Non-Random Market Behavior
Dr. Bob
two dimensions), you will swear it looks like a chart of some market
index. But if you compare an actual market chart, you will see
differences.
The eye catches trends - and there are noticable trends on the random
walk plot. The eye tends to overlook "trading ranges", those
non-trending patterns that are interspersed between trends in market
charts. But it is hard to find such trading range patterns in random
walk plots. You will see no flags, penants, channels, etc - congestion
patterns - in random walk plots.
Yet it is claimed by technical analysts that 80% of the time markets
are not in trends. The inescapable conclusion is that 80% of the time
the markets are non-random in the mathematical sense of the random
walk (Uniform Bernoulli Process).
After just a couple weeks of focusing my attention on the behavior of
one market, the S&P 500 E-Mini, at the open, it has become clear to me
that unless the market takes off in a direction that can be considered
a trend move, it is behaving like 80% of all markets in a non-random
fashion.
The thing that makes that important is that if the market is not
random under those circumstances, then it is "patterned", that is
there is some kind of "ruleset" that causes it to be non-random.
Discover that ruleset - or at a minimum construct a system that takes
advantage of it - and you should be able to make money if you employ
find a way to prevent large losses on the 20% occasions when the
market goes into trend mode.
One hint about that pattern is that it appears that our walker is
trapped in a room and instead of breaking out in a trend he is forced
to bounce off the walls. Of course, this is exactly what we mean by
support and resistance in the context of a trading range. What is
quite noticeable is that during the opening minutes - say the first 10
maximum - the trading range is very volatile.
When trapped in this room, our walker is not walking - he is running
back and forth like a caged animal. You have to look at a 1-tick or
maybe a 5-tick chart to see that clearly. A 1-min bar or candle chart
will obscure the phenomenon I am alluding to.
If the first move is up and the price hits a pocket of resistance due
to resting sell orders at that level, then the market will move down.
Eventually it will move down to support and resting buy orders will be
triggered causing it to rise again. That we all can visualize.
But what is difficult to visualize is that in the short 60-120 seconds
that the market has made this up-down-up excursion, there are a fresh
set of sell orders resting at essentially the same resistance level as
before. And the same for the support level. That means there are these
huge barriers created by huge order concentrations at these two levels
or thereabouts.
Is there some way to see those levels in advance - a Level Two order
book? I doubt it because the open is dominated by pit traders and they
don't use order books. If I am wrong about any of that, then maybe
there is a way to gauge the levels at the open, in which case you have
discovered the pattern in quantitative terms and can profit from that
knowledge.
As a respite from all the alcohol-induced and drug-induced moronic
behavior on this forum, I encourage a serious discussion of this
topic. Trollish behavior will be completely ignored by me, so it is a
waste of time.
Dr. Bob
"Our country's a place of limitless hopes and
possibilities, and nowhere is that spirit more
alive than in the great Nation of Texas."
--G. W. Bush
BLASH404
<<As a respite from all the alcohol-induced and drug-induced moronic
behavior on this forum, I encourage a serious discussion of this topic.
Trollish behavior will be completely ignored by me, so it is a waste of time.>>
Jason
Dr. Bob,
Perhaps you should stick to empiricism when conducting your research
and gather "more data" to justify your conclusions.
We've had this discussion before and, although the market is not
random 80% of the time (which, in itself, is a bullshit hypothesis),
then whatever system the market is following is beyond the grasp of
even you to figure out.
Why not stick to statistical fluctuations and take advantage of those,
instead? Statistically, everything strays from a "norm." Once you
recognize those fluctuations, you can maximize your gains by taking
advantage of them.
You remind me of the guy in Pi. If you seriously were coming close to
solving the mystery of the stock market, why would you be posting it
on a worldwide messaging system so that others would find out?
Have you taken Number Theory by any chance?
Jason
Dr. Bob
>Perhaps you should stick to empiricism when conducting your research
>and gather "more data" to justify your conclusions.
You conduct research the way that suits you, and I will do it the way
that suits me.
BTW, could you tell us your credentials in conducting research.
>We've had this discussion before
I haven't.
>and, although the market is not
>random 80% of the time (which, in itself, is a bullshit hypothesis),
Prove it.
>then whatever system the market is following is beyond the grasp of
>even you to figure out.
How could you know that?
It is possible that the patterns that destroy the randomness of the
market are not amenable to simple algorithms but that does not mean
they can't be figured out.
