Randomness in market
Market moves randomly. Do u believe it?
There can be 3 answers.
1- No
2- Yes
3- Partially correct.
The traders with "No" r of the view that if their is randomness in market movement then any kind of technical analysis or fundamental analysis shouldnt be used. Trading will be a pure gambling game in that case. So many traders reject the statement.
Traders with "Yes" say that if market doesnt move randomly then why everyone is still unable to accurately predict future market behavior based on decades of historical data available. They say that every trader is following his own analysis and thus making the market move randomly. A few of them also quote Burton Malkiel who performed and expirement by flipping a coin and then recording results in the form of a chart. The pattern formed on this chart was similar to pattern of a forex market chart where u can see different formations. So if result of coin flipped is random then why not trading market?
I am of the view that we cannot reject element of randomness but at the same time we cannot accurately predict exact future behavior of market. In reality there is absolutely "NO" randomness but practically and humanly it is not possible to gather and analyze all information which moves market. You have limited resources and knowledge. So even though u can identify patterns and formations but probability of failure is still there.
Conclusion:-
Probability of Success = Probability of successful Prediction of market.
Probability of Failure = Randomness
Stick to your rules
I think it depends on timeframe. For example it is hard to predict next move. But it is possible to predict next hour or next day move based on technical and fundamental analysis.
In my opinion as the timeframe increases, randomness decreases.
Why randomness to an extent? Why partial randomness. I think people r using automated trading nowadays and so many indicators r out there. There r countless types of methods of trading. With all these things in mind, market is becoming more and more random.
Originally posted by ChampWhy randomness to an extent? Why partial randomness. I think people r using automated trading nowadays and so many indicators r out there. There r countless types of methods of trading. With all these things in mind, market is becoming more and more random.
Isnt it a little confusing:- "types of methods of trading" ![[grin]](/themes/default/images/smiles/grin.png)
. hehehehe.
Well... If market is moving as u say then why there r still Market Gurus out there who understand market movement? Why there r still traders with more than 70 to 80 or even 90% winning ratio.
Stick to your rules
Yes. I agree. Market movements r random to some extent.
Burton Malkiel experiment may have showed different patterns but they cannot be consistent. He is actually trying to say that mathematics is random. Technical indicators are purely based on mathematics and statistics. Interpretation is our own which can be wrong or right but how can a mathematical equation be wrong (unless proved).
Flipping a coin will, obviously make some pattern. Resemblence of this pattern with forex chart is just accidental. We cannot prove randomness of market based on this experiment.
I am also of the view that relating a coin flipping experiment with trading market movements is ridiculous.
The good or ill of a man lies within his own will. – Epictetus
I dun think an experiment to prove something is ridiculous or wrong in any way. If u want to prove something, u will have to logically prove it. That is what Burton did. But he actually tried to prove it "100% random" ignoring the factors which affect market. Both sides of coin have equal chance but up and downward market movement is based on real factors which makes it partially random.
Stick to your rules