Discussion in 'Trading' started by harrybachs, Oct 29, 2006.

  1. Has anyone read the randomwalktrading books? If so, could you comment on them?


  2. Institutional underachievers believe in "random walk" as a way of rationalizing away their mediocrity. Overachievers know it's BS.
  3. Lucrum


    I'm certainly no expert on the subject but I am inclined to agree.

    There is an article in this months SFO. The jest of which is that while there is a substantial amount a circumstantial evidence to support the random walk theory. It has not been proven by empirical means.
  4. I'm an overachiever... and it's not BS.
    "Random walk" really means... financial markets are "too efficient" to exploit.

    All very liquid securities are "too efficient" to exploit (99% random)...
    Many isolated or complex market niches are quite inefficient... and are profitable (80% random).

    "Overachievers" overcome random markets is various ways:

    (1) Trading on inside information is very common.

    (2) Market manipulation by hedge funds, market makers, and Specialists is very common. Soros is Exhibit A.

    (3) Very close proximity... millisecond proximity... allows Big Players to exploit "inside position" in the markets...
    Such as front-running, etc.

    (4) A lot of money is made in niches and very complex securities.

    But the above in no way mitigates the reality of "near random" markets...
    And from the amateur perspective of 95% of the people here...
    The markets are a "random walk" = "too efficient to exploit".
  5. Ooooooo, I remember random walks, bootstraps, etc.. etc... from when I was doing my statistics/actuarial sceience degree

    One thing i learned the 'hard' way - all those high-level ideas (e.g., neural networking and trading) usually just end up wasting you time and money trying to understand and implement. 9/10times, simpler concepts like moving averages and channel breakouts (can't ge tmuch simpler than that :D ), when properly implemented, will smoke them.
  6. I don't think I explained myself well enough. I was talking about the company Random Walk Trading, and the books they published. Not about Random Walk, but about ways to trade in the market. They have a book on Collars, The Greeks, and a One Strategy book.

    Sorry for the confusion.

  7. I take it that with all this vast knowledge on these boards, no one has read the aforementioned books?
  8. ronblack


    I would add to the above:

    (5) the constant influx of unskilled and recreational traders

    (6) Well-informed versus poorly or uninformed traders (not related to inside information)

    Try this one, I found it very interesting:


  9. 6ptPrime


    I've read Malkiel's latest edition of A Random Walk Down Wall Street. The scarcity of replies here likely represents that ideas expressed in this book and in other material addressing Random Walk probably wouldn't go over too well with people on this board, and for good reason.

    The book is an important read though, as it questions and makes a case for the inefficiency of minute-hour-day-shorter term involvement with the market. The underlying argument is that one could buy and hold a broad index of stocks and over the long term it statistically would outperform frequent and aggresive in and outs. I would agree most with HoundDogOne and think Malkiel's case is most relevent (in percentage terms) to the individual investor/trader and who is not a "big player"...of course, there are always the exceptions.

  10. if you think that the markets are completely random, you obviously have not traded CEF's around nov-feb.

    oh, don't know a thing about randomwalk the entity, sorry.
    #10     Oct 30, 2006