We all know the market is not random. We also know that there are forces out there that are hell bent on making it look like it is. Do you feel lucky?
But it has to be random because everybody is making there trading decisions individually right? Its not as if half the traders out there call each other at 12:00 and agree to start buying leaving the other half in the dust.
I have traded almost everyday this year and have had 3 down days. If the markets were really random, how can I have been so lucky?
Because you're a tape reader and can read the specialist. I agree that is an edge but I think that is the only non-random aspect of the market because one person is controlling most trading in a stock. Can you do the same thing with nasdaq stocks? Also, I'm not necessarily saying you cant be consistent in random markets. That was my original question, can we still be profitable with in random markets given what we do know, like ATR and things of that nature.
Honestly, I pay way more attention to the ecns and what they are doing these days than what the spec is up to. Things have changed a lot over the course of the last year. As far as your original ques, I really have no clue. I prefer to think of things as not being random b/c I can see patterns to take advantage of everyday. If I didnt, I would have a hard time making a living and would probably think like you do. I have just seen too much evidence to the contrary to believe in randomness.
Your hypothesis has already been tested in a scientific fashion: a statistically significant number of people have gone out and beaten the market, real-world and real-time. For just one example, I suggest a look at "The Alchemy of Finance" by George Soros. In particular, note the first three sentences of the foreword by Tudor Jones ("four hundred seventy three million to one..."). Then flip to the chapters that constitute the 'Real Time Experiment' and watch Soros in action. Good luck, Paperclip
First it is important to define what you mean by "trade successfully". You might have in mind Over a long period of time, achieve (profits > 0) after deducting commissions and order slippage. Beat the S&P500 after deducting commissions and order slippage. Achieve (Jensens_Alpha > 0) after deducting commissions and slippage. Beat Berkshire Hathaway / Warren Buffet Beat George Soros Achieve a Sharpe Ratio in the top 10% of all money managers tracked by MARhedge Assuming that you modestly just want to hit goal number 1, there is a well known answer. People have studied the problem of how to make money from random markets for more than 50 years, and they've worked out a solution. It goes by the name "Shannon's Demon" and/or "Universal Portfolios" and/or "Volatility Pumping". William Poundstone describes it on page 202 of his eleven dollar book Fortune's Formula. It is also described on the web here and many other places. Another popular strategy for those who believe the US stock market is random, is to invest in other vehicles. Options, commodity futures, currency pairs ("forex"), bonds, overseas stocks, and real estate are available to you. Options are appealing to lots of market-is-random believers, because options allow you to bet on what won't happen. If you wish, you can bet that the stock price of Intel won't double between now and Dec 15, 2006, using a well known options trade. If you stubbornly insist on ignoring all else but US stocks, perhaps the books by Joel Greenblatt might resonate with you. He is a Value Investor, and makes the observation that the volatility of the Price of a company, is far far greater than the volatility of the Value of a company. (Over the course of a year the stock price might vary by a factor of 2. But does the Value of the company vary by a factor of 2? no.) Look at a chart of Alcoa Aluminum (ticker "AA") to see this. Therefore stocks vary between overpiced (price > value) and underpriced (price < value) even if you think the price itself is random. All an investor needs to do, is identify stocks whose price is far far below their value, then buy em. Greenblatt presents a simple method for doing exactly this.
Your asking the wrong question. What if the market wasn't random at all? Then what would happen. Think about it.