Market Failures VS. Market Wizards

[BlueHorseshoe 10]

is there a prize for flipping a tenth head only after flipping 9 in a row ---- I only ask as such a run is only a 50/50 chance....right?

 

Someone who works at the Bank of England told me that they weight all pound coins so that they always land in the bank's favour . . . The only way you can get an edge is flipping 20 pences, and apparently the Close of a Wallet is Meaningless . . .

 

BlueHorseshoe

[ed_inacloud 10]

Thanks BlueHorseshoe, one of your comments has sparked a light. So for anyone that wants to listen......

 

There is no gausian distribution in the results that I have for size and frequency of moves, it's a ramp. The lower the value of the move the higher the frequency, with a pretty good (but not perfect) relationship between measured values and predicted frequency. As I said earlier the I believe the results I have are a long winded way of doing an FFT analysis on the data.

 

The ramp is what I'd expect from white noise or random data, the question now is how is the random nature generated.

 

1) Is it just randomness created by so many participants with varying views. In which case in extreme news conditions the random nature should disappear. I need to go and do some more analysis but should be easy to spot.

 

2) Is it created by the Liquidity Generators (and conspiracy theory or not they are there, CME trade a huge futures market and have a published list of Primary Market Makers). I need to better understand their MO before I can assess that.

 

3) Is it an underlying Algorithm? Will only find out by ruling the other two out. But could it be done and how would they do it will be an interesting arguement to have.

 

I have two analogies for could it be done.

a) I want to take a train from Portsmouth to London, I can buy my ticket from a number of places and could use a couple of operators depending on route I wish to take, so sounds a competitive scenario to hit my goal of getting to London. Unfortunately the track is controlled by Railtrack and they can disrupt my journey at any point.

 

b) Oil is a naturally occuring resource found in many parts of the globe. The producing countries (that in a normal market would be competing) have found that by controlling the flow and so price they can maximise profit. So dont be fooled into thinking competing exchanges wouldn't work together if it's their interest to do so, I'm not saying they do but there is no reason that they couldn't.

 

How could they do it (well how would I do it if it was mine to control)? I would modulate the natural order flow with a pseudo random algorithm, that would account for the anomolies I've seen on the ramp discussed above. It would need to be sophisticated as simple Amplitude or Frequency Modulation would be detectable and beaten. I'd adopt something along the lines of an FHSS model for security.

 

So how does this help us? I dont know yet. But lots of people come to these boards looking for how to get an edge and are all dissapointed because there is no-one out there saying here you go, this works, use this. Just the usual comments that no-ones is going to hand it to you on a plate and you have to work to find the answers.

 

Well my comment those people looking for the answer is be careful, there may not be an answer. I think I'm reasonably well quallified to give that advice now. I've looked at price movement for four years and from all angles now, I've stripped it down to the bone and taken some off the wall approaches at it.

 

Money mangement is not the answer that will get you results, using it will mean you wont wipe your account out so quickly but you will wipe it out in the end. If you use a balanced ratio of profit and stop/loss method it's a 50/50 gamble from where I'm sitting at the moment. If you move the ratio in favour of less than 1:1 then you'll win more often but the greater losses will kill you. I developed a strategy that will win or break even 88% of the time, if you run without stops the loss scenarios will come back to BE 88% of the time, so less than 2% loss. If I ran it real time it would wipe me out and while it was wiping me out I'd be paying significant overnight charges to the broker.

 

This is a very simple game we are trying to play, all you've got to do is find the right entry and right exit. Good Luck;)

 

Ed

 

PS Am I just a beaten up and twisted loser that's blown his account? I don't think I am. I've 'invested' about £20K or roughly 12% of my account. I've had times that I've felt I've made money but have never been able to draw profit from the account. It keeps me occupied and I'll keep looking for answers.

[ed_inacloud 10]

is there a prize for flipping a tenth head only after flipping 9 in a row ---- I only ask as such a run is only a 50/50 chance....right?

 

Don't think anyone is saying a run of ten is 50/50, I'm sure you don't need me to explain it's 1/2^10.

 

But because it's 1024:1 against flipping 10 in a row doesn't mean its going to be 1024:1 on flipping the 10th after nine previous. It's 1:1 or 50/50.

 

If you want to place the 1024:1 on bet for the final flip when you did get nine others in a row, drop me a line and I'll take you up on it (and I'm not a gambling man ..... which is why I'm sitting on the sidelines trying to disprove my growing market randomness concerns).

 

When I started trading a colleague said I was a fool, the market is random. I wish I'd listened harder and investigated price movement rather than trying to find the elusive indicator. I just hope someone starting out reading this thread doesn't make the same mistake...which I believe was the original goal of the thread.

