Sluggish Market & Ant Theory

charliechan said:
shouldnt this be in the jokes forum?
Hello Charlie, yes and no.

Notwithstanding the fact that the drivel he propounds and expounds can be very funny when viewed from a properly informed viewpoint, at the same time all of this is very serious because there are people not able to distinguish sense from nonsense as a consequence of not being in possession of the correct, pertinent information.

On the one hand one is tempted to take on the mission to put it all right and on the other hand one recognises that to attempt to re educate a case like this is a tedious and thankless task. and another consideration above everything is that this kind of thinking brings victims to the marketplace, cannon fodder, you know.

Markets require plentiful and abundant flows of cannon fodder. The more cannon fodder, the greater the liquidity. Liquidity is the life blood of markets of all sorts.

We need liquidity.

Or are we to sacrifice our own professional needs in favour of re educating individuals who are obstinate, rude, ungrateful etc., ?

A little prod here and there to point away from glaring dangers is acceptable but dedicated nannying is not on, especially with individuals who display the wrong attributes.

I have a lot of experience with this, trying against all odds to teach people who will not learn and refuse to be taught.

I have now given up the effort and look upon cases such as these in quiet contemplation and with wry amusement. And when nonsense needs to be pounced upon, it is.

If it were not so funny it would be serious, and if it were not so serious it would be funny.

Joke thread ? Yes, why not ?

Somewhere on this website there is a thread entitled "Things Said By Clever Buggers"

We ought to have another thread entitled "Things Said By Really Stupid Buggers".

Kind Regards.
 
I was actually playing devil's advocate in my earlier posts. The forum is understandably dominated by people who don't believe in EMH. I just wanted to hear some reasons why.

Obviously anyone who believed in EMH would have all of their money in a cheap index tracker and wouldn’t be wasting their time in here.

However, rather than simply saying, "the market is inefficient therefore I can make money trading it", I think it’s worthwhile questioning how and why the market is inefficient.

Very much a case of “if you don't know who the sucker is, it's you.”

So I'm interested to hear how others view the cause and effects of market inefficiency.

Ducati,

You've stated that the markets are intermittently efficient, and inefficient. Why do you believe this and what’s driving it?

Yes, I’d agree that fat tailed distributions are a feature of the financial markets. Anybody have an idea why that is the case? Is there a behavioral reason?

To clarify what I said previously about the distribution of returns, let me give another example.
If you locked a hundred monkeys in a trading room for a year. Then based on probability, isn’t there a good chance that one or two will strike it rich, a few of them will go broke while many will sit around masturbating and eating bananas? But does that prove that the market is inefficient or simply that investment banks have poor recruitment policies?
 
mark_b_27 said:
Yes, I’d agree that fat tailed distributions are a feature of the financial markets. Anybody have an idea why that is the case? Is there a behavioral reason?


yes - because people do not behave rationally at extremes. some of them even start blaming ants!

socrates - yes i agree
 
mark

I was actually playing devil's advocate in my earlier posts. The forum is understandably dominated by people who don't believe in EMH. I just wanted to hear some reasons why.

This forum is dominated by technical traders.
Technical traders by definition believe in EMT.............you know that old chestnut, the market is always right, etc.

By way of example...........Place a position long at $300 in GOOG, stoploss at $295, ( or where-ever ) ............why have to stoploss?

Because of course, I might be wrong, viz the market is right, viz the market is efficient.

Contrast this with FetteredChino's methodology, a form of reversion to the mean, no stoploss is required, as he is buying extremes, as measured statistically. He will add to positions as they statistically move further against him.

Now this is an EXTREMELY difficult mindset to cultivate, as common sense would dictate the opposite.

His edge, is buying, or selling at market points, or loci of inefficiency, and assuming the cojones to see it through, mathematically will work out.

The problems arise in the fat tails..........hence I believe he runs an " in extremis " stop.

