if the markets truly were random then no amount of anticipation adaption or skill would matter. Especially after commissions. If roads truly were random no one would ensure them. Roads are built according to rules. Highways are built to accommodate decision making at 70 miles an hour. The markets organiccally create rules to accommodate traders with excellent decision making skills. The 50 period ema is frequently like a should on a road. It is placed there as a boundry for the good drivers. It might not stop a drunk but it stops me. I too have read talebs book and I had a different take away. He was pointing out that people with flawed approaches to the market like his neighbor could do very well for a while because of luck. Ironically the part that most seem to miss when reading talebs book is not to give up on order and to say everything is random - it is to take advantage of the times that things are not random. If you look a few years back I had a discussion on this board with a stats professor. he too was carried away with talebs thoughts. He talked about how he chastised his friend for thinking a good general was one who how some amount of major battles. He response was that winning such a small amount of battles could have been random. I told him he was crazy. He said the same thing could be said for winning sporting events. If you think wining the U.S. open in tennis just once can be a random event then we have core disagreement on life. And my view is superior. You don't win U.S. opens by luck alone.
"You are mixing up again the randomness of the markets with oneâs abilities to react and adapt to the market moves." Well said Maestro. If-then-else. Play the probabilities, the breakouts are nothing more than the reacting and adapting to the outliers.
Enclosed is a link which explores the hows and why's of Bird Flocking patterns and behavior. It ties in directly to what Maestro is saying here, and supports a ... universal theory about the market, which shows that it may very well be random as we define it, AND it may also be understandable and exploitable as well. Really really good thread. How does a flock of birds wheel and swoop in unison?
if we are defining random as all outcomes are equally likely - buying breakouts would be just as much a losing proposition as betting on red after you saw 5 reds in a row on a roulette wheel. (the odds at roulette could be seen as equal to costs and slippage.) Why play? Just to hope your first trade is a winner. Thats no edge.
Thanxx for yr reply MAESTRO, I dunno who you are but at least I know who you are not, and that's deterministic. Interesting conversation indeed... Few weeks back I was reading about random walk, coss toin experiment and the like, or rather how it applied to data transmission and coding, information theory, etc... alas can't remember the url. Anyway, at some point the author was elaborating to the affect that, provided the number of repeats of a specific series of 0's and 1's (a "pattern" of some sort) crosses a threshold, then the conclusion had to be that an underlying "force" of *non-random* nature was the main driver of such repeating pattern. Seems to me that here some people are of the opinion that, when playing coin toss say 1000 tosses repeated 100 times, if for 100 consecutive times you have a toss of around 70% heads and 30% tails (eg 700 heads and 300 tails give or take), these people could still not be convinced that the coin _might_ not be fair. I have to disagree with this view. To me, such a result is more than enough to tell me that there's something asymetrical with the coin. Maybe we should agree to disagree and move on...?
Very good take. For instance I once traded for 90 days making at least 30 trades a day. Averaged over 1200 a day and Had one losing day about 80 days in. Not when there were others around me trading different stocks also making six figures with different entries and exits.
Not true. He actually speaks to many different levels of understanding, and each person is going to under the information at the level that they are currently at. Interestingly enough, it is not in the complex mathematical formulae, geometric shapes and high level application of technology that these truths will be found, but rather in a simple understanding of (a) the randomness of the markets along with (b) the bird flocking analogy discussed earlier. Though markets are random, human behavior is not. Fear and Greed are the prime motivators in the market, when the trader understands them and develops a method for exploiting them, that is when they will be able to achieve consistent success. This thread is so good ... it's painful.
I think there have been questions regarding the veracity of his claims. Regardless, any retail trader following his advice today will likely get their head dismembered by the market. Concentrating and compounding size was one of the earlier lessons the market taught me not to do (touching fire tends to make a profound influence on one's future habits). I believe Zanger pulled it off, but luck was certainly on his side as he compounded large size during a wild bull market. How he (as a home retail trader) managed to own the bulk of travelzoo outstanding shares at one point, and still not get taken to the cleaners is beyond me. Wonder how he's doing today...