Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

dangermouseb

How Do You Know the Markets Aren't Random?

Recommended Posts

It seems Adrian you build in or try to build in ALL market conditions into a model, while Tradezilla and myself turn on different methods/models.

 

MM - punter...a great expression. Often not used in the USA but certainly used in Australia and the UK....it is a great expression for lots of different people....the punters at the racetrack, the casino, the stock market, the sporting event....

Share this post


Link to post
Share on other sites

@SIUYA Actually NO. I do not try to build in all market conditions. If you discover a bias, you discover a bias. End of story. It works in the type of market that it works in. It is up to you to make sure that it only operates in the environment where your bias works. So that is hardly making it work in all market conditions. You ust need to make sure it doesn't fire under conditions which are not favourable to it. The vast majority of models are only suited to a limited range of market environments. Only the very best can work in most market conditions.

Share this post


Link to post
Share on other sites

Adrian.....seems like we are all on the same page. I was a little confused as was Tradezilla I think (his post #94)...plus I missed your post of "knowing when to switch it off"...sorry.

 

I read a good quote today in the FT Weekend edition magazine.....

 

"from an evolutionary perspective financial markets are neither efficient nor irrational - they are merely adaptive"

 

Says it all!

 

This was from a great article....I have a hard copy so I dont know it its live on the web, and you probably need a subscription to get it....in the paper "What makes a rouge trader?" and it discusses evolution, bird behaviour and trader behaviour.....a fantastic article if you can get it.

Share this post


Link to post
Share on other sites

I had a little free time to look up fresh performance data. The research I " boasted" of earlier is a bit dated but far more extensive, but the current numbers seem to be consistent with my previous findings and it is of little importance to me to reprove it to myself again.

 

I looked at a list of CTA's ranked by assets under management with a minimum of $1,000,000 UM. The largest fund has $895,000,000 under management. I would suggest that there is a certain bias to the data since most the larger CTA's have been around longer. I do not know why these CTAs were selected to be in this database other than that they seek to maximize their absolute return, so there may be some other selection bias that I am not aware of.

 

The data consists of 67 CTA's. The Average YTD is -2.33%, the max return is 58.42% and the min is -61.96%.

 

The average futures instrument is -.97% YTD.

 

What does this mean? It means that if on 1/1/2011 you had bought an equal amount of each of the futures contracts and held YTD you would have been better or by about 1.35% than you would have been if you entrusted your money with a professional trader or trading group who is supposed to know what they are doing. How often does this happen? They tend to underperformed the asset classes they trade all the time. The point is that they do not consistently outperform them as has been implied earlier in the thread.

 

What does this prove? Not a lot since it isn't a rigorous study of the performance of these CTA's or a rigorous study of all CTAs; but one would be inclined to think that a random list of CTAs that have been around for as long as 20 years and have better than $1,000,000 UM would on average be able to outperform the market performance YTD of the instruments they trade. It's all about the fees and it always was.

Share this post


Link to post
Share on other sites
Looking at a 1hr candle chart that covers 120hrs of price movements is how most come to the 'random conclusion'..."Yeah it's random".

 

But, the chart action is just a trail, it's a track.

 

Do you make trails and tracks throughout your day? Of course you do. Is your day just aimlessly meaningless and random? You don't have to answer this.

 

Behind the apparently random daily tracks of everyone or anyone there lies a story, a job, a meaning. It all only becomes non-random once you know and see a little more than just the tracks on a map.

 

Are you referring to fundamentals?

Share this post


Link to post
Share on other sites

What does this mean? It means that if on 1/1/2011 you had bought an equal amount of each of the futures contracts and held YTD you would have been better or by about 1.35% than you would have been if you entrusted your money with a professional trader or trading group who is supposed to know what they are doing. How often does this happen?

 

Picking this year is not very generous....what about 2008....?

 

Also if futures are a zero sum game....then if you track everyone who trades them, of course this will occur. They will naturally underperform as a group - after fees, both theirs and the brokers.

 

Point is we all know anything can be proven/disproved with such numbers/studies/averages.

Do your CTAs all trade the same bunch of futures, are their time frames long term or short term,when did you roll those futures - are they merely continuous contracts, has this particular time frame mainly been in contango or backwardation for this period....etc; etc;

So is the bench mark a fair one....

 

So while you would rip into someone for throwing up dubious examples.....and fair enough dont sell yourself short MM with a poor example yourself. ;)

 

(I thin k this is an interesting topic in itself...maybe for a completely new thread....which i will start :))

Edited by SIUYA

Share this post


Link to post
Share on other sites
Picking this year is not very generous....what about 2008....?

 

Also if futures are a zero sum game....then if you track everyone who trades them, of course this will occur. They will naturally underperform as a group - after fees, both theirs and the brokers.

