You mentioned statistics a number of times, but I believe what's more important than statistics is statistical significance. I think what cooltrader is saying is that you can't really prove statistical significance of those patterns, even though the statistics appear to indicate a tradable pattern. For example, if you looked through the last 3 years of data, and you find a specific pattern that occurred 50 times, and 40 out of those 50 times, the pattern was followed by a significant up-trend (at least 10 points). Would you say that's a 80% chance? A statistician would not say that outright. He would try to construct a statistical test and to find the significance level of that occurrence, i.e., what is the probability that such an 80% statistic would be observed by chance. Unfortunately due to the fractal nature of price trajectories, most patterns can and do happen by chance, even if they appear to indicate an 80% probability of preceding a significant move. In other words, your back test probability might say 80% but when you forward test it, the statistics might quickly go down to 50/50.
Nobody. I just told you how it is. Shouldnt every technical trader thinks this way ? But i know its true, i am damned good in my business, its all mine, i created it, its mine, its mine - hehehehehehe
I understand your point. But i must tell you, it is not true for my trading patterns. My statstics tell me i have a 90 percentage of success, if i follow my rules to 100 percentage. If i make a mistake the percentage goes down. Its not just so, that there is a pattern on one timeframe and i would just bet on that - on No lord that would be too easy. I told you, its about pattern in pattern in pattern, in timeframes in timeframes in timeframes. And i told you its very complictaded and complex, like a matrix, or boxes stuffed in boxes in boxes..... Then to figure out, how and when exactly this first timeframe pattern, will work out or not, is the other part, where you must look on the other timeframes and patters, and so on. About all this i have made and always make statistics, so that i know, when a pattern will work out or not. My view of the markets is just too complex for the most people. Well, i have learned it this way and it works out very well. And i say it again, Statistic makes the money, nothing beats statistics, if they are perfect....... If something have worked the last 100 times, i would bet a lot of my money that it will also work a 101 time, that is the easy description of what i do. I just believe in the constant repetation of this patterns and i have never been disapointed. I also know, when the pattern will not work out perfect, what very rare can happen, thats the 10% of uncertainity, but i wont lose much or anything then. This all goes into statistics to predict the perfect odds. This is the job of an odds manager while gambling with risk. Thank you and Good trading.
Mandelbrot is a pretty smart guy. Fractal Geometry is all about finding order in chaos... The patterns are in fact ordered, to a certain extent... The question here isn't really to find the order. I can find the "W" double bottom on a chart within a bigger chart... The problem here is that (in my opinion) I don't think that there is any correlation to future patterns from the current pattern. If you can make money by it then more power to you! You're right. All patterns appear in hindsight... It's really hard to use in real time because your "pattern recognition" has to speculate on what the pattern may become not on what the pattern is... It's Hindsight bias, hence its lack of predictive value.
Interesting point, is probability really the same as statistics? Probability is static but statistics could be dynamically revealing a bias/physical defect in a dice. What analysis can be done to tell if shorter term statistics is going to revert to the probability mean or is there really a bias?
LOL WTF. Of course they are not the same. But only with statistics you can determine probabilities. There are 2 kind of statistics: 1 = history statistic backtesting. 2 = Real time Trades statistic. The gameplan is to make no. 2 to no. 1. This is the objective of the game. When they have become one, they are the perfect statistics what give you then the best possible probabilites and the rules for that kind of setups and strategies. With them, you can predict all kind of market moves, short term and long term.
If you scroll down that wikipedia page you'll see that the "purest" version of a random walk assumes indendent and identically distributed R.V.'s at each step BUT, there are nontrivial variants which are very relevant to this discussion: multivariate models (think cross-covariance), non-gaussian dist., the order book, predictable higher orders, any exogenous variables, etc. Some of these include "patterns", but all of them provide potential for profit. BTW, could you please site proof that markets are fractal (if that's what you're implying). I've started to associate the word fractal with religious life insurance salesmen that sit down next to me on an airplane.
Statistics are used to estimate population parameters from samples. Probabilities are assigned for inference, either for predicting future values or assigning confidence / significance for parameter estimates. Bayesian inference is one way to equate past statistics with future probabilities. In the context of statistical tests, I am referring to the case where probabilities are used to assign confidence or significance to the parameter estimates. So if your past statistics indicate that 80% of the time, a certain pattern resulted in a profitable upswing, then I would like to know what is the 95% confidence interval on that 80% statistic. If it is 80% +/- 40%, then I am less confident about betting on it. Alternatively I could come up with a hypothesis test and ask: is this 80% (profitable) significantly different from 50% (not profitable, money-losing with commission+slippage). The null hypothesis says it is indistinguishable from the 50% case. If the p-value from this test is 0.3, then that means that 30% of the time, you could have gotten the 80% by chance, i.e., that it is just a fluke, there is no mechanism behind it, or it is a curve-fit.
Cite proof...? Check out the links bellow... http://classes.yale.edu/fractals/randfrac/welcome.html http://classes.yale.edu/fractals/randfrac/Market/Market.html Video... <iframe frameborder="0" width="480" height="360" src="http://www.dailymotion.com/embed/video/x6xqd2"></iframe><br /><a href="http://www.dailymotion.com/video/x6xqd2_fractals-and-the-stock-market_news" target="_blank">Fractals and the Stock Market</a> <i>by <a href="http://www.dailymotion.com/socionomics" http://en.wikipedia.org/wiki/Fractal