That's OK, it wasn't well worded by me. Expectancy: Most people start on the second row of Pascal's triangle when they view the markets in terms of probabilities: they sart with the 50:50 coin toss analogy. They never consider the first row as a possibility. Jack, and others, operate on the first row, the row with only 1 number in it. The best definition of risk I've read is "More things can happen than will happen." This is the starting hypothesis. BUT is it always true, on all timeframes? If only one thing does actually happen, isn't it better to find out what that will be rather than assigning chances (more random numbers!) to the things that won't? Probability is great for generating actuarial tables and averages but its the wrong tool for helping you determine what price can only do next. These are only my opinions and I mean no offense by them.
Thanks Nitro. I've learned a lot from your posts. I will start to spend some serious time on the math down the road. Many thanks!
Predicting or a forecasting of reversals is possible under certain circumstances. This has been proven already, even on this forum.If you do search you will find some old posts concerning this.
Please clarify, since your comment can be interpreted in two ways. When you refer to every profitable system you have ever seen, are you limiting your math-related observation to options trading, or trading in general?
Trading in general. Even in cases where the trader does not realize he is using math, he is. It may just be that his brain is doing the math subconciously, but not in a form that any mathematician would recognize (close to what neural nets do, but probably far far more powerful). We don't understand the brain. Barry Bonds is doing lots of math when he tries to hit a baseball, but he probably can't do simple arithmetic. nitro
OK, but, judging by your baseball example, your interpretation of the use of math is unusually inclusive.
Nitro - good post. However, I dont see why there has to be a math reason for a trendline break having a >50% chance of working, excluding the self-fulfiling reason. Trades are made by people, or by programs designed by people. At a right (lower) trend line break of an uptrend investors could choose to enter long and push price back up. But they usually dont. Price goes down because of the volume of sellers but that is a choice made by people. It is not a MATH reason.
This is an extraordinarily wonderful intellectual conundrum about the markets EmRock. I assert that we DO indeed predict and believe regardless of the timframe over which those predictions are based.. now let me please read this thread any further before I add my own rebuttal. What a wonderfully evocative statement.. thank you EmRock for Raising the bar beyond the occasional nonsense spouted out by the odd few we switch off quickly from...
OK after some thought to the question, what you ask and assert is thus (regarding financial markets only): 1.predicting the markets is unnecessary as well as being unrealistic. 2.Prediction is not necessary in making money in the markets 3.Clever people make money through exploiting their own expectations in the market, but In the long run, how can I make money through prediction of the markets..? am I clever? ANSWER: 1. Regardless of the time frame a prediction of an expectation is an absolutely fundamental prerequisite in profiting from the market because our entry into the market must account for our expectations IF we are to profit from that position later... 2. This has been answered in 1 3. You have to have a cognitive ability to assess the markets rationally in order to draw conclusion from that and produce an opening position of sorts. That doesnt mean you cant change your hypothesis or prediction or even goal of profiting from a rise and a fall after entry into that market or product... often as in Options for example it is the follow up to market events (rolling up, average down etc) that predicts your profit after market entry.. not necessarily the entry in the first place. Ultimately The skills necessary for the exploitation of a market for profit, are cognitive in nature.. the ability to assimilate disparate pieces of information and produce notions of market movement as a result either before or at least during an "opened" position. At the same time cognitive ability is required to enter randomly and adjust to ones position accordingly either by price bias or by exploiting time bias in the markets and this is the key. If I had the time I would have to have the money to cope with infinite draw downs to positively profit from the markets, if they were Random. If I had the money, I could manipulate the time spent in the markets through a force of movement in my positional trading via size if if they were Random. But like the theory of entanglement, once I have interacted with the opposite spin of light (or the markets), the system remains forever engaged with or fixed as "read" ie.. the markets are now not random by my interaction with them and therefore can be predicted. prediction is the necessary substitute compensating for a lack of time (to experience cycles and profit) and money (to influence the market now and profit)... IF YOU WANT TO PROFIT FROM THE RANDOMNESS OF A MARKET. THE PARADOX IS by accepting the above... the markets are certainly NOT random and are subject to manipulation through time and position sizing, ie ONCE YOU ENTER up or down you have removed randomness from the market. Am I clever?.. no more than anyone else who sees this information and accepts it because they already trade through predicting either by fundamentals or technicals.... although of course Id say I was... (wouldn't anyone). Many thanks for your provocative hypothesis... very enjoyable that one.. although the answer was in fact easier than expected once considered fully... as Im sure you knew anyway... nevertheless I was initially flummoxed by it.. Paul
The "Why predict?" thread has had some interesting twists and turns. Let step it up another notch. Presenting the market as a system is a good first step. Any system could be used; there are lots of choices. Common among most systems would be their characteristics with respect to time. Equilibrium would be on the table for almost any system formulation. So would constructs that show the flow of the essential components, materials and intangibles. I like to deal with a roughout of the market as a throughput box that has inputs and outputs; a box with and arrow going in and and arrow going out. What tempers this box for me are three feedback loops. Their functions are related to various dimensions. So now the market and feedback loops are working. Hooking gauges and dials on them is a snap. And there are no control knobs. For any observer, now able to see and record what is going on, it is possible to know how to hook up to the markets. Just like I am unseen to nitro by his choice, I am unseen to the market as well. I have an input to the market and I have an output. My external system is represented by about 100 pages of logic "B" size sheets. Snippets by the dozens are used to provide a dynamic "proof" of both the market and my external system to the market. Because I know systems analysis and mathematics, I can see how the feedback