Don't Be Fooled By Randomness

[duncanhoo 10]

well not all of us were fortunate enough to be... "taught how to trade by a couple of professional traders." and had to find our own way.

 

If you know of resources and teachers for retail traders to become professional traders that you recommend, then please provide them for those that could benefit from them

 

I would have added one more to your "characteristics of retail traders":

spend endless hours on forums bragging about their success and disparaging other methods

 

and another to the "characteristics of professional traders":

avoid wasting time on forums bragging about their success - rather they recognize there are many different ways to interact with the markets all with varying levels of success

 

 

Yep so true.

 

 

 

HAHAHAHHAHAHA!!!!!!!! LOLOLOLOL Silly retail. Hey just because some one sells you something and tells you that is what the pros use doesn't make it so. Oh yea and the books created by the "pros." HAHAHAHAHAHAHAHA What books? Psychology books? Those are books about trading written by psychologists.

 

Who is out there teaching the underlying basics of supply/demand/inflection points correctly? The Predictor? Folks on this forum? Who really uses correlated markets? Forex guys are the only ones I guess. Don't try to post anything on the ES thread about the bonds or notes because that thread is only for ES. There are only a few MP books out there and lets be honest if you read them you would still be at a loss for executable information. Sorry full time MP guys. What is left from your list? Oh yea "pro techniques." Like floor pivots. More laughable crap.

 

I know folks call this crap pro all day long. Hey if you have some sort of system that uses some sort of Fib, MA, Stoch, MACD, algo, with some abandon baby with 3 crows flying and to execute it you flip a coin then good for you. I know a guy that uses MACD and MAs and I watched him add on to a loser for 3 days in the ES. Does he makes money with that? Maybe. I literally get email everyday trying to sell me stuff that some so called pro uses. Pro room moderator/program seller. Pro trader ??? pfffff not a chance.

 

This goes to anyone. If you are taking money out of the market and you can pay your bills with it then good. Short sell, long sell, throw a spaghetti noodle up there if you can trade off of it and if you have to get one of those little monkeys that smokes and rides a unicycle with the little Shriner/turban hat thingies to trade with to make money then do it. I personally don't have a monkey because my wife wont allow smoking in the house.

 

For me I was taught how to trade by a couple of professional traders. Both traded in Chicago on the floor the whole 9. They taught me to trade a certain way. That way works for me. Seems to work for others too.

 

So yea so much garbage out there. I do disagree however on you should just go your own way. There is no way with out help I would of been able to figure out how to do what I am doing with out help. I think its better to learn how to do something that others are using that works and is already working instead of inventing something from scratch.

[Colonel B 10]

Can you flesh this out a little more? What are you looking for in the bid/ask? I ask because I am having more success trading levels. I am always watching bid/ask but there is so much order flashing, seems hard to glean much there.

 

Brian

 

yea sure. I trade levels too or areas. The trick is to look for volume to come out on the WRONG side. So if you are looking to get short because the market is climbing you look for lots of buyers in your area. Wait what?!?!?!?! lots of "buyers" in my area? Yes. If you are looking to go short you want to see lots of buyers come out in your area.

 

Just watch the bid ask when its close or into your area. I can send you pics if you want. Just PM me.

[Colonel B 10]

well not all of us were fortunate enough to be... "taught how to trade by a couple of professional traders." and had to find our own way.

 

If you know of resources and teachers for retail traders to become professional traders that you recommend, then please provide them for those that could benefit from them

 

I would have added one more to your "characteristics of retail traders":

spend endless hours on forums bragging about their success and disparaging other methods

 

and another to the "characteristics of professional traders":

avoid wasting time on forums bragging about their success - rather they recognize there are many different ways to interact with the markets all with varying levels of success

 

NP ill send you a PM bro

[WWWW 10]

I enjoyed your direct statements.. You write well.

 

One comment you made, in particular, caught my eye.

 

Your statement - " Like floor pivots. More laughable crap" - shook me. It shook me because you appear to be a credible participant.

