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Random Line Theory
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Random Line Theory

  #351 (permalink)
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Here are 4 random Heston models that all have nice TA features to them. I didn't cherry pick them but just ran the model 4 times.

The Heston model is not the friend of technical analysis

Nice breakout on the last one.

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Random Line Theory-heston..png   Random Line Theory-heston2.png   Random Line Theory-heston3.png   Random Line Theory-heston4.png  
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  #352 (permalink)
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What exactly are you trying to say?

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  #353 (permalink)
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I guess the point is what would be the difference between using TA on randomly created charts or use random lines on real charts.

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lezzlee View Post
I guess the point is what would be the difference between using TA on randomly created charts or use random lines on real charts.

Indeed. One is pointless and the other is less points. Finding useful maps but avoiding delusion is all that matters.

Travel Well
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  #355 (permalink)
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I guess the point is.. what is the difference between using TA on "randomly" created charts or use random lines on real charts?
We will end up to experiment whether a trader can make money on random charts with random tools.
All this concludes to risk management, isn't it?

(I don't understand why it was posted previously)

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  #356 (permalink)
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Just bumping this thread because it was mentioned during today's webinar.

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Wait...

there was a webinar? Will it be recorded and posted here?

LOVE the random line discussion BTW!

What was referenced about this in the webinar? @tturner86

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  #358 (permalink)
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wldman View Post
there was a webinar? Will it be recorded and posted here?

LOVE the random line discussion BTW!

What was referenced about this in the webinar? @tturner86

It was the Adam G webinar, he was talking about a random line analysis he did, and I mentioned the thread.

I plan on posting video here once it is up.

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  #359 (permalink)
Seth
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I had this thread on my list of things to read, and after reading the whole thread I'd like to share a slightly different view on the issue.

It's easy to get caught up on whether or not the lines are random. From my perspective none of the lines are random. Maybe they were randomly generated, but that's irrelevant. If price reacted at that price in a way that you could have made a profit, then something happening amongst the market participants caused that reaction. There is trading at every price, and multiple important prices. Enough that if you place a random line on the chart, there's a good chance it will match or come close to a key level.

The problem is not that all indicators are just giving random numbers. The problem is that a level alone is not enough to make a trade. It tells us nothing about what the risk reward of that trade is, let alone the probability that price will continue or reverse at that level.

And that's exactly why the market is able to mess with or heads. We certainly end up seeing things that aren't there, but at some point every trader has to face the reality of their performance. Eventually you figure out that the probability at that spot is at best 50/50. So the market has other tricks up its sleeve, ones that prey on more than just your perception of probability.

For instance, a certain signal may precede every big move. Our minds see it as cause and effect, not realizing that only 30% of the time that you see the signal does it actually result in a move. This is common with a lot of the DOM signals people talk about. Plenty of robots out there faking these signals to try and lure people into trades. On the opposite side you'll find a signal that predicts direction 60% of the time, but when it fails you get slippage making your average loss bigger than your average profit. And when you look at why this tends to happen it makes perfect sense. If it is a high probability trade, then there's going to be more market participants aware of the opportunity. Which means more people puking when it fails.

Not that there aren't trades with a profit factor of 1.5 or higher. They're just based on more than a line because current market forces are more powerful than the line. I worked on the limit systems at a big bank which tracked how much money traders and clients were allowed to risk. Believe me when I say they can push well past the line if the business reasons make sense. So to be profitable the strategy has to take advantage of both probability, and risk/reward. A probability of 50% and a risk reward of 2:1 being a good starting point. That's a probability that is just as good as random. So you see, the conclusion is the same. Maybe the line iisn't random, but it might as well be.


Last edited by TWDsje; July 15th, 2017 at 12:54 AM.
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