OP, +1 (and laughing my ars off) Here is the secret formula: Sum of all profit/loss from all breakout / trend systems = Sum of all profit/loss from all reversal / scalp systems. Back-out commissions, cost of infrastructure, and give the HFT their cut, and you get (you figure it out)
Edit required due to temporary retardation syndrome , should read: {Sum of all profit/loss from all breakout / trend systems} + {Sum of all profit/loss from all reversal / scalp systems} = 0. There, that makes more sense.
This is another of those threads that can never end. For what its worth, do this if you can. Use your spreadsheets' random number generator, or any other random number generator that uses a computer algorithm to generate "random" numbers. Generate a large number of random sets of x and y "data" between say 0 and 1, or any other finite reasonable range. Plot the x,y sets as points on a, say, a 2x2 grid, i.e., divide the field into 4 smaller square, subfields. You should see a uniform gray or speckled field, depending on how close the points are to each other. And if you count the number of points falling in each subfield the number should approach the same for each subfield as you plot more and more points. I guarantee that you won't achieve this with any standard, simple computer random number generator. In fact, you will see a definite and repeated pattern in the plotted points! None of these simple, common, random number generating algorithms are any good for serious statistical work where you might be using monte carlo methods or the central limits theorem. I haven't thought about how these algorithm's defects might show up in randomly generated price chart. But if you want to generate good pseudo-random numbers using a computer algorithm you'll need a more sophisticated algorithm, about which many papers have been written in the computer science literature, which see. You can't get true random numbers from any computer algorithm. But good pseudo-random number algorithms do exist that will give you a nice uniform gray field in the above described "parking lot" test. And that is good enough. But the typical random number algorithms are mostly worthless for serious work.
[Partial quote/QUOTE=Rahula;1801879]I've created an excel file I call "random ............................. lottery result - both events have an equal probability of happening. Now doesn't a random market assumption mean that both mean reversion and trend trading strategies don't have any science to back it up and at the end of the day it all comes down to luck? I know................[/QUOTE] ===================== Mr Rah= Thanks for the question; long story short , answer is no. John Henry said '' what you call luck I call a small sample''. Dave''REALTOR'' Ramsey said a lottery is a stupid tax on people that can NOT do math.Any more questions?? Wisdom is profitable to direct.
markets are multi dimensional. you guys looking TA which is only price dimension and wasting time of your lives. Include fundamentals and sentiment and see nice 3d picture where edge odds are humane.
Very good statement. This is an excellent read. Here is another article from the same author. The point is that the survivors of the mean reversion game attribute their success to skill when in fact they were trading randomly. If you take the whole group there is no evidence of skill.
That author has an axe to grind against trend following. I wouldn't take anything from him seriously.
Yes, when it comes to direction picking of huge systems like the SP 500-- its 100% luck. However, skill is in managing each trade profitably win or lose.
Why is it so hard just to accept that random or not, the market is designed to take your money. skill is in money management not prediction--- prediction can only be done with information that is unavailable to chart readers. so just accept the fact that you are dealing with randomness and control what you can and that is yourself.