Random Line Theory - Traders Hideout | futures io social day trading
futures io futures trading


Random Line Theory
Updated: Views / Replies:70,248 / 358
Created: by Big Mike Attachments:100

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 100  
 
Thread Tools Search this Thread
 

Random Line Theory

  #251 (permalink)
Elite Member
Phoenix, AZ
 
Futures Experience: Intermediate
Platform: Nijatrader
Broker/Data: Interactive Brokers
Favorite Futures: Stocks, Options
 
gfullmer's Avatar
 
Posts: 9 since Oct 2014
Thanks: 7 given, 1 received

Experiment

Years ago I composed an experiment that seemed to show patterns in charts where their were none by creating two charts. One was random but in relationship to the last price action of the last bar and one was from a real stock. I showed it to a couple of technical traders who prided themselves in their craft. It was interesting to find that they couldn't tell the difference between the real and the fake and made the wrong choice of what was real and what was not more often than not and then matched their favorite indicators with the random chart. Check out these two test in the attached CSV files (in OHLC format). I have since lost the charts for them, but the software that I had at the time could create the charts. Now I can't even remember what it might be. Suggestions? Oh, Excel has one... so I added them for test2 and test3.

Can you tell which is random and which is not?

Attached Thumbnails
Random Line Theory-test2.jpg   Random Line Theory-test3.jpg  
Attached Files
Register to download File Type: csv test2.csv (5.8 KB, 8 views)
Register to download File Type: csv test3.csv (6.0 KB, 2 views)

Last edited by gfullmer; February 21st, 2015 at 03:10 PM. Reason: Added Charts
Reply With Quote
 
  #252 (permalink)
Trading for Fun
Västerås Sweden
 
Futures Experience: Intermediate
Platform: MarketDelta, TradeGuider
Broker/Data: TopStepTrader/Rhithmic
Favorite Futures: DAX, NQ, GC, QL
 
Posts: 148 since Sep 2014
Thanks: 59 given, 307 received

OK, I have a question for you all:

I can conclude:

1: A LOT of traders are looking at lines - including the smart money.
2: Especially the OBVIOUS ones - the ones that connect the first two highs or lows in a move. New lines can be drawn in smaller and bigger timeframes to reveal what various traders are seeing.
3: Price comes back to these lines and re-tests in what appears to be rather predictable fashions.
4: Price movement does over time create trend channels that after some time gets broken and support becomes resistance and vice versa.

My question is then:

As much as this is an interesting experiment and philosophical debate around if it is real or not - and I know it is an experiment - my pragmatic point of view is:

How can it even be up to debate (it is, all the time on this site..) that trendlines and s/r lines are useful or not to include in ones analysis when taking the 4 points above in mind? If the market (traders!) respect the lines (does not IGNORE them), they matter.

If they did not, the lines that are obvious to draw according to commonly agreed upon ways to draw them (i.e. connecting higher highs) would NEVER "work".

And not do they only work - they make it easier for our poor minds to see what pattern is developing and will eventually change into something else.

Is there any disagreement here that these lines are useful in trading?

Reply With Quote
The following 3 users say Thank You to itradeit for this post:
 
  #253 (permalink)
Elite Member
Prospect, KY. USA
 
Futures Experience: None
Platform: Sierra Chart
Broker/Data: Infinity
Favorite Futures: /CL
 
WilleeMac's Avatar
 
Posts: 684 since Jan 2012
Thanks: 301 given, 608 received


I don't know why I recieved an email on this post which the best I can tell I'm not subscribed to

So I will add my two cents

I've been accused of illusory lines on a chart

Maybe so

I will put my money any day on (/6E, /CL) price reaction at +/-
  • Whole numbers
  • Half-way-back, 50% re-tracement, measured move (what ever you want to call it)
  • Time of Day

Is any of that random?

-Bill

Reply With Quote
The following 3 users say Thank You to WilleeMac for this post:
 
  #254 (permalink)
Elite Member
Birmingham UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: IG/eSignal
Favorite Futures: Dax
 
ratfink's Avatar
 
Posts: 3,339 since Dec 2012
Thanks: 11,282 given, 7,092 received

The message of Random Line Theory is simple and important - 'random lines on a chart can wrongly appear to be meaningful'.

The conclusion of Random Line Theory is a complete logical fallacy - 'therefore all lines on a chart are meaningless'.

Without understanding and accepting that, there is little scope for any sensible discussion.

There are thousands of models in physics that are capable of generating 'correct maths'. Only some of them have the faintest chance of actually being related to reality - of both the the physical and the perceived worlds. Likewise in the markets - what underlying model could account for any lines or levels? and could it be an aspect of a deeper reality or not?

The brain goes to the utmost ends to find meaning in all aspects of life, it rarely exists yet we create it. It's an existential choice to adopt a nihilist approach to charts or life. Just make the choice, then live and let live.