 

Just glad I could contribute

[SIUYA 11]

Ed.....actually the bet depends a lot on how you do phrase it.....as you are clearly aware.

 

What are the odds of flipping a 10th head after 9 heads in a row is very different to saying i have just flipped 9 heads in a row.....what are the odds that the next coin is a head.

When you said "the chance of flipping a tenth head after nine previous are small, it's 50/50" you introduced the aspect of 9 and then ten heads......

 

it would have been better to say

 

the chance of flipping a head after nine previous are small, it's 50/50....as you corrected.

 

and relating this to the theme of the thread.....it is these little things that do make the difference....the small print so to speak between making money and loosing money in trading. Possibly why its so hard to quantify why it works sometimes and not others.

[ed_inacloud 10]

Ed.....actually the bet depends a lot on how you do phrase it.....as you are clearly aware.

 

What are the odds of flipping a 10th head after 9 heads in a row is very different to saying i have just flipped 9 heads in a row.....what are the odds that the next coin is a head.

When you said "the chance of flipping a tenth head after nine previous are small, it's 50/50" you introduced the aspect of 9 and then ten heads.....

 

it would have been better to say

 

the chance of flipping a head after nine previous are small, it's 50/50....as you corrected.

 

and relating this to the theme of the thread.....it is these little things that do make the difference....the small print so to speak between making money and loosing money in trading. Possibly why its so hard to quantify why it works sometimes and not others.

 

Hi SIYUA, I dont generally get involved in forum discussions as I seen too many threads end up with varying views leading to arguments and worse.

 

I accept that clarity is writing is important, but interpretation in reading is too.

 

My quote you include above is incomplete and implies that I'm saying that the chance of flipping a tenth head after nine previous is small, whereas what I actually wrote was "I would disagree that the chance of flipping a tenth head after nine previous are small, it's 50/50"

 

I dont really see that as being too different a statement to the one I supposedly corrected it too. I will apologise if I confused anyone by introducing to possibility of 10 following 9, but I'm pretty sure it's correct... I've counted it on my fingers halve a dozen times (6) now and 10 keeps coming up after 9.

 

Anyway, here I am perpetuating an argument thats becoming irrelevent to the thread (which is why I supposedly dont normally get involved) :doh:

 

For the record, I'm not saying I'm correct in my views but just sharing my experience, findings and thoughts. People can either ignor them, discuss them or take them and try to build on / destroy them as they see fit.

 

Cheers

 

Ed

 

PS I only responded to your comment 'is there a prize for flipping a tenth head only after flipping 9 in a row ---- I only ask as such a run is only a 50/50 chance....right?' because you appeared to understand the single action following the previous sequence but seemed to be questioning the odds and implying a single run of ten flips. If that wasn't the case and I mis-read that then I again apologise... but then again if you'd written a little more clearly......

[Vince50 10]

Would all of you still say it is a 50-50 chance for the very next one to be a tail again after 99 tails already came out?

[MightyMouse 12]

Would all of you still say it is a 50-50 chance for the very next one to be a tail again after 99 tails already came out?

 

It is 50/50 after the 9th 99th, 999th,..., etc. But, I would bet on tails coming out next if it just came out 99 times.

[Perrin 10]

Imagine you spent your entire life flipping coins trying to get 100 heads in a row, millions of attempts... then one day you get on a roll, the heads start coming up and just don't stop! You're hot, the heads come up one after another... You get to the 99th and flip a head... You think to yourself 'this is it!' and you flip for the 100th time... and it comes up tails...

 

Probably why Livermore shot himself

[Savant 10]

There is no shorter job period than market wizard... Cause next time he almost certain would not guess right... Every days bring out new gurus and wizards...

[Obsidian 10]

Would all of you still say it is a 50-50 chance for the very next one to be a tail again after 99 tails already came out?

 

if someone was shooting at me but missed 99 times, I would not simply wait for the 100th bullet.

[ed_inacloud 10]

There is no shorter job period than market wizard... Cause next time he almost certain would not guess right... Every days bring out new gurus and wizards...

 

The thing is Savant if you leave it long enough then everyones guess would probably be right, especially in trading as long as you have a system and as long as you can afford to do so. But there will be the couple of times (period high and period low) when you're not.

 

If you had limitless amount of money I can give you a system that will guarantee results even in a random market. Trouble is non of us have the funds to trade it (and no I'm not trying sell anything, it's decribed earlier in the thread)

 

So, getting this random stuff back to our (well yours at the moment) trading environment. If it is truely random ( as I believe I can show) then why do the trades feel as though they're under pressure so much of the time?