 

It was unsettling because I have finally moved away from the usual and customary indicators - into a price action strategy based largely on floor and Camarilla pivots (after reading loads of literature including Franklin Ochoa's "Pivot Boss".)

 

Can you / would you take a moment more to be specific here? What are your criticisms? Are there any practical applications in your opinion? I'll take any thoughts and suggestions.

 

Thanks for your time and contribution.

[SunTrader 10]

There is a right and a wrong way to trade.

 

Not a pro or non-pro way.

 

Not a pro or non-pro TA, FA or Economic technique.

 

Almost all are 50/50 propositions.

 

Preparation/implementation/patience/management are the key.

[M.A 10]

mmmmmmmmmmmmmmmmm. :crap::crap::crap::crap::crap:

 

After reading through 4 pages of this discussion, I am really fooled by randomness of this debate. A simple discussion is crunched, crushed and .......................(out of vocab)...

 

Take a break buddies.

 

The original thread was something about randomness. Yes market moves randomly but gives us a few indications which maybe or may not be true. There is an element of randomness in it coz no one can collect and analyze each and every piece of information which moves market in either direction. and thats all:angry::helloooo:

[BlueHorseshoe 10]

If markets were truly random then they would be much easier to trade.

 

JUMP DIFFUSION

 

BlueHorseshoe

[Raleigh Lee 10]

NP ill send you a PM bro

 

Those who know to act do not speak; those who speak do not know to act.

[Mysteron 10]

Yep The Dude is correct.

There is a difference in definitions between charts with the pro environment and the retail environment. That is the confusion Sun. Yes of course pro guys use "charts." They just don't look at the same things.

 

Characteristics of a retail trader:

1-2 screens

only looking at 1 market

many different time frames for 1 market

primarily candlestick and renco charts

many different math based indicators

many different candlestick patterns

poor or no real time news sources

large stop outs

misunderstanding/misapplications of certain terms and definitions (risk, money management, ect...)

will be more likely to add to losing positions as part of a plan tough to them

looking to trade longer term

Trying to get 20 ticks/points with 1 or all contracts

 

If even just a couple of these things describe you then chances are you are a retail trader. Chances are that if TA is working for you then you are using what would be considered a large stop. The system used is actually getting you in late after 1/3 or 1/4 of the moved has started thus creating more total risk.

 

General characteristics of prop traders:

Using correlated markets

Looking at related markets and looking for opportunities

Rows of desks that have different people looking at different markets all communicating with each other

1-3 guys watching real time news sources

small stops

Way less likely to add to a losing position

4-6-8 monitors

1 whole monitor filled with DOMs

Look to trade shorter term

Trade large size and scale

 

As you will notice the things mentioned are not opposite. Some of the things are just different applications of information. Both are looking at markets however the data is different and the application to the data is different. You could look at correlated markets with candlestick charts. But how many threads on this forum or others talk about where the treasuries are opening in relationship to where the ES is opening when trading the ES? If you trade the ES as a retail trader chances are you are only looking at the ES.

 

Pros use some sort of order flow filtering and structuring software. Something not necessarily restricted by time but measured by rotations and bid/ask information. Retail primarily uses time based charts. Market Delta is a really good example of a software that does that with its footprint. There are plenty of others. Pros are going to use TT. Its expensive but Ninja cant do what TT can. X Trader is superior all other DOMs I have seen. Its really all about finding out where longs/shorts are stuck. The bid/ask info is going to give you that information clearer then any candlestick.

 

If you have an "edge" and you are not using bid/ask data then you have found a way to recognize longs and shorts trapped with out it. That is the only real edge that has ever been in futures trading. The edge is knowing where the retail is getting in and getting out. The edge is being able to watch short term traders getting trapped and then pressing into the their stops. Knowing where paper is defending and being on the winning team when the inevitable happens.

 

Bottom line is if you think markets are random you are wrong. Markets are not random. Who ever told you that must of told you that so they could take your money. This is the thinking of a losing trader or someone who doesn't have all the information on what is making them move or they don't know what makes markets work.

