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Random Line Theory
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Random Line Theory

  #301 (permalink)
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Adam Grimes will be presenting on futures.io (formerly BMT) in March. I hope he can get through to you guys where I have failed to do so. He's created an in-depth presentation, it looks to be a fantastic webinar.

https://futures.io/elite-circle/3383-upcoming-webinars-training-education.html

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  #302 (permalink)
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Cats

Slightly off topic but still within the Keltner bands is an article I read where they used functional PET scans to determine that shapes are learned and hardwired in the brain. There is a specific circuit for square recognition, circle recognition, etc. Each circuit filters down to one neuron that registers "squareness" to the rest of the brain. Based on this, they raised som cats who never saw vertical lines, When adults, it was a perceptual blind spot. They could see things, but just could not percieve the corners of walls.

So, pattern recognition is hard wired.....

Agree with the last post on 70% of market moves as almost designed to make as many people lose as possible (paraphrasing, not his exact words). I think the math of large numbers of people and crowd psych result in price moving to make as many people lose as possible - I.E. Everyone is fully commuted to long positions, so that market falls.

Generally that means the smaller speculators make up a large part of that losing number. I mostly trade with set ups I have tested, but its interesting to think, what could the market do now to make as many people lose as possible, and often, that is exactly what it does. Setups and things that work seem to rotate in their effectiveness to prevent people from getting comfortable and being able to rely on strategies for too long. I saw a presentation once on making a MACD of the equity curve of each style or type of system/setup, then "turning on" money to systems/setups as their equity curve rotates to a positive profit phase.

Right now, my breakout scalps are not doing well, but were doing well in Dec and Jan. Now I am switching to range trading setups and watching the breakouts to see when they start to run again. I should systematize this and make some objective measures more than my trade journal/spreadsheets, but not enough time right now ;-)

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Big Mike View Post
Well I am trying to demonstrate how so many traders look at indicators as "holy grails", assigning properties to them they do not possess -- such as the ability to predict price.

Let's just see if these random lines have look at all useful after the fact. Will check it for several days. The point being, if you didn't know they were random and price does seem to "interact" with the lines, then you might assign properties to the lines (prediction) that simply don't exist. But since you do know they are random, how will that change your perception and behavior with your other indicators?

Mike

I completely agree, so many of 'look' at a chart and say wow this indicator really leads the market. 'Most indicators lag the market.' Does a indicator have prediction value? Its a question every trader should be asking when using a indicator.

A great example is a SMA, what is it really saying about the future.. NOTHING, it is a representation of what has happened in the past. I am not suggesting that you don't use it; if you believe that markets will continue in the direction of the trend it can be helpful.


Not that I am trying to plug my own tread but take a look at:
https://futures.io/elite-automated-trading/35002-lets-talk-statistics.html#post477576

Measuring the predictability of a indicator is possible with a little bit of statistics.

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  #304 (permalink)
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I'm looking forward the Adam Grimes webinar. I like his stuff and visit his site often. I'm sure I will be informed by what he has to say.

Putting aside the issue of whether or not s/r lines really work. I was just thinking about the random line theory application and ramifications.

To my uneducated mind it seems to me a rather weak logical argument that because random lines occasionally work then actual s/r lines don't work. Again, this is not to refute whether s/r work or not, but rather the general concept that because something happens randomly implies that same thing applied from knowledge and experience does not work.

If you have the set of all lines and a set of random lines and a set of real lines, all you can say is that the random and real lines are both subsets of all lines and that a subset of the random lines can include a subset of real lines (their intersection). But that says nothing about the subset of real lines that are not random lines and whether they exist or not.

This would be roughly equivalent to saying that because one can randomly hit a target with a gun while aiming blindfolded implies that actually aiming at the target with eyes is useless. I really do not see how the first case (random) implies anything at all about the second case (using eyes).

In the case of trading where there is such a large component of randomness and probability the best random line theory could probably say is that one cannot trade s/r lines on there own because some may just be random lines. Traders must use additional information (discretion, context) when deciding. I really do not see how that is different that anything else in trading (price action, indicators, opinions etc).

I don't know that any successful trader makes decisions based on only one input.

Anyway, I am sure I am missing some big point about random line theory and Adam will help clarify things.