[BlueHorseshoe 10]

The odds of a Tail after 99 Tails = 0.5

 

The odds of 100 Tails in a row = very, very small

 

The odds of 100 Tails in a row after 100 Tails in a row = same as above

 

The odds of 200 Tails in a row = very, very, very, very, very small

 

As far as the original example was concerned, this is extremely simple probability theory. For any given event, the probability is 0.5. For any given sequence of events, the probability is derived from the sequential multiplication of the probability for each event. In this particular instance of a coin toss, the combinations and permutations are mathematically identical because the probability for every event is the same, i.e. if you ran a Monte Carlo the outcome probability for any possible sequence of a given length would be the same. Because very few of the possible combinations would demonstrate anything resembling auto-correlation, the probability of their occurrence is low. In random systems, the probability of anything resembling a pattern is small.

 

if someone was shooting at me but missed 99 times, I would not simply wait for the 100th bullet.

 

This is a bit of a different scenario Obsidian, as one could assume that the accuracy of a shooter is dependent on how good the shooter is, rather than 50/50 chance. Also, if things like emotion or physical tiredness come into play, each instance may be causally linked, with the output from one event influencing the next. And although 'hit or miss' is Boolean, I'd be interested in how much the shooter was missing by before placing my bet.

 

What am I saying . . . Of course I would just get the hell out of the way!

 

BACK ON TOPIC . . .

 

It is often said that if the markets were random and there were no exploitable edges, and hence the results traders achieved were random, then there should be far fewer Market Wizards than there actually are.

 

A more interesting thing to consider is whether the number of Market Wizards who achieve success through anything that might resemble the kind of speculative trading that nearly everyone on this forum is engaged in, is anything more than a random model predicts. When reading books like Schwager's, it is obvious that some traders achieve success through 'sure things', or 'loop-holes' rather than 'speculatitive skill'. Arbitrage is an example of what I am talking about - because the arbitrageur and his risk-free profit exist outside of any system that could or could not be random, it seems to me that such Market Wizards cannot be counted towards evidence that the results of traders are non-random.

 

Thoughts?

 

BlueHorseshoe

[BlueHorseshoe 10]

Winning odds | plus.maths.org

 

BlueHorseshoe

[SIUYA 11]

BACK ON TOPIC . . .

 

It is often said that if the markets were random and there were no exploitable edges, and hence the results traders achieved were random, then there should be far fewer Market Wizards than there actually are.

 

A more interesting thing to consider is whether the number of Market Wizards who achieve success through anything that might resemble the kind of speculative trading that nearly everyone on this forum is engaged in, is anything more than a random model predicts. When reading books like Schwager's, it is obvious that some traders achieve success through 'sure things', or 'loop-holes' rather than 'speculatitive skill'. Arbitrage is an example of what I am talking about - because the arbitrageur and his risk-free profit exist outside of any system that could or could not be random, it seems to me that such Market Wizards cannot be counted towards evidence that the results of traders are non-random.

 

Thoughts?

 

BlueHorseshoe

 

Most 'professionals' dont do anything like what many retail traders who are successful do.

You are very correct in that many were/are market makers, HFT arbitragers or deep value investors and doing different things with different mindsets and views.

However I do think a lot of the same principles can be applied, the same mistakes learnt from and the the same work ethic (etc;) can be listened to. There are still plenty of market makers or arbitragers who dont become market wizards.....or just long term successful.

 

As per usual, a lot depends on definitions of traders, speculators, investors......for what its worth, I can usually learn information from sports people, businessmen, artists, that i might be able to apply to my ideas in trading. As to it being non random - --- well - I have pondered this previously, been shot down in a few different threads for suggesting similar things (eg; Renanissance as an example who dont necessarily speculate or do they) and if you really boil it down you end up comparing apples and oranges as opposed to different varieties of apples.

[zdo 20]

Question: "What is your job?"

Answer: "Success"

Next question: "What are your qualifications?"

Answer: "Failure"

[BlueHorseshoe 10]

Most 'professionals' dont do anything like what many retail traders who are successful do.

You are very correct in that many were/are market makers, HFT arbitragers or deep value investors and doing different things with different mindsets and views.

 

To be honest, I was just keen to bring the thread back on topic!

 

A few weeks back I had the misfortune to be stuck in Birmingham for an afternoon, so I called in a bookshop and bought 'Liars Poker'. I was struck by the extent to which Solomon's revenue reportedly came from 'sure things' - markets in which the other party might as well have been a two year old child. The author is essentially a salesman, and admits as much, but even the swashbuckling traders of the eighties are portrayed as the beneficiaries of the firm having spotted a 'mistake' that nobody else has spotted. Whether it's Solomon and CMO pricing, or Milken and Junk Bonds, they're pioneers in a new market that nobody else really understands. With everyone scrambling for opportunities, retail traders included, do these kinds of inefficiencies even still exist?

