Martinghoul, if eur/usd follows a random walk, then (eur/usd)*x is equally probable as (usd/eur)*x. And (usd/eur)*x=(eur/usd)*(1/x). Therefore eur/usd*2 is equally probable as eur/usd*0,5 and eur/usd*3 is equally probable as eur/usd*0,333333. If you consider this logic wrong, then I will not try to convince you.
There is an obvious mathematical error being made by the writer of the article. But I will not point it out because I'm a bastard. This discussion is very similar to the "perpetual motion device".
Hi, epetrov. A whole lot of financial theories are based on the assumptions that prices follow a random walk. I think that this is not true and in this article I have presented a logical argument. Since there is no error in my arguments, then if prices followed a random walk, everybody would be making profits. And this is simply not possible. Anyway, the fact that prices don't follow random walk doesn't mean that there is no randomness in trading. I have almost finished an article with examples of riskless profits from the real world, and the system will be profitable also in the future (i.e. out of sample). Right now I don't have time, but soon I will post it and you will see examples of profiting from randomness
Sorry didn't bother to read anything but the title... For a short time maybe..for the long run...Hell No!
by far the most accurate and concise line of reasoning I have ever seen on ET. Its a true pleasure to follow your posts Martinghoul.
the positive expected return comes from the second order of taylor expansion. it is too small for practical use.
In flucotating markets (70% of the time) the system works well because with the more expensive currency we buy the cheaper one, after they return and so on. In real world I don't know. We have to backtest the system with the last year End Of Week Forex data with end of week re-adjusments in order to see the result. It can be done on Excel. Any volunteer to do that?
Sorry, sambian, I wish to clarify, if I may... Your error is in the very first sentence above. What you're defining as a "random walk" simply isn't. Specifically, the concept you're trying to operate with, the symmetric ordinary random walk (SORW) is defined as X(t) = X(0) + sum(Z(k)), where 1 <= k <= t and P(Z(k) = 1) = P(Z(k) = -1) = 0.5 for all k. Note that for the SORW, E[X(t)]=0 for all times t. What you have defined is not a random walk, because you have used two random variables, eur/usd and usd/eur. That's your fallacy, which, unfortunately, makes your riskless system a fantasy.