How to make money in a Random Market. As I have said, although the Market movement is random, it is a "Biased Randomness". Traders can profit from these biases. 1. Fundamental Bias. Fundamentally the Market is biased to the upside for more than 5%. If you are invested for more than 2,000 days, you have a good chance (9:9) of making profit in the market. 2. Rumor Bias. If you act early on a rumor that will last more than 2,000 minutes (2,000 minutes = 33 hours =~ 6 trading days), such as the next rate cut rumor, you can make profit by selling on the news, as the old adage say, "Buy on rumor, sell on good news". 3. Technical Bias, which is not the subject of this thread. 4. Quantitative Bias. Too complicate equations for me to explain. 5. Insider Trading Bias. This is the combination of 1 and 2. 6. Momentum Bias, Hunch Bias, etc. Some traders can sense these biases which last about 2,000 seconds.
Some folks on this thread have obviously been proved by Mr. Market that act randomly by placing random bets hoping to make money with their random approach. As a result they make random losses and random profits but in the end accumulates to random losses with no hope of a random profit
I must acknowledge that the Market does not possess infinite degrees of freedom. There is some limitation. 1. A $100 stock cannot swing between $1 and $10,000 in one day. 2. Price changes are related to the previous close as percentage, usually not exceed 100% in one day. Other than those, there is no rule to govern price movement. Random walk theory gained popularity in 1973 when Burton Malkiel wrote "A Random Walk Down Wall Street", a book that is now regarded as an investment classic. Random walk is a stock market theory that states that the past movement or direction of the price of a stock or overall market cannot be used to predict its future movement . Originally examined by Maurice Kendall in 1953, the theory states that stock price fluctuations are independent of each other and have the same probability distribution, but that over a period of time, prices maintain an upward trend . http://www.investopedia.com/university/concepts/concepts5.asp The chart attached shows that closing price moves up and down in both uptrend and downtrend which confirm the above quote. You may argue that, "in a downtrend, negative change in High and Low is follow by negative change" and "in an uptrend, the reverse is true", so the Market is not random. On the surface it seem alright, but deep down it is not that simple.
right. And while a lot of people were reading his book, professor Malkiel was supporting his theory of unpredictability of the market by being a member of the board of directors at Vanguard, a company that notoriously doesn't put any money in the markets
The portion of Kendall's assertation in bold can be proved definitvely false using historical data. Doing so refutes his first statement to a degree, as SOME market movements are shown to predicate subsequent movements - not in an absolute sense, but, in a probabalistic sense. That is, 'tendency' is established for certain events to occur in an ordered sense, rather than a 'same probability distribution'. I'm not sure why Kendall couldn't demonstrate this conclusion instead of falling back on the "I can't make any sense of it. It must be random." line of reasoning. Lack of computing power perhaps? P.S. Your chart may appear to demonstrate SOMETHING, but it certainly fails as a PROOF of ANYTHING. P.P.S. I *do* believe that markets have become progressively more efficient over time.
i could both prove and disprove random walk if you wish. i can actually make a random walk system that will be profitable. so would that mean it is valid or not valid?