Slightly off topic in regards to random walk, but for a while I was trading ACD by looking at stocks which were highly profitable last month using ACD and trading them this month - I found this strategy did not work to well and my stops were constantly getting hit. I'm sure that a lengthier backtest would reveal stocks in which ACD consistently produces above average returns vs the universe, but simply taking good a ups on last month's hot hand doesn't really work so well, at least in my experience trying to make money intraday so far. What I have been doing more of lately is incorporating "surprises" with ACD, and I've found the results are promising so far. Soros said: "Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected." The revelation I've had lately is that if I am going to make money daily using ACD, then I need to find situations were others feel that they must act quickly due to unexpected news, earnings, etc. An example would be an oil driller where 30% of the float is short and the stock is 70% off its 52 week high, just blew analyst estimates out of the water with their earnings released before market open - taking a good A up is a much higher probability setup than just trying to play last months hot hand like I was previously. Another nice thing about surprises is there are derivatives here too - for example, Valeant has spread a lot of toxicity around the entire pharma industry - stocks are reacting violently based off earnings and particularly guidance. - Endo phramaceuticals released earnings last week that in a normal environment would have only driven the stock down 5% or so - however on the conference call management expressed the dreaded "pricing concerns" lingo, and the stock immediately traded down 40% the next day - why? Because people associated it with the problems at Valeant and ran for the hills. This type of stuff cannot be backtested in Tradestation either. Mav, when you were actively trading intraday did you find value in incorporating surprises into your methods? Thanks.
Appreciate the depth of your response. My basic problem with the random walk hypothesis is I see everything happening within the overarching imperative of the economic cycle. Governments, central banks and businesses act, providing fundamental drivers for the markets. From all this, we see trends. There is always something trending. Identifying that and riding the trend provides returns that beat the index. I remember reading a paper by Andrew Lo on this very subject, the existence of trends. Malkiel dismisses both fundamental and technical analysis as worthless. Lo has evaluated TA and found it can be used profitably. As for FA, markets do not always react immediately, but there is no denying long term value when the fundamentals are strong, or that prices will go down when the outlook is poor. So, on this one we will have to agree to disagree.
Back in my Worldco days all we did was trade surprises. Earnings, earnings revisions, and major news that impacted earnings. Usually in a related name, not in the name itself.
Yes but back to the random walk. And this is something I need to maybe put more emphasis on. Let me try to explain this better then I did last time. So efficiency relates to forward expectations. In the pizza example we had a forward expected value of the 20% yield. In the S&P 500 we have a forward expectation of 7.5%. So what efficiency would say to your above comment is that if the government is doing this and that, then EVERYONE is going to build that into their forward expectations. THAT is why you see trends. A trend happens when there is a meeting of the minds and we all agree that plaid shirts are cool, or we all hate the new android phone, or we all love that one movie, that is what begets trends. The problem is, the market is listening. If well benefit from it, how do you benefit more? For example in the last 6 years the s&p has been on fire. So all index holders benefit equally. The question here is, do you think you can benefit more? Now obviously you do or you would just be long the index. The random walk is the path the market takes towards that forward expectation. It zigs and zags in unpredictable ways but ultimately moves towards that final destination which is the forward expected value. I don't think we disagree on anything. I believe the markets are very efficient and the fact that most traders don't make money seems to prove that out. The goal obviously is to be an outlier. That rare person who can separate the signal from the noise. I believe ACD does help with that. I've often said that the best thing ACD ever does for you is keep you out of the market. It's trying to keep you away from the noise. I believe in the concept of rarity which I've stated on this board 100 times. You need to be patient. You need to be picky. You can't swat at everything that moves. Pick your spots. Look for the signal. It does not mean the markets are not efficient and it does not mean they are not mostly random. On the vastness of data... "You know, there are four hundred billion stars out there, just in our galaxy alone. If only one out of a million of those had planets, and just one of out of a million of those had life, and just one out of a million of those had intelligent life; there would be literally millions of civilizations out there." Carl Sagan
Hey guys, I don't have much experience with coding but would like to have a program where I can just put in the ticker and it will shoot out a 30 NL score. Any idea on how I could even get this started or if you could point me in the right direction. Thanks all.
Seeing lots of chop with no clear direction. My Nasdaq NL has been confirmed negative for over a week, S&P getting close but not there yet. Any tells in currency land?
Im little confused at the moment difficult to read i guess , US dollar has lost some strenght and canadian dollar has picked up some strenght . if US dollar weakens further we could potentially see some strenght in S&P but dont quote me on tht , im pretty confused at the moment.
Instead of looking at "what" the dollar is doing, try more to focus on "why". It's the causes that are more important then the price.