 

DON'T BE FOOLED BY RANDOMNESS!!!! Markets move because of short term traders getting stuck and having to EXIT. That is why pros watch the short term. Retail traders directly move the market. I watch retail traders get popped all day every day. Once you learn to watch bid/ask information you will see what I mean.

 

Retail traders directly move the market

 

There I was believing that retail traders have no effect on markets at all as they are collectively but a drop in the ocean in financial terms compared with institutional traders/Generals, for US stocks at least.

[Vinayak 10]

I actually didn't see the point of a thread like this. TA forms the cornerstone of my trading and any claims of randomness is utterly ridiculous. These are the very same people who state that you have to be 7 foot 6 to be good at basketball (NBA type).

I agree that the markets are subject to erratic movement and even the best among us falter, but there are too many chartists making too good a living out there for me to buy any randomness argument.

Its simple economics then; it would be awfully easy to make money and everyone would be doing it.

[traider 10]

mmmmmmmmmmmmmmmmm. :crap::crap::crap::crap::crap:

 

After reading through 4 pages of this discussion, I am really fooled by randomness of this debate. A simple discussion is crunched, crushed and .......................(out of vocab)...

 

Take a break buddies.

 

The original thread was something about randomness. Yes market moves randomly but gives us a few indications which maybe or may not be true. There is an element of randomness in it coz no one can collect and analyze each and every piece of information which moves market in either direction. and thats all:angry::helloooo:

 

There is no randomness when the market is decisive (forex anyways is all I can commen on as that is the one I have upskilled on.) You can read market structure and even order flow out of the candles. However, that takes many years (4 for me) of observing the candles and a few eureka moments. A bit like riding a bike....a process of long contemplation. It can be done...it just takes lots of work and basically, is not something anyone can teach (candles that is, I can't speak for the other approaches commented on in this thread.)

 

Once you get to this point, you have basically cracked it.

[M.A 10]

There is no randomness when the market is decisive (forex anyways is all I can commen on as that is the one I have upskilled on.) You can read market structure and even order flow out of the candles. However, that takes many years (4 for me) of observing the candles and a few eureka moments. A bit like riding a bike....a process of long contemplation. It can be done...it just takes lots of work and basically, is not something anyone can teach (candles that is, I can't speak for the other approaches commented on in this thread.)

 

Once you get to this point, you have basically cracked it.

 

Being profitable means, u r reading market better than loosers. But randomness is something else. In reality there is no randomness but it is not practically possible for any human being to collect all data which moves market. So this lack of information is creating element of randomness.

[SunTrader 10]

..... In reality there is no randomness but ....

 

...... is creating element of randomness.

There is randomness in your post.

 

Listen a coin flip is very often used in randomness discussions.

 

Put it one on edge and spin it on a tabletop.

 

What do you get?

 

A coin spinning on edge duh ..... till it starts to lose momemtum, begins to wobble then comes to a stop laying motionless.

 

There are moments of randomness and moments of predictability. How much of each, who knows.

 

The market is the same.

[TheDude 10]

'Random is a word used to explain outcomes where we do not know or understand the cause of'

 

NN Taleb

[Colonel B 10]

Retail traders directly move the market

 

There I was believing that retail traders have no effect on markets at all as they are collectively but a drop in the ocean in financial terms compared with institutional traders/Generals, for US stocks at least.

 

Yea I am not totally sure about stocks but I would imagine its the same over there as it is in the futures markets. I am pretty sure they use buy/sell market stops. Maybe not as much as futures traders because it seems that in futures trading its absolutely mandatory to use a market stop. If you could look at the bid ask info (I think its level 2 or 3) then you would know for sure. But the ES, NQ, and TF are definitely influenced by short term traders. These are US indexes of course so I am stretching it if I say that the absolute applies for the underlying stocks.