Have you studied Kolmogorov and Chaitin on the subject of Algorithmic
Complexity? You might want to take a look before you start
pontificating in an area of mathematics for which you are totally
unqualified.
>Why not stick to statistical fluctuations and take advantage of those,
>instead? Statistically, everything strays from a "norm." Once you
>recognize those fluctuations, you can maximize your gains by taking
>advantage of them.
What you just said makes absolutely no sense whatsoever.
>You remind me of the guy in Pi. If you seriously were coming close to
>solving the mystery of the stock market, why would you be posting it
>on a worldwide messaging system so that others would find out?
In the first place, I do not claim to be "coming close to solving the
mystery of the stock market". In the second place, this so-called
"worldwide messaging system" is used by only a handful of people.
My desire it to generate discussions from knowledgeable people - to
put our minds together to gain an insight into how markets really
behave. I seriously doubt we will invent a system. But we may discover
the one the big boys are using that causes the patterns we see all the
time.
>Have you taken Number Theory by any chance?
Son, I have taken so much mathematics I don't even want to think about
it.
Now go do your homework. Here is a link to Greg Chaitin's site:
http://www.umcs.maine.edu/~chaitin/
And the definitive work in complexity theory and inference is:
An Introduction to Kolmogorov Complexity and Its Applications
Li and Vitanyi
Hardcover: 642 pages
Publisher: Springer Verlag
2nd edition (March 1997)
ISBN: 0387948686
Joe C.
abandoned it?
Joe
"Dr. Bob" <sp...@spam.com> wrote in message
news:3d02423d...@news-server.houston.rr.com...
Paul Morgan
>
> Have you studied Kolmogorov and Chaitin on the subject of Algorithmic
> Complexity? You might want to take a look before you start
> pontificating in an area of mathematics for which you are totally
> unqualified.
>
random number generators and writing one of my own. Don't ask me now :-)
>
> >You remind me of the guy in Pi. If you seriously were coming close to
> >solving the mystery of the stock market, why would you be posting it
> >on a worldwide messaging system so that others would find out?
>
> In the first place, I do not claim to be "coming close to solving the
> mystery of the stock market". In the second place, this so-called
> "worldwide messaging system" is used by only a handful of people.
Actually, although only a few people post, many more read this group.
Possibly as many as twenty.
--
..............................paul
All wiyht. Rho sritched mg kegtops awound?
Dr. Bob
<pa...@not-here.or-there> wrote:
>Wow, I actually read Kolmogorov twenty five years ago when I was testing
>random number generators and writing one of my own.
Then you are familiar with cyclotomic generators.
As you know it is impossible to write an algorithmic true random
number generator. However there are some which work for particular
applications. I remember one case where a scientist had to throw out
all his results because the random number generator he used in his
Monte Carlo study were not random.
> Don't ask me now :-)
Ask you what?
>Actually, although only a few people post, many more read this group.
>Possibly as many as twenty.
Then I believe we can share any secrets we might discover with them.
Dr. Bob
>Are you still posting the results of your test in this newsgroup or have you
>abandoned it?
Yes, it is still there under the same subject: Random Morning Trade.
Here are the results thus far:
5/28/02: Entry: 1085.50 L. Stop: 1084.50. Exit 1087.50. Result: -1.00.
5/29/02: Entry: 1071.75 S. Stop: 1072.75. Exit 1069.75. Result: -1.00.
5/30/02: Entry: 1060.75 L. Stop: 1059.75. Exit 1062.75. Result: -1.00.
5/31/02: Entry: 1070.00 S. Stop: 1071.00. Exit 1068.00. Result: +2.00.
6/03/02: Entry: 1066.00 L. Stop: 1065.00. Exit 1068.00. Result: +2.00.
6/04/02: Entry: 1035.75 L. Stop: 1034.75. Exit 1037.75. Result: +2.00.
6/05/02: Entry: 1044.00 S. Stop: 1045.00. Exit 1042.00. Result: +2.00.
6/06/02: Entry: 1050.50 S. Stop: 1051.50. Exit 1048.50. Result: +2.00.
6/07/02: Entry: 1013.00 L. Stop: 1012.00. Exit 1015.00. Result: +2.00.
Total: +9.00 Win/Loss: 6/3
I did not cheat to get those results. The trade direction was
literally obtained by the toss of a coin. I do not have any way to
know which is the preferred direction in advance of the open or I
would be using it instead of a random selection. I have not seen any
noticeable pattern in the correct direction to choose.
DirtBag
Your academician achievements are impressive. However you sometimes appear
to have your underwear all bunged up. Lighten up and enjoy yourself. This
NG is not that important.