However, rather than simply saying, "the market is inefficient therefore I can make money trading it", I think it’s worthwhile questioning how and why the market is inefficient.

Which was the origin of "Behavioral Finance"
EMT was falsified, as it could only partly explain the market, at times of efficiency.

It is as Dumbo has alluded psychological in nature.
The ants were simply a starting point of looking at some complex modelling that has taken place trying to explain the "psychological" component.

In no particular order;
1...St Petersburg Paradox
2...Subterranean information processing
3...beta
4...prisoners dilemma
5...complexity horizon
6...Game theory
7...Power laws
8...Chaos & Fractals

To clarify what I said previously about the distribution of returns, let me give another example. If you locked a hundred monkeys in a trading room for a year. Then based on probability, isn’t there a good chance that one or two will strike it rich, a few of them will go broke while many will sit around masturbating and eating bananas? But does that prove that the market is inefficient or simply that investment banks have poor recruitment policies?

Probably the latter.
Cheers d998
 
ducati998 said:
This forum is dominated by technical traders.
Technical traders by definition believe in EMT.............you know that old chestnut, the market is always right, etc.

Ducati

Not sure that technical traders believe in EMT at all. If EMT was correct, then the market is always at the correct price given all information available, and so it is not possible to have an edge over the market. If one believed in EMT, then a tracker fund would be the best possible investment.

Cheers

Stew
 
theknifemac

Not sure that technical traders believe in EMT at all.

I'm sure the vast majority DO NOT BELIEVE in EMT.
However the fact remains that Technical analysis is founded philosophically & intellectually in the EMT.

It cannot logically be otherwise;

1....You open a long position.
Do you set a stoploss?

2....The position moves against you almost immediately.
What do you do?


If you have answered yes to a stoploss, or, close out the position in response to the market moving against you...................this is EMT as reality.

I on the other hand do not have a stoploss.
If the market were to immediately move against my position, I would leave it as is.

That is because my methodology reliably, and consistently identifies loci of market inefficiencies.

Technical traders by contrast advocate stoplosses, and cutting losses quickly, as by definition their methodology is RANDOM, and hence the market is EFFICIENT.

cheers d998
 
Don't agree that the use of a stoploss indicates the market is efficient. Trading is a game of probabilities, a suitably applied stop loss can help swing the probabilities in your favour. EMT is not reality, merely a theory, but an interesting one to discuss like this over a virtual beer or two.

Cheers

Stew
 
btw SOCRATES none of us like to watch you shrink. But, sad to say, it’s happening! If you have indeed decided the dear readers up here are not qualified to hear the ‘truth’, please stay ‘big’ for your own sake, and desist from personal attacks on those making requests for other perspectives and serious inquiries into their own ‘unknowns’.
Was your process of indomitable struggle with questions always free of dumb questions?
Did you never have a time when you had an inaccurate inner model of the crowd(s) in markets?
However futile, did your mind never desire a new metaphor to hook up with?
Regarding the inefficiencies of people, could you possibly lay your hidden ‘truth of truths’ out in very concisely and coherent plain English and bear having not even one soul change their trading behaviours?
Snipers have a valuable role – but it’s my guess that most of the players up here on this forum see your contribution coming from a different role. Step up man – be ‘big’ and make us all bigger.

Thanks.

zdo
 
ZDO said:
btw SOCRATES none of us like to watch you shrink. But, sad to say, it’s happening! If you have indeed decided the dear readers up here are not qualified to hear the ‘truth’, please stay ‘big’ for your own sake, and desist from personal attacks on those making requests for other perspectives and serious inquiries into their own ‘unknowns’.
Was your process of indomitable struggle with questions always free of dumb questions?
Did you never have a time when you had an inaccurate inner model of the crowd(s) in markets?
However futile, did your mind never desire a new metaphor to hook up with?
Regarding the inefficiencies of people, could you possibly lay your hidden ‘truth of truths’ out in very concisely and coherent plain English and bear having not even one soul change their trading behaviours?
Snipers have a valuable role – but it’s my guess that most of the players up here on this forum see your contribution coming from a different role. Step up man – be ‘big’ and make us all bigger.

