The battle: an efficient market and a TS with a positive maturity expectation. Who will win?
The market is inefficient and the distribution of price increments is not normal. Read Peters, you yourself posted a link to him. It is even better to read both books.
But all this does not mean that we can automatically rivet profitable and sustainable systems.
The market is inefficient and the distribution of price increments is not normal.
The market is inefficient and the distribution of price increments is not normal. Read Peters, you yourself posted a link to him. It is even better to read both books.
But all this does not mean that we can automatically rivet profitable and sustainable systems.
Efficient market theory says otherwise...
Efficient market theory says otherwise...
Efficient market theory says otherwise...
The Theory of Relativity is also just a theory, but it works. The same goes for the Efficient Market Theory - it works, and 95% of depo losses confirm this. If it didn't work - all or practically all would earn.
The theory of efficient market says: the market is a sensitive and precise converter of information, which reacts correctly to the appearance of new information and produces the correct prices of shares and bonds.
The market is a parasitic system that lives off financial inflows from outside. In order to keep the flow of money moving in and out of the market, the market must change constantly so that no one gains for a long time. I.e., the market should be effective in the area of recognizing the profitable trading systems and change in time so that these TS become unprofitable.
The essence of the market is a constant change that does not give profit, only brings losses.
DC wins
Most are not dumping at all because the efficient market hypothesis is correct. Once the market was in a situation where most (money-wise) got it "right", the market would immediately react to such an outrage by a sharp reversal of prices, restoring liquidity in the right direction (and at the same time knocking down a bunch of stops, freeing up the right assets to increase their liquidity). Moments of market liquidity disruption are well known - the 1987 crisis, for example. Catastrophe is actually the main liquidity smoothing mechanism.
The market can only function well if the inflow of funds exceeds the outflow, otherwise it will collapse and end.
The market is a parasite in essence - it does not produce anything, but only redistributes and feeds itself (gets money to survive and develop) by taking away some of the money that passes through it.
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The market will repeat its past behaviour (this is a consequence of the TA postulate) in the future, so can we make predictions based on analysis of past price behaviour?
Past data sets and their corresponding price changes cannot be seen as future possibilities. ( because they will NOT repeat in the future (there is random noise in them )).
The market will never be what it is now=> the parameters and strategies/tactics that work on history should not work in the future, when the market has changed.
How is it possible to simultaneously accept the market efficiency theory and create profitable MTS?
Let us start with the main conclusion of this theory, which states that in markets with strong efficiency it is impossible (or nearly impossible) using publicly available information (which are primarily past quotes and primitive methods of market valuation) to make a profit that is significantly higher than the average rate of return for that market.
To understand why it is possible to create profitable MTS on markets with a strong performance it is necessary to distinguish two things.
1. The distribution for price changes in any period a, from T to T, is a normal distribution with a mean of 0.
(Thus at present time the probability of price moves up and down, for an investor using publicly available information is the same, and when you use primitive technical analysis, you face only random).
2. The distribution of profit-loss, on the basis of which a conclusion about the quality of built MTS.
This distribution is not a normal distribution. It is usually skewed, as losses are usually limited by stops. However, the conclusion is drawn based on the distribution of the mean, which the central limit theorem allows us to do.
So we have a distribution of average profit/loss. And so the mean of this distribution, which is an estimate of the mean of the original distribution, can be a value Significantly greater than zero! This means a conclusion can be drawn that with such a probability (I use the 1% threshold) profit when trading this system will be positive or exceed this or that value. There are a lot of nuances, but if everything is correct from a scientific point of view, the conclusions are very strong.
Applying original methods of market analysis, advanced technologies of portfolio trading, advanced systems of statistical analysis + modern powerful software, the trader has an opportunity to rise from the level of strong efficiency to the average level, which means that for him as an observer, the market is not just a random wandering, he found his island of inefficiency in the stormy ocean of efficiency.
Of course, this island will be destroyed, but the system will give a higher than average profit for this market for some time.
How long will it be able to make that profit.
What do you think? Is it possible to create a strategy based on the search for market inefficiency.