--DirtBag-- Berkeley 73' Graduate without honors. Higher math bored me to
death )
Paul Morgan
> On Sun, 09 Jun 2002 14:17:47 GMT, "Paul Morgan"
> <pa...@not-here.or-there> wrote:
>
> >Wow, I actually read Kolmogorov twenty five years ago when I was testing
> >random number generators and writing one of my own.
>
> Then you are familiar with cyclotomic generators.
>
> As you know it is impossible to write an algorithmic true random
> number generator. However there are some which work for particular
> applications. I remember one case where a scientist had to throw out
> all his results because the random number generator he used in his
> Monte Carlo study were not random.
>
> > Don't ask me now :-)
>
> Ask you what?
Anything about Kolmogorov, it's been a long time!
[snip]
>
> Dr. Bob
>
--
..............................paul
With every passing hour our solar system comes forty-three thousand miles
closer to globular cluster M13 in the constellation Hercules, and still
there are some misfits who continue to insist that there is no such thing as
progress.
DirtBag
"Paul Morgan" <pa...@not-here.or-there> wrote in message
news:utLM8.5234$k85....@newsread1.prod.itd.earthlink.net...
_Snip_
> With every passing hour our solar system comes forty-three thousand miles
> closer to globular cluster M13 in the constellation Hercules, and still
> there are some misfits who continue to insist that there is no such thing
as
> progress.
>
_Snip_
This is fascinating stuff Paul. Might there be a collapsed white dwarf
somewhere near by? Have you any other info on this, or link:
Thankx -DirtBag
Dr. Bob
<pa...@not-here.or-there> wrote:
>Anything about Kolmogorov, it's been a long time!
Kolmogorov is one of those obscure geniuses who is never going to get
the recognition he truly deserves. Here are a couple of quotes from
that book by Li and Vitanyi:
+++++
"In everyday language we call random those phenomena where we cannot
find a regularity allowing us to predict precisely their results.
Generally speaking, there is no ground to believe that random
phenomena should possess any definite probability. Therefore we should
distinguish between randomness proper (as absence of any regularity)
and stochastic randomness (which is the subject of probability
theory). There emerges the problem of finding reasons for the
applicability of the mathematical theory of probability to the real
world".
--A. N. Kolmogorov (in Li & Vitanyi, p. 52.)
"The frequency concept based on the limiting frequency as the number
of trials increases to infinity does not contribute anything to
substantiate the application of the results of probability theory to
real practical problems where we always have to deal with a finite
number of trials."
--A. N. Kolmogorov (p. 55, op. cit.)
+++++
Dr. Bob
>However you sometimes appear
>to have your underwear all bunged up. Lighten up and enjoy yourself.
You might want to take your own advice.
> This NG is not that important.
Who said it was? I am merely rooting around for signs of intelligent
life.
William C. Hamby
news:2002060917390...@nym.alias.net...
> ----------------------------------------------------------------------
> Top 40 posters for the 7 day period ending Sunday June 9, 2002.
>
> posts kbytes name address
> 355 661.5 Dr. Bob sp...@spam.com
> 130 315.1 Paul Morgan pa...@not-here.or-there
> 129 200.1 William C. Hamby wmch...@attbi.com
LMAO Awesome dude.
DirtBag
Why do you tag your posts with crap? I have a keen since of smell and your
politial tags simply give off a bad odor. Some tend to react to it. I am
sure you have interesting and pertinent information that your willing to
share. But expect reaction if your going bait for it.
William C. Hamby
news:726dd52e17681ae9...@dizum.com...
> >> This NG is not that important.
> >
> >Who said it was? I am merely rooting around for signs of intelligent
life.
> >Dr. Bob
> >
>
> There are several indicators that can determine if someone is intelligent:
>
> They do not call people names.
> They ask a question first.
> They try not to force polarity.
>
> You fail on all counts
Opinions, all opinions...
Dr. Bob
>Algorithmic Complexity sounded kewl enough for me to download a
>couple of Chaitin's free papers for further review.
"The Unknoawable" is the culmination of his life's work.
He maintains that there are relatively straightforward mathematical
objects - arithmetic objects - which are fundamentally unknowable. His
Omega is the prototype for these unknowable objects.
The term unknowable does not mean that we can't know because we do not
have enough computing power - it means that no matter what your
mathematical resources are, it is fundamentally impossible to know.
IOW, there are mathematical problems that have no answer that can be
known.
>I took enough upper level math classes to acquire a working man's
>knowledge of math.
