Profiting from an unpredictable market?
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Thread: Profiting from an unpredictable market?

  1. #1
    Predict:
    from Latin praedict- created known ahead, declared, by the verb praedicere, from prae- ahead dicere say.
    To forecast something means to state (know) that something will happen, before it do happen.

    The traders (and economists) community all around the world is and has been always divided in two:

    On one side, the traders who think market is simply unpredictable, then its future movements can't be forecasted (random walk theory, in accord with the efficent market hypothesis).

    On the other side, the traders who believe that market is predictable, and its own future movements can be forecasted with numerous methods.

    I'm in the markets from a decade and in the past I've been on either side and changed between them several times, as for NOW, I am in the unpredictable believer group.

    Even though the community is complete (actually, I would say 95% are) of predictable-market believers, the truth is that thus far nobody in the whole trading history has revealed to be able to forecast the market in any way.
    A predictable market must able to be forecast constantly, a trader who may forecast exactly what the market will perform would have only winning transactions.

    Let us presume that the future market movements can't be predicted***.
    Sure we can guess where market will go, but eventually we always have only a 50% likelihood of be right in our guessing.

    And here start this thread, how do we create profit from an unpredictable market.




    ***
    Of course focusing too much on the unpredictability facet of the view bring an aura of despair that make profitable trading impossible, so most of us want something to believe when we trade (even though deep down some people know that regardless of what, chances are always 50%), it's important to remain balanced, not collapse from the predictability-view snare, and not drop from the unpredictability-view despair, just in the center. . is fine.

  2. #2
    Hi Spaceduck

    Can https://www.forexsoutheast.asia/fore...ps-trades.html summarize your purpose with this thread?

    Chandan

  3. #3
    Quote Originally Posted by ;
    Hello Spaceduck Does https://www.forexsoutheast.asia/fore...ps-trades.html outline your purpose for this thread? Chandan
    Not actually, fx cannot be traded the institutional manner (as it's an otc market), and just moving with the momentum/trend as I've mentioned in this article is just another form of gambling which obviously isn't going to be profitable from the longrun.

  4. #4
    In my opinion there's only one proven method to extract profits from the markets on a constant basis, I am sure many of you know such a way (maybe you do not possess it as a clear picture in your mind today, but if you meditate about the whole trading thing for some time, you will realize that the irrefutable fact behind it all).

    To share it here, sure it WAS the original aim of this thread, I have not done yet because I already know that a lot of readers would just not understand it, the only ones who understand it are the individuals who have found it by themselves, therefore the whole sharing thought is but a nonsense.

  5. #5
    Now that it WAS the original aim of this thread, what's the new intent? Cause I'd love to understand that this way that is proven to extract profits from the markets on a consistent basis.

  6. #6
    Quote Originally Posted by ;
    Now that it WAS the original aim of this thread, what is the new intent? Cause I would really like to understand this proven way to extract profits from the markets on a consistent basis.
    Check his post carefully, '' he never state to always obtained profit in the long term. Most people search including trading system, of' perfection' from whatever. And math sequence unite with sequence of probability (situation may occur) appear become most popular egy as final egy. I do mean final egy when folks just get too tired (maybe confuse) while using indior as resources in search for any market indiion.
    I maintain spaceduck post related NFP situation, his outcome are inspirational, and induce me to print those out post (shame on me ). And to had a proper comprehension, one needs to give a go on actual training, as I do. I saw many traders do some news entrance test with their current platform, a few use ctrader, mostly mt4. As for now I do straightforward approach by putting stop order right prior to the release, hope I have got the stage he explained after doing these a few times.
    In duration of research we may do gamble with all our entrances, that is the reason why I keep doing with a few demo account. With the actual account one, I risk my ECN accounted with Tickmill, use their deposit bonus as risk percent. Using their zero quit level/order found space to alter order and put entrances. Because during news release it is not the correct entrance that is define our profit, but the exit, as for now I think that the moving stop loss would be the best deal for exit during that moment.

