Enough already! It's not random

Discussion in 'Technical Analysis' started by kut2k2, Mar 12, 2008.

  1. kut2k2


    Dear fellow technician, this thread is for YOU. :cool:

    The next time some random walking idiot tries to rain on your efforts to find a technical edge while talking down to you like you're a small child, just direct his arrogant ass to this thread. Maybe it's not too late for *him* to learn something.

    I never thought it would be this evident, given all the preaching about "proof" that the markets are random. Guess what? It's all BULLSHIT! :mad:

    I just ran a little robust statistical tool called the runs test that was specifically designed to test a sequence for randomness.

    First I collected 10 years of data on the S&P 500, from Jan 2 1998 to Dec 31 2007, from yahoo.

    The results are:

    2,514 data points
    2,513 daily price changes
    1,315 ups
    1,197 downs
    1 zero (ignored)
    1,332 run sequences

    Applying the runs test yields a z-score of 3.111.

    The chances of that z-score coming from a random sequence of ups and downs is

    ONE OUT OF 1,073 !

    I got your coin-flip "chart" right here, random walkers. :mad:
    Rationalize likes this.
  2. i always prefer to just the look the naysayers in the eye, smile, and say "Good Luck With That."
  3. cohvi


    Nicely said.

    ‘Random’ is a word invented by people (like all other words actually) to describe irrational and unpredictable behaviors. Randomness doesn’t really exist in nature. Every thing can be explained even if we don’t know the explanation for it.
    Its true that some phenomenon’s are impossible to explain with the tools we have but it doesn’t make them random.

    I think that because of what drives the markets, which is people and not the roll of a dice, predicting them is a doable task. Although one could argue that such an amount of different strategies trading the markets can produce a randomness, I will say that people are predictable and the herd phenomenon created by a crowed is even more rule based.

    The problem will be with the coming of the automatic trading machines. They don’t act as humans and there for harder to predict. When they will significantly out number humans in trading, that’s were troubles will begin.

    I’m a system developer my self.

    Search for those patterns while you can.
  4. kut2k2


    Incorrect. Radioactive decay is provably random, and it exists in nature.

    But that's not the point. The point is that just because something is unpredictable, seemingly or actually, that doesn't mean it's random. Especially when we know the "something" is just an aggregate of human behavior, like financial market prices, and is not a true analog of Brownian motion.

    Look, I know some people here just ignore the naysayers but not every TA student has the confidence to do that. So I posted this thread for them, so they can have the ammo to shove all the random talk back in the naysayers' faces.

    We've been lied to for decades now. Time to kick some randomwalking ass, figuratively speaking.
  5. buylo


  6. cohvi


    Radioactive decay is not random, it can be calculated by its half life time.
    Anyway, we are on the same side so never mind…
  7. bellman


    Well put!

    I take issue with that. Just how exactly would you prove that radioactive decay is random?
  8. kut2k2 - I'm definitely in your camp in the market is not random.

    To add academic rigor to your test-Did you adjust for the short-term treasury interest rate expectation? Even random marketers think that the market will go up in the long run.
  9. Brandonf

    Brandonf ET Sponsor

    I've always thought that the markets are a hell of a lot more random than most traders want to think they are, but they are also a lot less random than most academics think they are too.
  10. kut2k2


    "Each nucleus decays spontaneously, at random, in accordance with the blind workings of chance" -- John Gribbin

    If you were a quantum physicist, you would know this.
    #10     Mar 12, 2008