Thanks.

zdo
What happens is that when all of this descends into a pitful morass, the effort required to straighten it out is huge, nearly superhuman.

You cannot expect me to sit down here and write a fat textbook 10 inches thick in order to redress the balance as from my point iof view I have been given ample proof that to embark on such an endeavour is not worthwhile for several reasons.

You cannot expect me to fully explain and reveal my edge for each specific groups of scenarios, for each set of firm probabilities and for each particular tactic, and for each set and sub set of strategies, because if you were in my position you could not be persuaded to do it either.

You cannot expect me to act like some sort of unpaid nanny cum unrewarded mobile university.

You cannot expect me to expect me to be any of you, because you are you, and I am me.

You cannot expect me to devote endless time to you because you can't.

You cannot expect me to reveal all my thoughts to you, on command, at will, like you would access information by referring to an encyclopedia, because it is not practical or even fair.

You cannot expect me to continue to struggle against all odds and get involved in endless closed loop arguments without foundation, additionally tainted by disrespect and outright rudeness.

You cannot expect me to do all these things, which is what you probably want.

So what can you reasonably expect me to do ?

I can only reveal fundamental truths as far as I dare, because it is neither advisable nor prudent to do so in a public forum as you have to be ready to embrace these, and I can see that to do this openly in public is not wise.

So how can I be expected to impart to you what you need but cannot be given ?

In reply to your four questions, here are the answers :~

Dumb questions are to be avoided because they have to be recognised to be dumb in the first place. Dumb questions are not to be confused with questioning the improbable, or the apparently implausible or even the impossible, because when everything that is logical and rational is eliminated, that, which appears to be the most arcane, however improbable, has to be the ultimate truth.

There was a time, yes, when I had an inaccurate inner model but not of the crowds in markets but of the public in general. This is because I spent a very long time in isolation before I was able to crack the whole riddle from A ~ Z. I became disconnected from the mainstream everyday life and behaviour of people, in the sense that I became isolated from what is described as street wisdom (cheating, lying, tricking and stealing) and the world of beezness (plaigarising, unfair practices, taking advantage of, abusing, conning, lying, cheating and stealing) as opposed to the world of commerce, which is something very different.

Later on I recieved a series of shocks to discover how it is that individuals become corrupted by their refusal to act within a moral and ethical framework as a result of being corrupted by greed, impatience and dishonesty. It served to totally wreck any vestige of open and unconditional trust that was my yardstick up till then. It caused me to change my view radically of everything and everybody, and it caused me to be guarded to such an extent as not to accept anyone at face value anymore.

The answer to question number three is negative. This is because I never allowed myself to lose sight of my goals and to work relentlessly to achieve them. I did not allow myself to be distracted or misdirected in my quest. And every time that I was able to make progress, I proceeded to test the result in conjunction to everything else achieved to ensure that it was an extension and not subject to wilful force fitting. It caused me to test all the new ideas to destruction and to try to counter argue if and why they would not fit, and only accepted them if they did. I was only satisfied if these new ideas could be proven, and could stand up to the most rigorous inquisition and testing. Of course when you are dealing with abstract concepts, this is a very difficult and slow process.

In reply to question number 4, I do this all the time. What happens is that the message does not land, because the recipient(s) of the message do not consciously put their attention on the message itself, but instead become distracted or diverted or even offended, by the use of language in which it is delivered.
 
ducati998 said:
theknifemac



I'm sure the vast majority DO NOT BELIEVE in EMT.
However the fact remains that Technical analysis is founded philosophically & intellectually in the EMT.

It cannot logically be otherwise;

1....You open a long position.
Do you set a stoploss?

2....The position moves against you almost immediately.
What do you do?