Travel Well

Last edited by ratfink; February 21st, 2015 at 06:17 PM.
Reply With Quote
The following 11 users say Thank You to ratfink for this post:
 
  #255 (permalink)
Elite Member
Boulder, CO
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Rithmic
Favorite Futures: ZB
 
Posts: 3 since Dec 2013
Thanks: 2 given, 9 received

Randomness vs Meaning

This is an interesting thread, and thanks to all that have contributed, here's my two cents.

What happens is just what happens. True in trading and life in general. The mind then assigns meaning to all that is experienced, good/bad etc. But regardless of the value that the mind assigns, a thing/experience is always only what it is. The value assigned won't change it, it's happened already. Looking out a window a bird flies past, 'oh I didn't want to see a bird', too late, already happened, so value assignment and feelings about it are now responding to a memory.

We often require an illusion of control and planning to feel comfortable, but who plans the fender bender on the way to the store, a sudden illness, bumping into an old friend and having a great conversation, an unexpected world event that moves markets, and on and on. It just happens, it all just happens. So probabilities to me are really only possibilities. Perhaps it seems more likely than something else, but at any moment in time any market can go up or down, a little or a lot.

In my trading this was critical to really 'get' because once a trade is entered I can only manage what happens next. Sure trading plans, stops and targets are great, I would submit even required to win in the long run. But in any given trade the market will do what it does, and imposing too strong an opinion on what 'should' happen has often been costly. Moving stops to the 'next level that will surely hold', letting profits evaporate or losses grow due to many types of belief based actions rather than just observing the market. Risk/trade management is what determines profitability, not necessarily better entries, IMO.

So the question of randomness is largely irrelevant to me, (although it does seem so in the bigger picture) where the more important question becomes ones response to what's actually happening as it is happening. For instance the freedom to be on the wrong side of a market move without becoming 'wrong' emotionally allows the new information to be informative/directive toward a new assessment of next steps. Very limited expectations, seeing that while a probability seems to exist, in this trade it's only a possibility allows a more neutral stance and better agility.

Not that occupation of this place is a constant here, but when it is, greener days occur more frequently.

May your losses be small, your winners large, your feet dry, and your belly full.

Reply With Quote
The following 7 users say Thank You to BeMoreFree for this post:
 
  #256 (permalink)
Trading Apprentice
Grand Rapids, MI USA
 
Futures Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: ES,ZN,GC
 
Posts: 1 since Jan 2015
Thanks: 0 given, 0 received


Big Mike View Post
@bobwest, thank you very much. I hope more people will understand thanks in part to your post.

This is a major milestone people need to deal with and overcome, it's an obstacle to most people's trading in my opinion, especially technical traders.

Mike

Thanks for sending out the email today to bring my attention to this older thread. I'm pretty new here and this older thread is a gem that I might have otherwise missed.

I follow sloping trendlines quite a bit and I'd previously noticed that I could often place a parallel line just about anywhere on the chart that intersected price action and then my mind would be able to "see" how that parallel line was acting as support and resistance.

This is not to say that I think sloping trendlines never "work". I think they often do, perhaps because they are being followed by enough other traders.

Anyway, like I said, I'm new to the forum. So this thread makes me wonder what methodology(s) you tend to use Big Mike? Sorry if this is a FAQ, I just couldn't resist asking (and didn't quickly find an answer when I searched).

Reply With Quote
 
  #257 (permalink)
Trading Apprentice
Denver, Colorado
 
Futures Experience: Advanced
Platform: ToS, IB
Favorite Futures: ES
 
Posts: 22 since Aug 2014
Thanks: 0 given, 15 received

Wow, thanks for clueing me into this very interesting thread!!

I'm snowed in here in Colorado, and this made me read all 26 pages.

Or did I read this randomly? Maybe if the weather was nice I would have only read 10 pages?

I dunno.

Thanks for the email mentioning this thread--I doubt I would have found this on my own. Maybe more of these in the future?

Reply With Quote
 
  #258 (permalink)
1.Fibs 2.??? 3.Profit
Puerto Rico
 
Futures Experience: Intermediate
Platform: thinkorswim
Broker/Data: TD Ameritrade
Favorite Futures: ES
 
rmejia's Avatar
 
Posts: 384 since Oct 2010
Thanks: 3,597 given, 421 received

I stumbled on to the same observation as the initial post when I started out experimenting with line generating indicators, specifically the 1hr initial balance with fib extensions. I was amazed at seeing at the end of the day how price reacted to some of the levels. Real time I could not predict how price would react to these levels tho. Price may or may not react to these levels. This "indicator" produced many lines too, so the chart had a minimum of 8 lines (levels). Which ones would be the significant ones that day, at that moment of touch? At the end of the day it is obvious but during the day it is not. I got the idea of drawing the same number of lines but randomly for the day, also extending them the whole week; for kicks and giggles to see what would happen. I then saw price react to these lines! After that I would draw any line... and eventually price would appear to react to it.