Last edited by Seahn; February 25th, 2015 at 07:31 PM.
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  #305 (permalink)
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Seahn View Post
I'm looking forward the Adam Grimes webinar. I like his stuff and visit his site often. I'm sure I will be informed by what he has to say.

Putting aside the issue of whether or not s/r lines really work. I was just thinking about the random line theory application and ramifications.

To my uneducated mind it seems to me a rather weak logical argument that because random lines occasionally work then actual s/r lines don't work. Again, this is not to refute whether s/r work or not, but rather the general concept that because something happens randomly implies that same thing applied from knowledge and experience does not work.

If you have the set of all lines and a set of random lines and a set of real lines, all you can say is that the random and real lines are both subsets of all lines and that a subset of the random lines can include a subset of real lines (their intersection). But that says nothing about the subset of real lines that are not random lines and whether they exist or not.

This would be roughly equivalent to saying that because one can randomly hit a target with a gun while aiming blindfolded implies that actually aiming at the target with eyes is useless. I really do not see how the first case (random) implies anything at all about the second case (using eyes).

In the case of trading where there is such a large component of randomness and probability the best random line theory could probably say is that one cannot trade s/r lines on there own. Traders must use additional information (discretion) when deciding. I really do not see how that is different that anything else in trading (price action, indicators, opinions etc).

I don't know that any successful trader makes decisions based on only one input.

Anyway, I am sure I am missing some big point about random line theory and Adam will help clarify things.

Another way of looking at it is:

You can't be surprised if you throw a bunch of randomly generated lines at a chart that you get a bunch of random results. It's the same problem that you run into with mechanical systems. I think it's fair to say that all mechanical systems fail eventually due to the dynamic nature of markets.

What is the one thing that randomly generated lines and mechanical systems have in common? They both lack the ability to implement and account for context.

In my opinion, it appears that the test (or maybe the question that we're trying to answer), itself, is flawed.

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  #306 (permalink)
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I used the random number generator to prove a point. Pretend a vendor sold this as a magic SR indicator and naturally didn't tell you it was based on a RNG.

People would buy it like all the other vendor crap.

They get attached. They see it "work" then start planning trades based on how price interacts with the line.

Don't you get it? The issue isn't it being random, or the snake oil vendor, the issue is how traders view that information as useful when it clearly is not.

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  #307 (permalink)
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my gas boiler's broke


Fat Tails View Post
But lines always help to find additional entry signals....

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Is it:

a) The output of a (possibly flawed) random number generator. Without the stats numbers we will never know. Even then we might not know, how could we.

b) An early prototype version of the forthcoming 'anaCashKing' indicator.

c) A surrealist impression of the new 3D virtual yarrow stalk implementation of the 'I Ching' tapping into synchronicity.

d) The furious lead sharpening exercise from PST (Programmer Scream Therapy), shortly before an eloquent rebuttal to a 2000 line software request from a misguided one line 'It Should Make Me Money' specification.

e) A mild form of a visual density illusion.

Picture now sits on desktop with other important charts, to be remembered every day. Although it is the only one that hasn't been produced by an aspect of cosmic motivated mind creating order out of chaos by the constant input of energy.

Cheers

Travel Well
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Fat Tails View Post
But lines always help to find additional entry signals....

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but the object of the game is to remove every line one by one. especially difficult around confluence zones...

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  #309 (permalink)
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A quote that seems relevant

Thanks @BigMike for this interesting thread. I hope the message sinks in eventually for me.

I'm not smart enough to come up with some wisdom of my own, but as chance/luck/randomness would have it, I am at the point in Daniel Kahneman's new book "Thinking, Fast and Slow" where he discusses randomness. Here is a quote that seems relevant to the discussion:


Quoting 
The exaggerated faith in small samples is only one example of a more general illusion - we pay more attention to the content of messages that to information about their reliability, and as a result end up with a view to the world around us (markets?) that is simpler and more coherent than the data justify. Jumping to conclusions is a safer sport in the world of our imagination than it is in reality.

Statistics produce many observations that appear to beg for causal explanations but do not lend themselves to such explanations. Many facts of the world (markets?) are due to chance, including accidents of sampling. Causal explanations of chance events are inevitably wrong.

(words in italics were added by me)


Last edited by ourssolaire; February 26th, 2015 at 11:01 AM. Reason: typo
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search for a coincidence


"Small coincidences. They happen all the time and yet, they pass us by because we are not looking for them."

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