If you have answered yes to a stoploss, or, close out the position in response to the market moving against you...................this is EMT as reality.

I on the other hand do not have a stoploss.
If the market were to immediately move against my position, I would leave it as is.

That is because my methodology reliably, and consistently identifies loci of market inefficiencies.

Technical traders by contrast advocate stoplosses, and cutting losses quickly, as by definition their methodology is RANDOM, and hence the market is EFFICIENT.

cheers d998
Is this what you truly believe, ducatti, because if it is, it is truly pitiful.

It does not occur to you to think, that there are many technical traders whose methodology you view incorrectly as random.

This is because by your very statements you show not to have a grasp of technical trading at all.

You may be very knowledgeable about fundamental analysis, but it is patently obvious that about the theory, art and practice of technical analysis you know zilch.

You would be well advised to invest in a pile of textbooks devoted to the subject and become really conversant with the parameters of technical analysis before you venture to make such inappropriate and ill considered pronouncements.

Dreadful it is ! Really dire, all of it !
 
theknifemac said:
Ducati

Not sure that technical traders believe in EMT at all. If EMT was correct, then the market is always at the correct price given all information available, and so it is not possible to have an edge over the market. If one believed in EMT, then a tracker fund would be the best possible investment.

Cheers

Stew
Quite so.
 
Stew

Don't agree that the use of a stoploss indicates the market is efficient. Trading is a game of probabilities, a suitably applied stop loss can help swing the probabilities in your favour. EMT is not reality, merely a theory, but an interesting one to discuss like this over a virtual beer or two.

If we just take a step backwards and view the big picture. If we agree that the market can be intermittently efficient, and inefficient.

Then, when the market is inefficient, that is in effect saying the market is at this moment incorrect, and if incorrect, a profitable trade is on offer.

Now, returning to Technical analysis, and "probabilities".
I accept that there are technical setups that carry better odds, or higher probabilities of success
Why?

It is my contention that through either randomness, or skill, they bring you into the market at a loci of inefficiency.

How would you differentiate between randomness and skill ?
I would be looking at a number of factors. If we just consider a couple of them.

1....Consistency of the probabilities. That is if I claim a 70% probability, I would expect 70 /100 trades to succeed over a long timeframe and ALL market conditions.

2...Impervious to adverse news. One of the criteria of an efficient market was that "price" was perfect, in equilibrium, and that as news arrived randomly, price would adjust to discount the news.

If the market is inefficient, adverse news does not impact in anyway to the same degree the price, very often it will do the opposite, and help the position. A case in point was recently GM.

Now if your technical analysis provides those two criteria, then we shall move on. However, as the mantra of stoplosses thunders through the boards, you have to ask yourself why ?

Part of the reason is that the 2 above conditions are not fulfilled by technical analysis. Therefore I suspect that when the "probabilities" of a technical set-up result in a winning trade, it is due to a random loci of inefficiency that has been encountered, rather than a statistically reproducible "edge"

Therefore, the "art" of trading is just that, an "art".
It is highly intuitive, rather than a "science".

But that is for further discussion.
Cheers d998
 
Ducati,

By having stops one is accepting that there is some randomness in the markets. This does not mean one can't exploit market inefficiencies. Some trades won't work out as the markets are neither 100% inefficient or 100% efficient.

I wouldn't look at market inefficienies in the way you do by defining it on individual trades i.e. if my methodology said buy I wouldn't think that price in inefficient. This is because it may take many trades to uncover a market inefficiency.
 
First of all markets are not random, but they appear to be perversely random, in the same way that someone at a busy railway station and not in possession of a timetable would percieve the comings and goings of trains and arrivals and departures of passengers as random. There is order in everything.
The ability to discern what is random and what is not depends upon the perception of the observer.

Markets are not efficient or inefficient, they just are what they are.I will concede that a market which is not liquid and therefore not effectively tradeable can be percieved to be inefficient, but any sensible trader is patently going to avoid buying something that will present difficulties in getting rid of later on, and vice versa.

