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Random Line Theory
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Random Line Theory

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

Exactly.

This video from Adam Grimes illustrates the point perfectly

.

I've just stumbled upon this post thanks to Big Mike's email about Bob's response, and this video by a great myth buster instantly came to mind.

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  #262 (permalink)
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BeMoreFree View Post
Not that occupation of this place is a constant here, but when it is, greener days occur more frequently.

Good post, and why I am re-reading a summary of Trading In The Zone, it co-locates well with Kahneman and that place is exactly where I need to get to next, I already have more than enough lines..., I probably need to read it most weekends this year.



Krav69 View Post

Or did I read this randomly?

Probably. Or maybe just possibly. It's usually just the standard forum notification system for a thread that you've been involved with previously, but maybe Mike's doing a special offer.




bobwest View Post
Hi, @ratfink.

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.

Yes and I agree with what you are saying, as regards each of our views of what is significant as traders amongst millions. However, there are other deeper (algorithmic, behavioural, emotional, etc) models that have more to do with the global nature of the enterprise than anyone as an individual.



epicuron View Post
Exactly.

This video from Adam Grimes illustrates the point perfectly

I've just stumbled upon this post thanks to Big Mike's email about Bob's response, and this video by a great myth buster instantly came to mind.

Agreed, @Big Mike had earlier introduced Grimes' work on here, I am also a fan.

Travel Well
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  #263 (permalink)
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Predictive Models (including lines)


This is an interesting article that I was discussing with someone just last week. Personally, I don't think anything is totally random - if you look hard enough and have enough data, you'll probably find something. But there's also crowd mentality - most traders have at least a daily pivot on their chart. Why? Because everyone else has one too and they're all watching it the same way. This is essentially causality - the cause creating the effect. Market profile, or Gaussian distribution, establishes lines in the sand but those lines have a mathematical logic to them.
Anyway, enjoy the article! If you can't download the entire article because you're not a subscriber to Scientific American, let me know and I'll copy and paste here.


Can Math Beat Financial Markets? - Scientific American

Excerpt from the article:

"Can anything predict the market?
Let me tell you a story: two to the power of 10 is 1,024. One way to predict the market is to call up 1,024 trading places and tell half of them by week's end the market will be up and the other half that the market will be down. At the end of the week, forget about the half that knows you were wrong. Keep doing that for 10 weeks and, at the end, you will have called the market correctly for one person who will think you are a genius."

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  #264 (permalink)
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tturner86 View Post
Some lines carry more weight then others. Our total belief in a line is the fallacy.

Exactly. The market does whatever it wants, whenever it wants, we only get the chance to see places that are more interesting than others, then work on completely accepting responsibility for our decisions. If I ever get there it will cease to be a fearful enterprise.

For the same reason EW gets a bad name because so many practitioners get dogmatic over a certain 'view', when all it can ever be is an uncertain possibility with at best a greater probability.

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  #265 (permalink)
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itradeit View Post
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?

No disagreement from me. I use them all the time.

That was not the point of the whole thing. The point is simply that it is not only the lines on the chart that matters, but also what is going on in the mind of the trader. That point is pretty simple, and probably no one disagrees.

When actually random lines were put on a chart, I interpreted them in terms of support and resistance, and they seemed to work out. In fact, of course, they were doing no such thing; it was just my mental interpretation of them. They had nothing to do with the chart. You couldn't do any actual trading with them.

When non-random lines, or anything else, are put up on a chart, they may very well work in actual trading. Normal support and resistance, and other tools, can be very helpful. The point is not that they aren't.

But, just as there is a mental or perceptual aspect to the apparent meaning of the meaningless random lines, there is also, you would think, a mental or perceptual aspect to any other lines or any indicators. That does not mean that they do not work. It means that a part of any value they have is in the way that the individual trader looks at and uses them. This is why what works for me might not work for you, and vice-versa. It is also why a trader who is attempting to improve his/her trading by jumping from one "system" to another is looking in the wrong place. Part of the answer is inside their head, not on the chart. What you "see" depends partly on what is actually there, and partly on you.

This is also why one trader is sure that method x works, and it does for him, but another is sure that method x is worthless, but method y works. And so it does. For him. And, of course, lots of people do not find anything that works for them....

That, at least, is how I see the value of this thread. I do think it is the lesson of this experiment, or at least one of them.

Bob.

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ratfink View Post
Yes and I agree with what you are saying, as regards each of our views of what is significant as traders amongst millions. However, there are other deeper (algorithmic, behavioural, emotional, etc) models that have more to do with the global nature of the enterprise than anyone as an individual.

