What if I think the Market is totally Random

Much of the market's action appears random. Some appears not. Play the not.

 

Be careful. Some people refer to the Standard And Poors 500 index when they write that the behavior of index values is not different from the behavior of unordered numbers. Individual stocks, especially low capitalization stocks might show price behavior consistent with manipulation or ordering.

 

The original question of this thread is not whether the markets are random or not, but whether there would be any profitable trading strategies in the totally random market. The answer to that question is no. No matter what strategy you employ in the "flip a coin" game, you can't win consistently over any extended period long time.

 

Right. If the market were totally random, you'd expect to win 50-50, and the sum of commissions would make you a loser.

 

Sure. Use a coin with tight money management. Your target should be bigger than your stop loss...

 

Which ironically happens to most traders, they cannot beat commisions. Although obviously some do.

 

I definitely think that the market is not completely efficient because humans are in it. That mean that the same mistakes keep repeating. I have software that points me to where the innefficiencies are and I exploit them to the tune of:

164 / 241 = 68.05% up $0.01 in 30 minutes; Average winner = $0.8073, Average loser = $-0.2426, Net winnings = $117.92, Best = $4.22, Worst = $-1.22;


The stuff works.

 

If the markets were purely random, like a coin toss, the long run mean would be fixed.

Just always buy below that point and sell above.

Let me know how that works out.

 

That makes no sense.

 

That would not work. If you hit a series of 100 heads in a row, the probability of the next toss resulting in heads is still 50/50. And so is the probability on the next toss. And the next one. The coin has no memory, and it doesn't know that it got "too high" in a series of heads, or "too low" in a series of tails. It's true that in infinity, the number of of heads will be about the same as the number of tails, but you only have about 80 years to play the game, and 80 years will not make the slightest bit of difference in the value of the mean.

The "stop loss" techniques would not work either. You may last longer with small bets and by staying out of the "toss the coin" game once in a while, but you would still lose.

In short, in a market whose movements are totally random, nothing would work better than a random guess, and that's precisely what defines randomness.