All these annoyingly silly postulations of ducatti arrive as a consequence of not accepting the inefficiency of the inept or unskiled trader. You never hear of really skilled traders grumbling about this or that "inefficiency" as he calls it.

Efficient traders are able to confront, and furthermore are wise enough to protect their postures with the use of stop loss precautions. None of this is gambling as he thinks. It is because it is a solid protection against complacency.

Now there are two sides to this.

The inefficient traders have to use a stop in fear that they are consistently wrong.

The efficient traders use stop losses, because, being accustomed to being consistent winners, are apt to suffer an occasional information shock when the outcome they expect is not the one that the market unexpectedly delivers.

And that, is the blunt truth, ants or no ants.
 
mmm, isn't it true that the market is always absolutely efficient to the only thing that matters to it - cash (alright, say notional cash). The "price" merely reflects the amount of cash in the market, if cash flows in then prices rise and if cash drains out they fall.

In essence aren't we trying to forecast cashflows (or call it supply and demand :) )?

Maybe fundamental analysis is more about what the future cashflow should be doing and technical analysis is more about what it actually is doing. Neither is a crystal ball, although both provide illumination - dimly or brightly depending on the skill of the practitioner.

good trading by whatever route

jon
 
Tuffty

By having stops one is accepting that there is some randomness in the markets. This does not mean one can't exploit market inefficiencies. Some trades won't work out as the markets are neither 100% inefficient or 100% efficient.

Agreed, there is an inconsistent, consistency to the markets, which just brings us back very briefly to our 3 possible market philosophies...............

1......Technical analysis.........utilises stoploss method ( includes mechanical systems )
2......Quantitative analysis........does not use stoploss
3......Fundamental analysis.....does not utilise stoploss.

All seek to exploit market inefficiencies.
2 /3 as part of the methodology actively seek market inefficiency.

Technical analysis, via possibly oscillator studies also seeks statistical inefficiency ( bollinger bands are one example )

Now, if the two philosophies that disdain the use of stops are profitable, an interesting assumption in itself, what does that say about technical analysis ?

There has again been some discussion about "entries" being immaterial to profitability, that it is the "exit" combined with "money management" ( read stoploss, and reversal ) that provides the profit.

What does that say about chart probabilities ?

I wouldn't look at market inefficienies in the way you do by defining it on individual trades i.e. if my methodology said buy I wouldn't think that price in inefficient. This is because it may take many trades to uncover a market inefficiency.

And this is where we differ.
I will only enter on "price inefficiency". I will find it everytime. That is my methodology. Hence no requirement for a stoploss.

DIMBO.............where's DUMBO ?

All these annoyingly silly postulations of ducatti arrive as a consequence of not accepting the inefficiency of the inept or unskiled trader. You never hear of really skilled traders grumbling about this or that "inefficiency" as he calls it.

As usual you are 10 paces behind, struggling.

Lets go slowly, just so you can catch up.............."Skilled traders" are actively looking for inefficiency.

Let me give you a lesson while wearing my shorts.
Arbitrage is specifically designed to look for, and find INEFFICIENCY in the market, and close that inefficiency for a RISKFREE PROFIT.

The efficient traders use stop losses, because, being accustomed to being consistent winners, are apt to suffer an occasional information shock when the outcome they expect is not the one that the market unexpectedly delivers.

It must be difficult being so stupid.
Here is your quote from the first paragraph.....................

First of all markets are not random, but they appear to be perversely random, in the same way that someone at a busy railway station and not in possession of a timetable would percieve the comings and goings of trains ............................

Now read your own words closely.
Have you managed to spot your inconsistency ?

Really get off my thread you dimwit.

barjon

In essence aren't we trying to forecast cashflows (or call it supply and demand )?