I still occasionally draw trendlines as guidelines. They help me visualize direction on the market, but I don't see them as anything written in stones. When I look at a naked chart I feel lost, without points of reference. The random lines provide me with points of reference, so I use them as a visualization tool. Since I believe they are random or 50/50 I don't always draw them or keep down significantly the number of trendlines I draw.

To me lines and indicators are self fulfilling, depending on the number of market participants using them, seeing the same thing. Two persons can look at a photograph and see different things. With charts there are so many different variables there is no one photograph. There are different timeframes & chart styles that change the data points used to draw lines. If they would behave the same way over 50% of the time consistently they could probably be automated and we could all be rich. To think that the market and trendlines are random can probably be distressing, leading to disbelief. There is comfort in believing one can predict the market with trendlines or indicators.

Tastytrade has some interesting videos on random walk. This one has a good discussion with the resident math genius about his opinion on support & resistance levels (random lines):


Reply With Quote
The following 5 users say Thank You to rmejia for this post:
 
  #259 (permalink)
Market Wizard
Sarasota FL
 
Futures Experience: Intermediate
Platform: NinjaTrader, Sierra Chart
Favorite Futures: ES
 
Posts: 3,635 since Jan 2013
Thanks: 26,759 given, 11,115 received
Forum Reputation: Legendary


ratfink View Post
The message of Random Line Theory is simple and important - 'random lines on a chart can wrongly appear to be meaningful'.

The conclusion of Random Line Theory is a complete logical fallacy - 'therefore all lines on a chart are meaningless'.

Without understanding and accepting that, there little scope for any sensible discussion.

There are thousands of models in physics that are capable of generating 'correct maths'. Only some of them have the faintest chance of actually being related to reality - of both the the physical and the perceived worlds. Likewise in the markets - what underlying model could account for any lines or levels? and could it be an aspect of a deeper reality or not?

The brain goes to the utmost ends to find meaning in all aspects of life, it rarely exists yet we create it. It's an existential choice to adopt a nihilist approach to charts or life. Just make the choice, then live and let live.

Hi, @ratfink.

I used to have exactly the same point of view that you expressed, in both parts:

----------------
The message of Random Line Theory is simple and important - 'random lines on a chart can wrongly appear to be meaningful'.

The conclusion of Random Line Theory is a complete logical fallacy - 'therefore all lines on a chart are meaningless'.
----------------

I now believe that the conclusion of the experiment is not at all that all lines on a chart are meaningless. That's why I made that post; and I included an example (either VWAP or volume profile -- both of which I think are valid and useful) to illustrate the point. I don't think all lines on a chart are meaningless, either.

I think that the experiment shows that we clearly find significance in lines (and perhaps other things) that cannot have significance due to how they were generated. It does not make any conclusions that all lines have no significance; it does suggest that, even when they have, there is also a component that we bring into the picture, just as we do when they don't have any significance. That's about all it says. I think this is not controversial, and it is important.

It is not a matter of what is objectively there; that is there, regardless of how we see it. But one person will see one thing, another will see another; one may take advantage of the opportunity, another may not; one may fail, one may succeed. All using the same charts and the same methods, but not "seeing" the same things. That's the element that makes the difference. That's why a particular method can work very well for one person, but not for another. So you need to find what works for you, not look for "the answer" somewhere else.

I put that as well as I could in my post. Now, it might not be right, and my interpretation may not be right. It would not be the first time .

But I do like this way of looking at it.

Bob.


Last edited by bobwest; February 21st, 2015 at 05:45 PM.
Reply With Quote
The following user says Thank You to bobwest for this post:
 
  #260 (permalink)
Elite Member
Austin, TX
 
Futures Experience: Intermediate
Platform: F-16CM-50
Favorite Futures: JDAM
 
tturner86's Avatar
 
Posts: 5,784 since Sep 2013
Thanks: 9,849 given, 11,160 received
Forum Reputation: Legendary


Some lines carry more weight then others. Our total belief in a line is the fallacy.

Reply With Quote
The following 2 users say Thank You to tturner86 for this post:

Reply



futures io > > > Random Line Theory

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
How advanced mathematics and gaming theory can help you as a trader RM99 Psychology and Money Management 203 February 5th, 2016 03:10 AM
Using Dow Theory indicator as a filter in automated strategies nanobiotech NinjaTrader Programming 8 March 28th, 2015 07:56 PM
Economic Theory PandaWarrior Off-Topic 10 May 15th, 2011 12:06 PM
Ryans Chewing Gum theory Ryanb Psychology and Money Management 2 December 8th, 2010 10:25 AM
GAME THEORY tigertrader Off-Topic 3 October 7th, 2010 09:16 PM


All times are GMT -4. The time now is 09:09 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
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.
no new posts
Page generated 2017-12-16 in 0.19 seconds with 20 queries on phoenix via your IP 54.83.122.227