Chaitin is an accessible writer. But don't let his homespun pedagogy
deceive you. The material which he discusses is far more profound than
he lets on.
>Dr. Bob certainly seems brilliant like the Pi guy. Of course, Dr.
>Bob's foibles make him somewhat eccentric, like many in this group.
You sound like you have bought into the caricature I present.
>Thanks for posting the link to http://www.cftc.gov/cftc/cftchome.htm
>Lots of good data there to crunch on. ;)
The only thing I an add is that some analysts study the "futures and
options combined" lists.
>God only knows how many people lurk.
Way more than most people suspect.
Dr. Bob
>> "Our country's a place of limitless hopes and
>> possibilities, and nowhere is that spirit more
>> alive than in the great Nation of Texas."
>> --G. W. Bush
>Why do you tag your posts with crap? I have a keen since of smell and your
>politial tags simply give off a bad odor. Some tend to react to it. I am
>sure you have interesting and pertinent information that your willing to
>share. But expect reaction if your going bait for it.
How could the tag line above be considered crap? How could it possibly
give off a bad odor?
You react to it because you do not like Bush. That'is no reason to
believe that what it says is crap or that it smells.
Maybe it is you who is full of crap and smell.
William C. Hamby
>
> Maybe it is you who is full of crap and smell.
>
> Dr. Bob
How childish to perform name-calling, Bobbie.
DirtBag
It is true that I slam our 'great' leader whenever I can. But.. This guy was
a freaking Cheerleader for Christ sake. His MBA? Come-on Bob. Would you
hire him, if not for his political connections? We have ourselves a puppet.
This feeling is shared by the majority of the popular vote too if not for
brother 'Jeb' and his cronies. The man is not presidential enough for me.
Maybe he was good for Texas. But he ain't shit outside of the state.
Dr. Bob
>It is true that I slam our 'great' leader whenever I can. But.. This guy was
>a freaking Cheerleader for Christ sake. His MBA? Come-on Bob. Would you
>hire him, if not for his political connections? We have ourselves a puppet.
>This feeling is shared by the majority of the popular vote too if not for
>brother 'Jeb' and his cronies. The man is not presidential enough for me.
>Maybe he was good for Texas. But he ain't shit outside of the state.
Anyone who takes that job is a puppet of the NWO.
Actually he is showing some resistance to the NWO agenda. He won't
sign off on that insane Kyoto accord.
You want the DJIA at 100 - just have the president sign the Kyoto
accord.
Bill Reid
> On Sat, 08 Jun 2002 19:49:02 -0400, Jason <tr...@mailzone.com> wrote:
>
> >Perhaps you should stick to empiricism when conducting your research
> >and gather "more data" to justify your conclusions.
>
> You conduct research the way that suits you, and I will do it the way
> that suits me.
>
A few years ago, I was working on a project to integrate some
real-time data feeds with historical/database/derived data for
a very large mutual fund. Just to make sure I had the system
straight in my head, I connected the real-time feeds and the
historical T&S data to some software I wrote to try to come up
with real-time intra-daytrading systems.
In a very short period of time, I had come up with some systems,
and my real-time trading generator was indicating about 25 trades
a minute for the 1000 or so stocks I was tracking. I had proven
with the T&S data that these systems should generate up to
40% a year (exclusive of commissions).
Unfortunately, at the time, I was making about 1200% annualized
just by buying hot Internet/new economy-related stocks and letting them run
to
the moon. So I just watched the flashy lights and never persued
what after commissions most probably would have been money-losing
trades.
> BTW, could you tell us your credentials in conducting research.
>
We can "grok" yours.
> >We've had this discussion before
>
> I haven't.
>
There's no shame in being a newbie. Why can't you just admit it?
> >and, although the market is not
> >random 80% of the time (which, in itself, is a bullshit hypothesis),
>
> Prove it.
>
It's logically ridiculous. Something isn't random some times and
not random other times.
> >then whatever system the market is following is beyond the grasp of
> >even you to figure out.
>
> How could you know that?
>
Because you HAVEN'T figured it out yet. You're not even close;
you've obviously just read a few books and have zero demonstrated
prognosticatory ability. You are going down well-trodden trails of gambling
systems which are dead ends: some people never get it through
their heads that you can't beat craps with "money management".
You have demonstrated zero knowledge of the true stochastics
of the historical market, economy, or any ability to cogently
research the issues.
> It is possible that the patterns that destroy the randomness of the
> market are not amenable to simple algorithms but that does not mean
> they can't be figured out.