 

Point is we all know anything can be proven/disproved with such numbers/studies/averages.

Do your CTAs all trade the same bunch of futures, are their time frames long term or short term,when did you roll those futures - are they merely continuous contracts, has this particular time frame mainly been in contango or backwardation for this period....etc; etc;

So is the bench mark a fair one....

 

So while you would rip into someone for throwing up dubious examples.....and fair enough dont sell yourself short MM with a poor example yourself. ;)

 

(I thin k this is an interesting topic in itself...maybe for a completely new thread....which i will start :))

 

I do not know what each trades. I do not know what their strategies are other than they all go for absolute return. Consider too that a factor that may impact the results negatively is that I have included no graveyard funds (funds that were there at the beginning of the year and blew up and are not on the list). I selected the YTD figures since it was the freest available and I assumed that the contango and backwardation would mostly cancel eachother out.,. I do not need to find this out this time and have no incentive to pay to receive data that is more extensive. I already know what the results are and I wanted to see if they are are consistent with what I learned last time and they are consistent. If I were to take all the industry data and dissect it more rigorously, I am 95%-98% sure the result will be the same.

 

I am not tracking everyone who trades the futures markets to get the zero sum results. These are not ALL participants in the futures markets and if they were then we would expect the negative sum game results. The are only a randomly selected list of 67 traders who presumably have good enough track records to attract at least $1 million of funds to them. The finding, with the positive and negative biases, is that on balance they cannot outperform the markets they trade which was the original comment made to adrian. The comment I "attacked" was that fund managers outperform the markets with lower volatility.

 

This is not to say that they are not good traders. I cannot show how much better than the average trader they did. The average trader may be down 20% in which case these guys are winners. So I am not comparing these guys to the average trader. I am comparing them to the markets they presumably trade.

 

Too bad for you. There are no black marlin in the UK waters. Are you leaving the yacht in AU?

Share this post


Link to post
Share on other sites
Following on from "The Question of Randomness" thread. How do people know the markets aren't random? I'm up for creating some random data to see if someone can show me how they know it's random or not - just for fun... DM

 

The concept of randomness is not very well-defined or even understood by science even nowadays.

 

First define randomness mathematically,

Share this post


Link to post
Share on other sites

Too bad for you. There are no black marlin in the UK waters. Are you leaving the yacht in AU?

 

As I have said before.....i dont own a yacht. I work on the advice if it floats, flys or f..ks....lease it dont buy it. (I do fall down on at least one of those :roll eyes:)

 

If people really do want a discussion on this....it might be worth a place just to stick interesting related articles I have set up a thread.

 

http://www.traderslaboratory.com/forums/review-section/11420-can-funds-outperform-market.html

 

(personally if you did not think you could beat the market - what are we doing here! This is not to say that other measures cant be used - not just returns.)

Share this post


Link to post
Share on other sites

Anyone who states the markets are random is really stating that they do not understand the market, it's function, how it operates, and the very basics of markets. To state market prices are random is really, really foolish. It's verging on stupidity.

 

Like Taleb said: Random is a word we use to describe something we don't understand

 

I know academics like to have a model, and the random model may suit some purposes such as options pricing models. We need to remember that just because we use something as a model, we are really utilising that model as a substitute for fact.

 

If the markets were random, I'd be indifferent as to whether I paid 3 or 30. Guess what....

 

So, thats it. Prices are not random as I have proved. End of thread. May as well close it. I have spoken.

 

:applaud:

Share this post


Link to post
Share on other sites
The markets are a series of squeezes on liquidity at different levels/prices, that's about it. Probably easier to learn how to spot a squeeze than to guess the colour of the next spin.

 

The question is can it be recognize b4 it happens? If it can still be capitalized upon by seeing it real time as price is running, how much risk is involved in trading in that direction? One of the simple ways to recognize stop runs is to watch the speed of the tape. As the tape starts to run faster but the size is not picking up, its usually stop runs.. and you will often see new volume coming in as bigger size moves into the direction.

 

However, by the time you see this, you're about 2 pts late with another 2-3 pts profit potential left so the R/R is hsa often escaped..