In a very deep sense, I think you are absolutely correct.

But that is another discussion.

Bob.

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  #267 (permalink)
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Ya gotta get your own, Jake

My long journey in trading only leads down one path. The path that I can apply and understand. I know other trader methods, but if they don't work for me then I can't force 500 pounds of crap into a one pound bag.
Bob's email makes sense to our perceptions as being key, but most times we want to cling on to something and make it work so bad that we find ways to deceive ourselves, over and over again.
Trendlines, S & R, fib's murray math, indicators... a list a mile long.
TRying this and trying that is all well and good, but what is finally starting to work is that I'm training myself with some kind of structure. So what, you have watched the charts like a good boy and deserve some vig for your diligence.
Successful traders that I know and can't yet replicate, do multitudes of techniques at the same time in autopilot. Some can't train others very well, because they don't totally understand what and why their technique is working.

The superstar quarterback hits his receiver perfectly. Announcer asks how did you see him open? He says: "Duh, I have no clue, really. Good training?"
Not just the perception, but more importantly the performance. It's game time, are you ready??? Traders are a different breed. I told a friend how different sports would be if when you threw an interception that you had to pay a fine?
We pay for all and every mistake and error. Nothing random here. Just gotta get your own Jake.

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  #268 (permalink)
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WilleeMac View Post
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

Is that random? I would say not. I would say it works, too.

The point of the thread was a little different (as I see it, anyway.)

I tried to put it in the post; perhaps it could be said better, but that was my best shot, and there's no point in my going on and on about it.

Briefly, if something is working for you, it's not just because of the method you are using; it's also how you are perceiving what you are seeing and how you are putting it to use, which is in you, not in your charts -- or volume or whatever you are using. And other people will see it differently, and may succeed with something totally different. So if someone wants to improve their results, it's not only in finding the "right method," but finding how to make something work for them.

That's not really all that surprising. But the post and the thread get into why the random lines makes this so evident. (Or at least I think it is....) But no, it is not saying that everything is random, nor that there is anything wrong with what you are doing.

Bob.

PS, you got the email because Mike sent it out to everyone as an email blast, to raise the issue of the thread again.

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  #269 (permalink)
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The best indicator I ever used was a Midas Channel with S&R lines. It caught every important move. It was like seeing the secret, finest grain of market movements. The price never broke the lines. NEVER. Then I discovered I had the indicator resolution wrong, it just followed the high and low of the screen.

Not easy to admit such brilliance, but I think it's good to add to the repertoire.

I think lines (if not calculated randomly) can give you a point of reference. A point of reference you get used to - and here lies its usefulness - the line begins to reference you, not the market. The line can follow price action, moon phases or the number of rocks in a 3 miles radius...it makes no difference.

That doesn't mean they're useless; it means they're only useful to you, from your perspective and only your perspective. Einstein and Quantum Physics went a long way in showing, at least, that we greatly influence the "objectivity" of the world around us and what we see.

It's hard to find an agreement on a subjective point of reference...

---

Anyway, Gann's way is obviously the correct one: if you can fill every single pixel of the chart, the lines will surely catch a lot of moves.

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bobwest View Post
Is that random? I would say not. I would say it works, too.

The point of the thread was a little different (as I see it, anyway.)

I tried to put it in the post; perhaps it could be said better, but that was my best shot, and there's no point in my going on and on about it.

Briefly, if something is working for you, it's not just because of the method you are using; it's also how you are perceiving what you are seeing and how you are putting it to use, which is in you, not in your charts -- or volume or whatever you are using. And other people will see it differently, and may succeed with something totally different. So if someone wants to improve their results, it's not only in finding the "right method," but finding how to make something work for them.

That's not really all that surprising. But the post and the thread get into why the random lines makes this so evident. (Or at least I think it is....) But no, it is not saying that everything is random, nor that there is anything wrong with what you are doing.

Bob.

PS, you got the email because Mike sent it out to everyone as an email blast, to raise the issue of the thread again.

I think a lot of it depends on the time-frame the trader is using to trade. Obviously if someone is swing trading then a whole number isn't going to be very important considering the reversal usually won't pay out as much as they're looking for even though it could make a scalper some money. And then again, if a scalper paid too much attention to what a swing-trader uses to place a trade then the scalper would likely lose money too.

Every line on a chart whether it be indicator, make-believe, or support and resistance is random if a random stop-loss and limit are used. In my opinion it's all about how much you risk and where you take profits in accordance to price structure that determines whether or not some of these ideas can work with some degree of regularity.


Last edited by Itchymoku; February 21st, 2015 at 07:56 PM.
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