 

I should of done what other posters have done and put the specific markets because rereading my posts they are general. So yea what I meant was futures markets namely the US indexes along with Treasuries.

[equtrader 10]

Some studies have shown that a high percentage of chart patterns may be simply random lines on a piece of paper. Burton Malkiel in A Random Walk Down Wall Street cited an experiment his students participated in, constructing a hypothetical stock chart. Each day they flipped a coin, plotting heads as a 1/2-point gain and tails as a 1/2-point decline. The resulting chart from these random coin flips displayed all the classical patterns such as head and shoulder formations, flags, pennants, triangles, etc. There were even indications of cycles.

 

The answer is that when these patterns are formed by a coin toss they are random but when they are formed by the market they may not be at times. I guess this is so hard to understand for some people who resort to these arguments to make money from books. There are ways to reduce the possibility of randomness. This is a good blog about getitng fooled by random results.

[Gekko78 10]

TA works many times because so many people use it , it tends to be self full-filling. Everyone is looking at the same head and shoulders , or double top or cup and handle , triangle etc..... Most sell/buy according to the people who wrote the so called "books" on these methods....Some people don't but some do ....and we all know that all it takes is a few traders with somewhat large orders to start freaking everyone out and there it goes........Day trading it tough , IMO due to the number of trades and emotional impact it has. I do not think patterns are very useful in charts shorter than 4hrs or so.....they might work sometimes but more often than not they don't .....I day trade and don't look for "patterns" I just look at PA to give me a clue as to what "MAY" happen. just regular candlesticks tell me more in day trading than any pattern.

[equtrader 10]

TA works many times because so many people use it , it tends to be self full-filling. Everyone is looking at the same head and shoulders , or double top or cup and handle , triangle etc..... Most sell/buy according to the people who wrote the so called "books" on these methods....Some people don't but some do ....and we all know that all it takes is a few traders with somewhat large orders to start freaking everyone out and there it goes........Day trading it tough , IMO due to the number of trades and emotional impact it has. I do not think patterns are very useful in charts shorter than 4hrs or so.....they might work sometimes but more often than not they don't .....I day trade and don't look for "patterns" I just look at PA to give me a clue as to what "MAY" happen. just regular candlesticks tell me more in day trading than any pattern.

 

Good post with some very good insights.

[TheDude 10]

TA works many times because so many people use it , it tends to be self full-filling. Everyone is looking at the same head and shoulders , or double top or cup and handle , triangle etc..... Most sell/buy according to the people who wrote the so called "books" on these methods....Some people don't but some do ....and we all know that all it takes is a few traders with somewhat large orders to start freaking everyone out and there it goes........Day trading it tough , IMO due to the number of trades and emotional impact it has. I do not think patterns are very useful in charts shorter than 4hrs or so.....they might work sometimes but more often than not they don't .....I day trade and don't look for "patterns" I just look at PA to give me a clue as to what "MAY" happen. just regular candlesticks tell me more in day trading than any pattern.

 

I agree.

 

One of the main problems with TA patterns, lines and so forth is that to a large extent, they are only in the eye of the beholder. If you and I were to start drawing trend lines, I imagine they may occur at roughly the same places but not exactly the same place. The same for patterns like triangles etc.

 

If youre trying to define something, you need to be able to quantify it so you can be sure it's there or not. You cant really do that with trendlines, heads & shoulders for example. Sure you can be sure a trend exists just by looking, but to define a trend line is a fools errand as it only exists in your realm. If you then start building trade rules around something that only exists in your mind, then you are in fact trading with random prices.

 

It's the same with patterns like head & shoulders. You define a neckline. It then bounces and you realise you were premature, and in fact its not H&S but a rectangle as it rallies to the head. You only realise it was H&S AFTER the neckline is broken. So you wait for a correction back to the neckline. It never comes of course.....

 

Heres what my old boss used to say: 'if some one comes to me with a trade they made based on a chart, I know Im about to lose money'

[TheDude 10]

Take a look at this video if you have time.

