FINALLY, I drew the post I was looking for out this band of merry traders. A synopsis of consistency out of chaos. EDIT: After reading this again, I need to ask, do trends exist BEFORE they occur? How do we know it is a trend until AFTER it occurs? Great post Charlie Dow.
Strangely enough I was reading about this today. There was TV program about some students fro MIT who made millions from developing a card counting system. http://www.bbc.co.uk/sn/tvradio/programmes/horizon/million_prog_summary.shtml What is card counting? Card counting has nothing to do with remembering every card that has been played, that's more a feat of memory. Although the card counting systems take many forms, one of the most popular and simplest is the high-low count. Each card is assigned a positive, negative or neutral value: ⢠2, 3, 4, 5, 6 = +1 ⢠7, 8, 9 = 0 ⢠10, J, Q, K, A = -1 The player keeps a running total of the count, adding or subtracting as each card is played. The player raises their bet according to the positive strength of the count. The count also determines how to play each hand. For example, if the deck is strongly positive the player is more likely to draw face cards, so may profit by playing a more cautious strategy.
Obviously 1. Not sure why the probabilities in a coin toss reset? They are always 1/2 surely (ignoring the coin landing on its edge of course). I belive you may be able to predict a single humans behavior, but I am doubtful of being able to predict the interaction of a large number of human/agents trading
Black Swans come along(Hitler in Germany) that modify a group of humans behavior. The larger the crowd, the lower the IQ, the greater probability of irrational and/or random events. If human behavior were predictable we would definitely have our utopia by now, and no trade imbalances anywhere, but we do not.
Please let me say that I am no statistician and no probability theorist. I am just going with what my gut tells me and trying to describe it. I meant that when you toss a coin, the odds that it will come up heads are 1/2. Then if you toss it again, the odds are again 1/2. This is not the case for dealing cards out of a depleted deck. If you get dealt a card from a whole deck, the odds that you will get a face card is 12/52. If you randomly take 40 cards out of the deck but you have the opportunity to know which 40 cards come out, you can then calculate the odds that if you are dealt a card out of the remaining twelve, it will be a face card. If all of the face cards have improbably remained in the deck, we know the odds that any randomly dealt card will be a face card. If we did not know anything about the composition of the deck, then we could not say that a randomly dealt card will infallibly be a face card. Do the markets ever become 'stacked' in the same way as a deck of cards?
you just contradicted the theory of random walk - it assumes that market agents are rational. since we know that is not the case, the argument for random walk falls apart.
Hmm... Mr Dow, did you ever meet Mr Proflogic? That is almost Carbon Copy proflogic - with perfect now having been replaced by flawless in the text. Nice bit of NLP. Perfect Randomness perhaps?
Go to amazon and get "Bringing down the house". Its the story of MIT students taking on the casinos. It really relates to trading, plus its an interesting read.
If you really think there is no such a thing as trend and you don't have a trendless (randomwalk) strategy you might as well close the shop and stop trading. But of course markets trend and they are not random. Just because YOU have been unable to predict the market, that doesn't mean others have the same experience. Even if only 10% of traders are successful at predicting the markets, that doesn't mean that the markets are random, rather than prediction is a hard business... What if we pick a pattern that has let's say a 71% success ratio?? With good money management, you should be able to make money 7 times out of 10 using that particular pattern... What if we pick a guy who can predict the markets about 80% of the time? Would you call him just lucky, or would you agree that for some people it is possible to predict the markets? Markets, trends and certain moves are predictable, but not for everybody and not all the time. I think most people (like you too) make the mistake of expecting predictability ALL the time. Some patterns and indicators work only under certain circumstances, maybe on rare occasions, nevertheless they work, even if they are quiet most of the time... I have a longer term indicator, it only kicks in 8-12 times a year, but its success rate is over 80%...