets random?
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Are markets random?

  #11 (permalink)
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To the uninitiated....

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This market looks random....

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But proper analytic indicators eliminates the noise....

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  #12 (permalink)
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Big Mike View Post
Some have said that HFT is generating a lot of "noise".

Let me ask you: what is the difference between noise and randomness?

BTW, I believe markets are not random.

Mike

There is no such thing as 'noise' in the market.

There is just trading.

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  #13 (permalink)
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DionysusToast View Post
There is no such thing as 'noise' in the market.

There is just trading.

I beg to differ....


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  #14 (permalink)
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ThatManFromTexas View Post
I beg to differ....


I hope that was just for show.

If not, we are all doomed...

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When I say there's no noise, I think it's important to differentiate between 'random' and 'predictable'.

Something that is non-random is not necessarily predictable.

Noise is mostly referred to as 'one level lower than I look'. Well - I look at the lowest level - bids, offers and trades.

None if it is random, everyone trades for a reason. It's just that often it is directionless and unpredictable.

I like the analogy of people walking in a shopping mall. Most of the time, you could never predict where everyone will be in 15 minutes time. Then again, right the fire alarm and you'll be a lot more accurate in your predictions.

Watching the Tape/DOM, I don't see any of it as noise. I just see it as chaotic or not chaotic. As predictable or not predictable.

Perhaps it's just semantics. Still, I think the whole 'noise' term usually means - "you look at too low a timeframe - that's just noise"

Whereas the lowest timeframe - the Tape is something that can be used with success.

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Random Walk versus a Non-Random Walk - This article describes the Random Walk Theory of financial markets and its counter part, the Non-Random Walk Theory

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Making traders happy...

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I like her.


Last edited by mrphr; April 10th, 2012 at 06:24 AM.
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If you believe markets are random; You will be fooled by randomness.

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DionysusToast View Post
There is no such thing as 'noise' in the market.

There is just trading.

I completely agree. I don't agree with the person who said HFT is the root of all evil (paraphrasing), although you can check back with me in a few more years and see if I've changed my mind (the way we are heading).

But for lack of a better word, there is "noise" in simple terms. For example, if you are Buffalo hunting, and ants are crawling on your feet -- the ants don't really interest you but may distract you, thereby creating "noise".

A lot of people think they are hunting Buffalo, but their charts are aimed directly at the ants. For these guys, I always say their chart is too small (timeframe) and they can't see the bigger picture, and are getting whiplash from all the ants attacking them.

But to go to your point, I have never once looked at any of my charts and said "damn, the HFT bots!!!!". LOL. Perhaps the flash crash, but that is it.

Mike

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monpere View Post
To the hourly chart trader, the 1 min is noise. To the yearly chart trader, the daily chart is noise. Noise is a market fractal level that is beyond what a particular trader's methodology takes advantage of. I trade what most typical traders consider noise. The difference is, there are patterns in noise, there are none in randomness.

I think it goes deeper than this. A roulette wheel produces patterns (series of Black/Red) which can easily trick anyone into believing they are frequent enough to take advantage of. The question you need to answer is what makes patterns different on the markets versus patterns created on a roulette wheel?

Here are 100 decisions taken from random.org where Black = -1 and Red +1. Can you see some recurring patterns similar to what can be seen in the markets? If you answer yes then what makes them different?

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