loops operate individually and collectively. Just as electronic circuitry can deploy componets of resistance, impedance and capacitance to do any thing electronic, the feedback loops and the market box are filled with corresponding components that make them work. I could make a system of mechanical parts or hydraulic parts or chemical parts just as well. There is no uncertainty invloved with any of these systems until you start looking very closely. It is like zooming down into things with a microscope or a microscope like Rife's which could see living things on a scale with the electron microscope that only looked at dead things. I stick with the dynamic. If I took a tuning fork and tuned a string on a piano, I would notice at some point close to having it tuned the vibrations would produce a sum and difference of the two vibrating bodies. The difference would go to zero when tuning was complete. I could hear it but that's okay. A bird could since his hearing goes down 15 octaves lower than me. Birds do not play pianos they migrate on low frequency sound among other things. My external system is tuned to the markets and their feedback loops. I recognize all systems composed of parts have "natural" frequencies. That's why spectrographs are so handy for CSI. It is nice to see the market humming away on its composite of vibrations and frequencies. we all have heard of market cycles and cyclic instruments that populate the markets. I use snippets to make everything about the markets binary. that way everything is either on or off. Music is now done binarily as is television. I do markets binarily. We can tune a piano well enough with a key that fits over a square shaft that rotates. The market on a screen or in a code of software can be handled by tuning snippets to give us binary outputs. Frankly, there is no better way to watch TV, listen to music or make money in markets than binarily. The BBid/Bask is kind of binary isn't it? Maybe. Well, actually it is. "The rain in Spain is mostly on the plain." What would it be like to look at the market vibrating away from the view of its molecules and how they are it together and grow into discernable parts? Well, I Think I've got it. It looks like I've got it. So I've become a part of it. I do my thing along with it. I stay in tune with it and move with it. I tune to it's MODE and I know there are only two of it. My execution is in time with it and I keep on the right side of it. I think I see it; there are only two sides of it. I chose the right side and thay in the MODE of it. When I see the mode is continue I continue on the right side of it. My gauges and dials show the MODE and the right side of it. I like the pace of it and I see the speed of it. when there is more of it my dial lets me do more of it; I just go with it and keep in tune with it. I like the times when the feedback is hitching it stalling it diping it and ending the trend of it. my gauges turn on and off for each part of it and I do the change when I am told that it is the time for it. My original excel sheet was called the yellow brick road. My computer is what's behind the green curtain. It is a binary device filled with binary snippets that are plugged into the market model with it's feedback loops. I am all tuned to the markets rhythms in a binary way. I make it work in any way I wish: Beginner, Advanced Beginner, Beginner Internals, Intermediate, Advanced Intermediate and Expert. They aren't really labels for people doing trading, they are just binary shells around a core. It is fun to run any level I want but mostly I do the expert since it is so closely tuned to the rhythms of the markets and it continually extracts almost every drop available. So why do I not flip coins? Because the market doesn't work that way. It is not electronic or mechanical or hydraulic; it is a human enterprise that is a binary operation. The humans either buy or sell, hold or trade, are in or out, are long or short, are winning or losing. Why don't I use my theoretical physics and "quant" it? There is nothing to quant. Binaray sets aren't "quant'ifyable. They are already cooked and digestible as they are. ATS area binary application when all the iterative refinement is done. I'm always in. I'm always on the right side of the market. and I do what the MODES* and sentiments* of the markets tell me at all times. I operate at the pace of the market which defines the market's capacity to carry my load of contracts. How does prediction fit into the picture? The "natural" aspects of markets mean they have characterisitcs of natural things. Markets are not unnatural by their nature. They do things like anything found in natural from subatomic to the universe. The market is a little counterintuitive because of the rules that control the operations of the participants. But the rules are so complete and nothing is left out there hanging in the wind. I always exercise my priviledges for which I must pay the price. The price is trivial. the market vibrates so it has rhythms; it is an orchestra of players and I merely participate as part of it by always taking what is offered as time passes. I am not placing a coin on my hand, using my thumb to flip it and waiting to see it fall to rest. I am on the right side of the market in the market and making money all the time. Predicticting is a sport conducted by those who are mostly observing the race and not on the horse. They buy racing forms. I am just on the right horse and the purse is already there waiting for my finish. Betting tickets are not the same as the purses at the end of races. Where does probability mathematics fit in? This kind of math is learned about in formal education. It primary application is to systems where what is going on is unknown or uncertain. Once things get to be known, then this math is no longer used. This math is a transitory math that is deployed by people trying to find out things. If you are trying to find out things about markets, then do not put any money in a market. Do math instead. Get money for using math but do not put money in markets. Nitro is an example of a person using math to find out something. He has had an experience in the markets. He was using up capital and watching the markets. That came to a "predictable" end. It is transcribed on chat room transcripts by nitor and those and the market that he disagreed with. The market ended the conversation. Now he is employed to use searches to read materials done by others to explain why quants do not make money for their employers. If you want a long list of quants who are paid to write papers, etc, you can read books written by journalists turned authors. They beat this turf to death these days. Check out Lowenstein, and Bass. To read it from a drop out read Derman. Fortunately, the conventional orthodoxy will be supported and it will prevail as a consequence of these birds all perched on their wires. This keeps the boxes and feedback loops chugging away for others to extract what the market offers. You may notice that for some reason all these people keep their money in the markets when the markets are closed. They keep some markets totally illiquid, especially when the market is most rapidly losing value. * I run three concurrently, one for each feedback loop.