whatever $ you take from it today, you'll give it back sometime in the future. unless you're so lucky/smart that you quit trading after a lucky streak (peter lynch is an extreme eg).
My take on the issue: EMH = Emotional Market Hypothesis. Groups of people demonstrate repeatable behavior simply because they exist and act as a group. This is the "mob- mentality" as some have called it and it will produce relatively consistent behavior. Nitro, Didn't we already have a thread about this a while back? You brought up some good points there - I will go back and look for that thread... Regards, Mike EDIT: Here is the thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=51205&perpage=10&pagenumber=1
That's true if you don't notice when your edge/method comes to an end. Some say they are edges ou there that last for years and years. Maybe but that's not the question. Making profits with a system doesn't mean it will last for ever. It's up to you to be aware of that in time and change. Still you can pull out money from the market regularly and not necessarily give it all back.
In the SFO Magazine's Jan 06 issue there's an article with an interesting take on the markets' randomness and predictability: "... recognizes the markets for what they are: highly complex and usually independent of historical patterns, not necessarily random but marching to a different drummer of more fundamental and universal principles." Markets are "more predictable" on shorter periods than on longer periods, and the effectiveness of a predicting method varies over time. One solution is to constantly monitor the efficiency of several predicting methods, and trade the ones that currently perform best.
You are under the impression that profits from trading are a result of luck?? For some, maybe, but for consistently profitable traders luck has very very little to do with it.
what i mean is that any returns exceeding the market return is just random luck. In the long run, the net return you get is equivalent to the market return. Consistently profitable traders may be profitable for a few years but in the long run, they are unlikely to beat the market. Which is why there AREN't many traders who can boast they are profitable IN THE LONG RUN. The law of large number.
Just a hunch, really. Cause' if you think about it, there seriously aren't many who can boast a > 10 year record of beating market returns. Whatever market inefficiency you exploit now will be resolved in the near future. Whatever profits you make with this inefficiency will turn into losses when the market become efficient. So to beat the market, you have to stay ahead of it by finding new inefficiencies (which is darn hard) So if you REALLY want to beat the market, you got to do a HIT and RUN. Once you find an inefficiency, suck as much profit as possible in the short time frame. Then once the exploit has been 'patched', stop trading immediately and enjoy your $ till you find another inefficiency. Most people will probably find this hard to do cause' trading is as addictive as gambling. It's VERY HARD to stay out of the market, even if you know you should.
That is my hunch as well.... my goal is to automate the search for inefficiencies as much as possible and to automatically detect when my edge breaks down and adapt.. I'm fairly certain my edge will slowly degrade over time and stops will limit any sort of massive immediate structural change.
Okay then: First, markets seem to exhibit both random and non random characteristics. Because markets are always "in process", they are by nature dynamic. I would think this is pretty much axiomatic. How much random?, and when are markets random? No one knows in great detail, however one can safely assume that whenever human input affects any element of the market (during earnings reports, economic reports, bond auctions, etc) then the "process" becomes non-random. My own weekly research tells me that for intraday time frames (where a five minute bar or candle can be used), that markets (index markets in particular) exhibit inefficient behavior, ON A PERIODIC BASIS. Based on literature I have read, I call these periodic inefficiencies "Temporal windows". Over the past few years, these inefficiencies have added significant value to my trading. Finally, I have to mention that I am always surprised at the range of responses to this question. It is hard to imagine being able to put money at risk without knowing the answer to this basic question. Good luck, Steve