>
It is very true that many anomalies in market pricing have zero ability
to be exploited so as to beat a theoretical buy-n-hold strategy of the
broad market averages over time, which is the general yardstick most
would agree should be used for comparison. I literally have discovered
dozens of pricing anomalies by running thousands of historical tests but
the true method to "beat the market" is only made clearer by the
weakness of these simple(-minded) systems.
It has been said that market pricing resembles random stochastics
with an upward drift over time. If you accept that premise, there
is but one system; if you are still confused, ask John Bogle what it
is.
However, the market is actually a dynamic system with interacting
interdependant elastic-but-nearterm-bounded reinforcing/attenuating inputs.
Data of varying quality is available on all the inputs; interpreting it
correctly is the trick. It is a complex or "chaotic" system that frustrates
simple, though seemingly correct, analysis. Simple rules such as "don't
fight
the Fed" work reasonably well for decades then run into problems, for
the very simple reason that the Fed is only ONE input to the system.
> Have you studied Kolmogorov and Chaitin on the subject of Algorithmic
> Complexity? You might want to take a look before you start
> pontificating in an area of mathematics for which you are totally
> unqualified.
>
I haven't seen anything from you to indicate that you possess any
ability to perform statistical analysis. You do remind of the guys
who try to justify wacky gambling systems with rabid obscurantism,
though.
Just like in gambling systems, the results you will get from a system can be
predicted on the size of the statistical correlation you find
when analyzing the game and system parameters.
Small, obscure, chimerical, or innumerate correlations
result in non-provable and non-workable systems.
> >Why not stick to statistical fluctuations and take advantage of those,
> >instead? Statistically, everything strays from a "norm." Once you
> >recognize those fluctuations, you can maximize your gains by taking
> >advantage of them.
>
> What you just said makes absolutely no sense whatsoever.
>
Go figure, I thought he was agreeing with you. He just expressed another
fallacy, that you can beat the market because it "regresses to the
mean". Millstox used to say that a lot...
> >You remind me of the guy in Pi.
More like Forrest Gump. But I guess Gumpiness is relative...he ain't
fooling me.
> My desire it to generate discussions from knowledgeable people - to
> put our minds together to gain an insight into how markets really
> behave.
Your desire is to be a troll.
> But we may discover
> the one the big boys are using that causes the patterns we see all the
> time.
>
Again with the "big boys"; you seem to be quite fixated on large men.
And their anuses.
I have some actual knowledge as to what the "big boys" are
doing, but even more importantly, I know what their results are
when I open my 401(k) statements. My own portfolio is
1000s% better and I'm hardly trying most of the time...as
any "big boy" can tell you, size can be a liability, and as
any experienced shrewd trader can tell you, playing off the "big boys" is
not difficult but can be profitable. You should fall out of love
with them but observe them closely...
> Son, I have taken so much mathematics I don't even want to think about
> it.
>
Ever pass? I believe you when you say you don't want to think
about math, I know the feeling, that's why I like to code it once
in the computer, then I never have to do it manually again.
---
William Ernest Reid
William C. Hamby
news:1vRM8.29075$LC3.2...@bgtnsc04-news.ops.worldnet.att.net...
LOL I like this guy.
Dr. Bob
<horme...@happyhealthy.net> wrote:
>Flipping pennies? I guess that suits you...
You are without a doubt the biggest jerk on this forum.
Dr. Bob
<wmch...@attbi.com> wrote:
>> Ever pass? I believe you when you say you don't want to think
>> about math, I know the feeling, that's why I like to code it once
>> in the computer, then I never have to do it manually again.
>> William Ernest Reid
>LOL I like this guy.
That makes you a real idiot.
William C. Hamby
Why, Bobbie? Because he too can see how much of a dumbass you really are?
Dr. Bob
<wmch...@attbi.com> wrote:
>Why, Bobbie? Because he too can see how much of a dumbass you really are?
<yawn>
Paul Morgan
news:CZLM8.10510$3w2....@typhoon.sonic.net...
I don't have a link, I just remember reading it somewhere and I cut and
pasted the remark several years ago.
--
..............................paul
Paul Morgan
> With all due respect, it might surprise you to discover that 305
> unique addys posted to MIS during the past week. Clearly, people like
> you and Jason use multiple addys. Allegedly, the person known as BLASH
> also uses multiple nyms.
>
> --
> Mach
I don't use multiple addresses, although I'm using a different fake one from
the one I used in '99
--
..............................paul