 

The HFTs supposedly rake it in nowadays (ten years ago it was the Sta Arb quants), with their million-dollar IT systems - is becoming a Market Wizard getting more expensive?

 

BlueHorseshoe

[Vince50 10]

It is 50/50 after the 9th 99th, 999th,..., etc. But, I would bet on tails coming out next if it just came out 99 times.

 

Your'e the man, mighty mouse. Take it from a guy like me who has worked as a poker dealer and a 21 dealer in Vegas for 9 years long ago. If red ever came up 99 times in a row on a rhoulette wheel, the casino would close the table, politely give everyone a few extra chips or drinks or even a dinner....but that wheel would be taken apart and inspected under a microscope. Know why? Yes you do. The odds of probability doing that is in the 10's of millions. The odds of a flaw in the wheel when it was made, or someone "rigging it" is way,way, way more probable than it being a chance occurance.

 

So how does that benefit us at trading? Well, if you ever see any stock or Forex pair skyrocket 20 trading days in a row between 10-am and 10:05. I would hope you'd go long and let your winnings rife until you doubled it at least before even thinking of taking some profit off. I actually believe there are anomalies like that happening in certain instruments, but only a computer could pick up the pattern. 99 heads in a row...yeah....Elvis would come back before that happens on a legitimate coin. lol

 

If any one can think of ways to exploit this in the markets open it up[ for discussion. I have heard many stories of certain months a specific commodity will go up 95% of the time. Things like that. (Mostly said by the guys who wrote the books...but still...)

 

I WILL say this. There used to be a service that would rate insiders who buy stock and some guys bat 100%. They will have a piece of 3 different companies, buy 8 different times and every time they make money. If I ever go back to long term investing again, thats the newsletter I want to get. On the other hand, there are stocks that whenever they have a big run, no insider is buying. Could be 5 out of 5 times or more Amazing!

[SIUYA 11]

I WILL say this. There used to be a service that would rate insiders who buy stock and some guys bat 100%. They will have a piece of 3 different companies, buy 8 different times and every time they make money. If I ever go back to long term investing again, thats the newsletter I want to get. On the other hand, there are stocks that whenever they have a big run, no insider is buying. Could be 5 out of 5 times or more Amazing!

 

your not thinking of the scam whereby you send out a newsletter with a stock saying they are a buy to 10000 people, then the same stock as a sell to 10000 people.

If it goes up you then take a different stock rate it as a buy and send it to the first 10000 people again.

However this time you send it as a buy to 500 of those, and a sell to another 5000.

Once again you will have 500 people thinking you got it right twice in a row......

rinse repeat.....finally you have after ten times at least some people (17) with proof that you picked it right at least ten times in a row! Amazing right.

10,000,5000,2500,1250,620,310,150,70,35,17

 

Thats a statistic!

[BlueHorseshoe 10]

your not thinking of the scam whereby you send out a newsletter with a stock saying they are a buy to 10000 people, then the same stock as a sell to 10000 people.

If it goes up you then take a different stock rate it as a buy and send it to the first 10000 people again.

However this time you send it as a buy to 500 of those, and a sell to another 5000.

Once again you will have 500 people thinking you got it right twice in a row......

rinse repeat.....finally you have after ten times at least some people (17) with proof that you picked it right at least ten times in a row! Amazing right.

10,000,5000,2500,1250,620,310,150,70,35,17

 

Thats a statistic!

 

Nowadays you'd probably end up with 10,000 people each with 10 pieces of proof that the spam filter on their email account is working correctly.

 

BlueHorseshoe

[Vince50 10]

your not thinking of the scam whereby you send out a newsletter with a stock saying they are a buy to 10000 people, then the same stock as a sell to 10000 people.

If it goes up you then take a different stock rate it as a buy and send it to the first 10000 people again.

However this time you send it as a buy to 500 of those, and a sell to another 5000.

Once again you will have 500 people thinking you got it right twice in a row......

rinse repeat.....finally you have after ten times at least some people (17) with proof that you picked it right at least ten times in a row! Amazing right.

10,000,5000,2500,1250,620,310,150,70,35,17

 

Thats a statistic!

 

NO, NO. No scam. This was a legit newsletter I subscribed to that tracked the inside buying of stocks and who did well and who did not. Yes I know the garbage newsletters you refer to. Im an ex-stock broker, They are what is called "pump and dump" scams. I never got involved with that nonsense,thank God.