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • LZ LegalZoomcom stock, watch for a bull flag breakout at https://stockconsultant.com/?LZ
    • XMTR Xometry stock, watch for a local breakout above 37.5, target 44 area at https://stockconsultant.com/?XMTR
    • INTC Intel stock, nice bounce off the lower 19.12 triple+ support area at https://stockconsultant.com/?INTC
    • Date: 11th February 2025.   Market Update: Tariffs, Inflation, and Investor Sentiment Shape Global Markets.   Asian equities and US stock index futures experienced declines. At the same time, gold surged to a record high, reflecting investor caution following President Donald Trump’s announcement of new tariffs on US imports of steel and aluminium. Stock markets in Hong Kong and mainland China faced selling pressure, contributing to a regional downturn. Futures contracts for the S&P 500, Nasdaq 100, and Euro Stoxx 50 also traded lower. Meanwhile, Japanese markets remained closed due to a public holiday. Gold, often seen as a safe-haven asset duringeconomic uncertainty, extended its rally for a third consecutive session, briefly surpassing $2,942 before paring some gains. The US dollar index maintained its Monday gains, signalling sustained strength amid market volatility. The precious metal has surged about 11% this year, setting successive records as Trump’s disruptive moves on trade and geopolitics reinforce its role as a store of value in uncertain times. US Steel and Metals Sector Reacts to Tariffs Shares of US Steel Corporation surged as much as 6% following Trump’s announcement, as domestic metals producers saw a boost from the prospect of increased business and stronger pricing power. Canada, Brazil, and Mexico, the top steel suppliers to the US, are expected to be significantly impacted by these trade restrictions. Trump stated that the new tariffs, effective in March, aim to revitalize domestic production and job growth. However, he also suggested the possibility of further tariff increases, adding to market uncertainty.     Investor Concerns Over Tariffs and Trade War Escalation Investors are grappling with the implications of Trump’s tariffs, particularly in distinguishing between policy announcements and concrete actions. The uncertainty surrounding additional levies and potential retaliatory measures has reignited fears of an intensifying global trade war. Tariffs on Chinese goods are already in effect, and concerns persist about further economic fallout. According to Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, the key challenge in portfolio strategy now lies in identifying assets that can effectively hedge against tariff risks. Speaking to Bloomberg Television, he noted, “The big challenge is that this is going to be much more difficult from here because the tariffs are very specific.” Key Economic Data and Federal Reserve Testimony in Focus Beyond trade tensions, investors are closely watching this week’s critical economic reports and statements from Federal Reserve officials. Fed Chair Jerome Powell is set to testify before Congress, while fresh inflation data will provide further insight into price trends. According to the New York Federal Reserve’s Survey of Consumer Expectations, inflation expectations for both the one-year and three-year outlooks remained steady at 3% in January. Short-term US inflation expectations have now risen above longer-term projections to their widest gap since 2023, signalling potential shifts in monetary policy. Inflation data, Powell’s congressional testimony, and tariffs are poised to drive the market today. A reprieve from negative surprises, such as the impact of DeepSeek, ongoing tariffs, and consumer sentiment concerns, could push S&P 500 to break out of its two-month consolidation.     Currency and Commodity Markets React The currency market also reflected shifting investor sentiment. The Japanese Yen remained largely unchanged. Meanwhile, the British Pound weakened after a report from the Financial Times cited Bank of England policymaker Catherine Mann’s concerns that weakening demand is beginning to outweigh inflationary risks. Gold’s continued ascent has been accompanied by significant inflows into bullion-backed exchange-traded funds. Global holdings have risen in six of the past seven weeks, reaching their highest levels since November. Banks have forecast that gold could test the $3,000 mark, with Citigroup predicting it could hit that level within three months and J.P. Morgan Private Bank projecting a year-end target of $3,150. Market Resilience Amid Trade Uncertainty Despite ongoing tariff tensions, equities have demonstrated resilience, leading some analysts to caution that further trade escalations could trigger renewed market pullbacks. Strategists at Deutsche Bank AG, including Binky Chadha, suggested that historical patterns indicate sharp but short-lived equity selloffs during geopolitical events, with markets typically rebounding before any formal de-escalation occurs. They projected that, in such scenarios, equity markets could decline by 6%-8% over a three-week period before recovering in a similar timeframe. China’s Growing Gold Reserves and Market Influence China’s central bank expanded its gold reserves for the third consecutive month in January, signalling an ongoing commitment to diversifying its holdings despite record-high prices. In addition, China introduced a pilot program allowing 10 major insurers to invest up to 1% of their assets in bullion for the first time. This initiative could translate into as much as 200 billion Yuan ($27.4 billion) in potential gold investments. Key Market Events to Watch This Week Fed Chair Jerome Powell’s semiannual testimony before the Senate Banking Committee today Speeches by Fed officials Beth Hammack, John Williams, and Michelle Bowman today US Consumer Price Index (CPI) report, Wednesday As global markets continue to navigate economic uncertainties, investors remain watchful of trade developments, monetary policy signals, and inflation trends that could shape the financial landscape in the coming weeks.   Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Andria Pichidi HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • KAR Openlane stock breakout at https://stockconsultant.com/?KAR
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.