Ka-ching!!
Yes we are..........10 /10

And where does that information come from ? ( assuming a finite, but unknown pool of investment dollars )

cheers d998
 
ducati998 said:
Tuffty



Agreed, there is an inconsistent, consistency to the markets, which just brings us back very briefly to our 3 possible market philosophies...............

1......Technical analysis.........utilises stoploss method ( includes mechanical systems )
2......Quantitative analysis........does not use stoploss
3......Fundamental analysis.....does not utilise stoploss.

All seek to exploit market inefficiencies.
2 /3 as part of the methodology actively seek market inefficiency.

Technical analysis, via possibly oscillator studies also seeks statistical inefficiency ( bollinger bands are one example )

Now, if the two philosophies that disdain the use of stops are profitable, an interesting assumption in itself, what does that say about technical analysis ?

There has again been some discussion about "entries" being immaterial to profitability, that it is the "exit" combined with "money management" ( read stoploss, and reversal ) that provides the profit.

What does that say about chart probabilities ?



And this is where we differ.
I will only enter on "price inefficiency". I will find it everytime. That is my methodology. Hence no requirement for a stoploss.

DIMBO.............where's DUMBO ?



As usual you are 10 paces behind, struggling.

Lets go slowly, just so you can catch up.............."Skilled traders" are actively looking for inefficiency.

Let me give you a lesson while wearing my shorts.
Arbitrage is specifically designed to look for, and find INEFFICIENCY in the market, and close that inefficiency for a RISKFREE PROFIT.



It must be difficult being so stupid.
Here is your quote from the first paragraph.....................



Now read your own words closely.
Have you managed to spot your inconsistency ?

Really get off my thread you dimwit.

barjon



Ka-ching!!
Yes we are..........10 /10

And where does that information come from ? ( assuming a finite, but unknown pool of investment dollars )

cheers d998
Complete and utter misguided rubbish from beginning to end once again.
 
Ducatti, does an over bought/sold market hold an inefficient price? Do you use this as part of your selection process?
 
Don't tease him in this way Rudeboy, you will only get a tirade as a response, because he interprets these sort of questions as catalysts to further his insecurity. The root cause of this insecurity is a subliminal and subconscious niggling, you know, that he really doesn't know what it is he is talking about.

I know it , he knows I know it, and there are several very well informed members who know it too. It would be very easy to extricate him from his multiple predicaments, but, owing to his attitude, it is best if he be kept ignorant, and left to his own devices. It will be entertaining and amusing to see what response this elicits, however....<G>
 
Rude

Ducatti, does an over bought/sold market hold an inefficient price? Do you use this as part of your selection process?

Do I use this in a technical sense.............no, I do not use technicals at all.
Does an overbought / sold measurement indicate an "inefficient" price.

This really depends on how you are measuring the market, viz. how is the indicator that you are using measure.

2 examples;
Bollinger Bands utilise standard deviations, a statistical construct ( mathematical ), therefore yes, it is trying to measure "inefficiency" in a mathematical context & construct.

TRIN....which measures the # of advancing issues against the # of declining issues, is an interesting one, as logically you should not infer a measurement of "inefficiency" to this measurement.

However, that is almost exactly how it is used.
Now the difference, is in their application.................in THEORY, Bollinger Bands as a statistical measurement should not require a stoploss.

Where, TRIN, as a purely arithematical construct would require a stoploss. However, what you would find is that if TRIN was highly negative, then the fall ( or oversold trigger ) would most likely be picked up by a bollinger band as a STATISTICALLY significant change, and thus not require a stoploss.

As you can see, your question is not easily answered, and there will be many different interpretations, and on any given day could be valid.

Which is why at the end of the day, the shorter the timeframe you trade, the less any outside modelling will help, the more you have to fly by the seat of your pants, and intuition becomes vitally important, as interpretation of charts, indicators, volume, whatever becomes extremely fluid, and open to manipulation.

The longer the timeframe, the more accurate modelling becomes, as the accuracy required is less.

cheers d998
 
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