 

A bunch of FX traders in the 80's: 2 in a bank, 1 in an early hedge fund. Pay attention to how they trade and HOW they are deciding to buy or sell. Note 2 of them make money that day, 1 doesnt. Either way NONE of them are using charts. Some of the positions are day trades, some are position trades. Still - NOT A CHART IN SIGHT!!!

 

http://www.youtube.com/watch?feature=player_embedded&v=hN_Qw53DKL0

[DbPhoenix 42]

TA, however, isn't about patterns and indicators or even charts. TA is about price movement. All the rest of that stuff came later.

[SunTrader 10]

.....

Still - NOT A CHART IN SIGHT!!!

Bank and hedge fund traders side by side in office buildings using OPM is a whole nother world from us trading at home alone with our funds.

[SIUYA 11]

Dude - back then having a chart that wasn't hand drawn was a luxury - IMHO they were doing much the same thing you can do with a chart - reading price (thank you DBPhoenix)

 

Lets modernise and see how many folks sitting in trading rooms have charts up these days - they might not be looking at HSH patterns but I am sure they look. (even the fundamentalists have a glance - and usually make up some BS about value, a MACD, mean reversion and trend, or compare it to their benchmark using a pretty chart).

 

You are correct in that the patterns are in the eye of the beholder.....its better to look for changes in behaviour - these are what forms the pattern in hindsight but they are often visible in real time if you watch for them.....and then someone sticks a funky name on them.....like a "3 little piggy reversal" you know the one, when a market is built on sand until the big bad wolf blows it down.

[TheDude 10]

 

...

 

You are correct in that the patterns are in the eye of the beholder.....its better to look for changes in behaviour - these are what forms the pattern in hindsight but they are often visible in real time if you watch for them.....and then someone sticks a funky name on them.....like a "3 little piggy reversal" you know the one, when a market is built on sand until the big bad wolf blows it down.

 

Sure - its change in behaviour. BUT heres the difference - the chart shows the change in behaviour AFTER the fact. The traders in the video, and what any successful trader does is anticipate that change BEFORE or AS it is happening. If you wait for the confirmation, youre buying when theres a 50/50 chance the movers are already selling.

 

These guys are TRADING. They are not ANALYSING which is what people with charts do.

They remember levels, they remember what people are thinking, they understand how the rest of the market is positioned. They take advantage of that knowledge. They play a game. The chartist, sees those games, thinks hes spotted something, acts on it, gets his ass handed back to him, and chalks it down to not all trades are winners. This is why the losers say only risk 2%. Its because they are perpetual losers they feel they will eventually get it if they can stay in the game long enough -even though they keep making the same mistakes! They have no idea how to position size!

 

Note what a high percentile of winners these guys have. Note who they are taking money from. Note the HF who starts the day off down, still manage to scratch at the days end.

 

Im just trying to help folk here see the difference between what a trader does and most people who read this probably do - analyse charts and enter orders based on ANALYSIS not game play.

 

The fact it was made in the 80's is irrelevant. You still wont see many charts today on a professional trading floor - bank, HF or prop firm. A few yes, but not in the numbers the losers use them.

 

Theres a guy there sitting infront of the TV at home watching the news trading for crying out loud! He wins. He has knowledge. He could still do that today of course.

 

How does one get that knowledge? THROW THE CHARTS AWAY. YOU DONT NEED THEM!

Edited February 24, 2013 by TheDude

[TheDude 10]

Anyhow, I see I'm banging my head against the wall here.

 

There is proof everywhere that winners do not use charts (much).

 

There is proof everywhere that 90% of retail traders lose, and we all know, retail traders love to use charts.

 

If people cant see that relationship, then I cant help them. It doesnt matter if its OPM or your own. Either you can make money or you cant.

 

Every time I post details of professionals taking down big money WITHOUT charts (Ive posted similar videos before), its followed by a barrage of excuses.

 

This is always both surprising and fascinating to me. It's herd instinct at its best! Lemmings over the cliff edge!

 

Happy trading folks!