is market random?

or pattern
if an pattern exists that is not random.
that means market is not random....
that the pattern means something or not is irrelevant

 

i use two patterns by Brooks which always results in the same thing.

it does not fail......but it does not succeed always to the same extent.meaning sometimes it may move 5 ticks or sometimes 100 ticks.
so i am personally convinced that markets are not random.

 

I think you have a very different definition of mean reverting than most common usages. Reversion to the mean describes a statistical phenomenon related to extreme observations while sampling. Mean reversion commonly refers to an increased likelihood of positive (or negative) observations following moves in the opposing directions (like an OU process).

And to be clear, autocorrelation is certainly a phenomenon that exists and can be accounted for in options pricing models. Stochastic volatility is also a very common reason to move past BS and standard binomial assumptions.

Sorry you think I'm "fundamentally wrong". I just wanted to add some more quantitative focused points to the discussion. Ive actually ran market making desks so I hoped to share some insight.

 

since height is determined by GOD only He can answer that question.
market movements are determined by Human beings

 

This isn't what I've read in the number of books on analysis of financial time series. Mean reversion is simply the tendency rather than an increased probability of a series to return to it's long run mean. Modeling the series as Ornstein-Uhlenbeck process allows you to solve for lambda, giving you the half life of mean reversion - a representation of how quickly a process will return to it's long run mean. A mean reverting process could maintain a level above it's mean for hundreds of years before reverting (think insurance underwriting), however it will eventually fall back to it.

I cornered you because the reason you move from a flawed model like BSM to a model like SABR is strictly to solve for the only problem the BSM and it's cousin models have - volatility is assumed to be constant.

I have no actual experience in industry. I am just spewing out what the books told me. If the financial industry is anything like any other industry I am absolutely sure quants are taking shortcuts that stray from the actual academic definitions of these things. You are probably right in practice.

Sorry about coming at you with fundamentally wrong. Guess that was too strong.

 

I think a Wiener process (as used in BS) is a better way to describe equity financial asset price behavior than the OU process. The reason is the absence of the drift term in the OU process. A classic process used in interest rate modeling is the Vasicek model which is an extension of the OU process and exhibits a drift term with a mean-reverting property. Equity prices, neither in real life nor in the derivatives pricing arena (where one moves from a real risk measure to a risk-neutral measure, which by the way is possible because of the log normality assumption of the stochastic component) exhibit mean-reverting tendencies. The drift term is a much more realistic component than the assumption of a long-term mean to which equity prices revert to. What would such long-term mean even be and why would it exist? Modeling interest rates is a very different animal where other assumptions apply.

 

This question is very simple.
All of us will pass with flying colors.

Answer is YES and NO.

 

My market's opening limit down, someone with a great model, please tell me what to do.

I was thinking of preeminently raising vol by 3, pumping the wings X, taking up the puts Y to bring the calls back down after the wing pump... See if that holds, and maybe I can dump some of my length out on the opening, if not, I'm long this shit and can't take on anymore, so any resistance at all to my vol pop and I'll back off immediately.

Where's you're model telling you we should put this stuff???

Hurry, my phones are a ringin' asking me for opening markets.

Oh, I forgot, you need those opening indications to re-calibrate your curves, then your model can tell me what to do...

 

How many mathematical mistakes can be packed into one paragraph? WOW. I guess that your contention explains why there are so few mathematicians in finance. (And engineers, and physicists, and...) They're all just mistaken, and wasting their lives. Poor schmucks.

But a sobering thought: the best single predictor of a price today, is the price yesterday. Randomize that!

 

Hello padutrader,

Is the market random?

I think your question makes better sense by stating "Is the market predictable".

Yes, the market is predictable.

Let us go back to your question " Is the market random?"

Yes it is random and no it is not random.

I believe the market is what it is. And our responsibilities as traders is what to do with the market rather it is random or not random.

Whatever you choose to trade, it does not matter because price will go or down per day/week/month/year.

If you want to make money consistently, try to be predict price direction and enter the market and exit the market wisely and logically.

It does not matter if the market is random