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Are markets random?
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Are markets random?

  #21 (permalink)
Market Wizard
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Big Mike View Post
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

But by your measure, Tape reading is ultra noise because it is way below any chart. This is what I disagree with, if it were true, the XTrader wouldn't be used in all the prop shops and people wouldn't be trading off their DOM WITHOUT charts.

In terms of HFT - I trade off the DOM and I don't see anything that is making it less tradeable.

Spoofing for instance can only do so much and it needs to do it for long enough to sucker people. As such, I don't see what everyone is worried about. I can attest to being regularly suckered in by spoofing and so obviously it is not beyond the realms of humans. Like you - I've not seen anything that turns me off a market with the exception of C when it was at $4.50, the range was 5c and the volume was 300 million per day. Look at BAC now, it's a similar story - death by HFT rebate trading. That's not happening on futures markets IMO - they'd get their asses handed to them if it did.

If one guy uses a 15 min chart and they think a 30 second chart is noise, it just means they don't understand the dynamics of the 30 second chart and when this chart is chaotic and when it is predictable.

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  #22 (permalink)
in a meditative state...
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trendisyourfriend View Post
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?


Psychology!
Psychology changes the patterns.
We don't know what comes next, BUT (and this is a big one), depending on the previous psychological move, we can predict the next one since we tend to repeat the same psychological mistakes over and over.

"Algo" trading removes the psychology aspect of trading. Some say it's the only way to be profitable, others dismiss that since when psychology changes,"algo" tend do take its time to adapt.

"Noise", "random", is all the same thing, they are all part of the psychological aspect of the market, of us.

Why daytraders tend to hold a 4 tick maximum loss on an ES trade? Why ES tends to find support on every 4 tick counter trend move? Is this random? Is this noise? Isn't this psychological? Isn't this constant move that generate a pattern, the constant 1 point stop loss? Is this random? Well, some might say it is since 1 point is a random number, it could be 1.25 points. But 1 point is the minimum move multiplied by 4. It's $50, it's a round number, it's something that psychologically creates meaning in us, in the market.

I don't see as random or noise. I see it as psychology.

If I become half a percent smarter each year, I'll be a genius by the time I die
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  #23 (permalink)
Live Your Bliss
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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

Strictly speaking, random means indeterminate. But the markets are clearly not indeterminate. Each print (trade) is clearly determined by an agreement of buyer(s) and seller(s). So the markets are strictly deterministic.

Presumably, you want to ask if the markets are predictable.

They are, to the extent that mass behavior is.

"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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  #24 (permalink)
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Anagami View Post
Strictly speaking, random means indeterminate. But the markets are clearly not indeterminate. Each print (trade) is clearly determined by an agreement of buyer(s) and seller(s). So the markets are strictly deterministic.

Presumably, you want to ask if the markets are predictable.

They are, to the extent that mass behavior is.

And of course, there are times when they are more predictable than other times.....

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  #25 (permalink)
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mrphr View Post
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I like her.

Is she hunting ants or buffalo?

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  #26 (permalink)
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monpere View Post
Is she hunting ants or buffalo?

Neither, I hear she is hunting monpere, as they are in season now.

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  #27 (permalink)
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mrphr View Post
I like her.


trendisyourfriend View Post
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?

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

I don't know, I'm not a mathematician, nor a roulette player. Give me 3 year's worth of this data, I'll put up my indicators on it, run some backtests and analysis, and I'll tell you. But in terms of trading, I feel comparing the markets to roulette, and coin tosses is a pure waste of time, so those ideas are best suited for trivia party games and not worth pondering seriously in my view. All I know is I've been trading very specific patterns in what most call market noise for the past 7 years. You've all seen my charts with all the 'noise' signals. If you want me to put up some cold hard charts, you know I will...


Last edited by monpere; April 10th, 2012 at 03:42 PM.
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  #28 (permalink)
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monpere View Post
I don't know, I'm not a mathematician, nor a roulette player. But, I feel comparing the markets to roulette, and coin tosses is pure waste of time, so those ideas are best suited for trivia party games and not worth pondering seriously in my view. All I know is I've been trading very specific patterns in what most call market noise for the past 7 years. You've all seen my charts with all the 'noise' signals. If you want me to put up some cold hard charts, you know I will

There is not need to be a mathematician in order to succeed in trading, however it is very important to understand basic concepts of odds and probabilities...

I give you a example, some people think that in trading you have 50%/50% of making money; Actually is less than that, the odds are 1:3 = 0.33333... or simply 33.33%, why? Because you can only Buy, Sell or do Nothing.

Only three possibilities:

If you Buy you have 33.33%
If you Sell you have 33.33%
If you do Nothing you have 33.33%

But if you do Nothing you will not making money anyway, so then you need to work on how to improve the odds, how to put and increase the odds in your favor...

I think about odds and probabilities all the time, I was a semi-professional poker player so my poker skills help me a lot, because I am not a programmer I do not even know how to code a simple moving average. Lol...

There is a video on You Tube where Mark Douglas says: "Trading is a odds game".
And believe him, it is.


Last edited by mrphr; April 10th, 2012 at 04:38 PM.
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  #29 (permalink)
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mrphr View Post
...

Only three possibilities:

If you Buy you have 33.33%
If you Sell you have 33.33%
If you do Nothing you have 33.33
...

I thought it was 50%, Futuretrader71 where are you?

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  #30 (permalink)
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mrphr View Post
There is not need to be a mathematician in order to succeed in trading, however it is very important to understand basic concepts of odds and probabilities...

I give you a example, some people think that in trading you have 50%/50% of making money; Actually is less than that, the odds are 1:3 = 0.33333... or simply 33.33%, why? Because you can only Buy, Sell or do Nothing.

Only three possibilities:

If you Buy you have 33.33%
If you Sell you have 33.33%
If you do Nothing you have 33.33%

But if you do Nothing you will not making money anyway, so then you need to work on how to improve the odds, how to put and increase the odds in your favor...

I think about odds and probabilities all the time, I was a semi-professional poker player so my poker skills help me a lot, because I am not a programmer I do not even know how to code a simple moving average. Lol...

There is a video on You Tube where Mark Douglas says: "Trading is a odds game".
And believe him, it is.

Preaching to the choir, I'm all about the probabilities But as I've mentioned elsewhere on another thread, you cannot apply theoretical probability to the markets, it is a waste of time, you have to apply experimental probability using empirical sample data. But, let's not go down that rabbit hole agan here


Last edited by monpere; April 10th, 2012 at 04:50 PM.
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