  7. #7
    Establish predictability. About forecasting the mean/average of the next period returns are we speaking? If that is the definition then a way to rate predictability is by root mean squared error (RMSE). BUT, is essential for profitability? Not.

    To illue the gap between the approaches of the typical academic and practitioner, consider the following simple example. Suppose the investor has three currencies in his tradeable world: dollar, euro, and yen. EURUSD today is trading at 1.50 and USDJPY is trading in 100. He forecasts the Yen to depreciate by 10 percent (leaving USDJPY in 111) and the Euro to appreciate by 10 percent (leaving EURUSD in 1.65). He takes a long position of 50percent Euro and an offsetting short position of -50% Yen in his portfolio, while remaining neutral on the dollar. Afterward, EURUSD finishes the interval in 1.4850 (a depreciation of 1 percent ) and USDJPY finishes the interval in 105 (a depreciation of 5%). The RMSE of the shareholders forecasts is 12.5%, much bigger than the RMSE of the random walk model (4.8percent ). The investor has made two serious errors: the size of his forecasts was completely wrong, anticipating moves of 10 percent in either direction when just moves of 1 percent and 5 percent had been realised, and he didn't predict one of those two directions of change properly. Nonetheless, despite big errors in regards to both the direction and size, in his forecasts, his portfolio created a favorable yield. This is simply because his rank ordering for returns for the currencies in which he required occupied positions (i.e. EUR gt; JPY) was correct. Https://ideas.repec.org/p/ces/ceswps/_4238.html

    Or are we speaking about forecasting the distribution of returns in the next phase? The mean/average could be zero, but we could predict a low likelihood of a massive move and a higher likelihood of a move down up creating a distribution. This kind of predictability is present to some extent in markets and also have been a http://www3.imperial.ac.uk/pls/porta...1/41561696.PDF

    Ultimately, most studies have only looked at linear predictability. But then the results reveal that technical indiors DO HELP to forecast yield. This table is from a dissertation I submitted. These are from sample outcomes, test interval from 2009-2015. It shows that even on fronts, we can find predictability in short term returns of slightly less than 1 percent R^2 for the ELASTIC NET Price model, but guess what, like I mentioned before, no predictability doesn't equate no economic worth. This translates into significant economic value above a model of no predictability. A typical risk-averse investor is prepared to cover 636 basis points p.a. to trade the Elastic Net egy over accepting a model of no-predictability and performing carry trade. These returns are pretty great as they are unleveraged returns. Of course any trader that knows what he is doing can do a lot better than these arbitrary models that are dumb. However, it demones a point, that markets are not unpredictable predictability is not essential for profit.

    If we proceed into the sphere of non-linear predictability, that is where all the technical analysis, fundamentals, and trading systems arrive in. We can not operate without context. Context helps contour predictability. Ofcourse I can not predict whether price will go down or up the next phase, no one can. I, however, can forecast a small advantage in mean/direction (i.e. price is more inclined to go up) and forecast a skewed distribution (i.e. if price goes up, it'll go up by A LOT, but not so much in case it goes down) and these two are adequate. And if I keep acting on these predictions using a good risk management plan eventually I'll earn money. Watch this post where I talked about my trading philosophy and how I apply these ideas.

  8. #8
    Quote Originally Posted by ;
    ... and predict a skewed distribution
    Great post... Thanks.
    This is some thing which I am attempting to do, by using the fundamentals...

  9. #9
    Quote Originally Posted by ;
    quote Great post... Thanks. This is some thing which I'm trying to do, by using the fundamentals...
    Hello Thx Thx can check out this paper. Http://www.rinfinance.com/agenda/2013/talk/JiahanLi.pdf

    They use fundamentals to forecast and loe elastic web works as well. I used historic returns technicals that were historic adding fundamentals worsen the predictions and profits. Their methodology is followed by me but used a timeframe rather than monthly and incorporated more data.

    So there is definitely some form of linear predictability, but not much... about ~1 percent of price moves. But such an advantage is immense if translated into profits because you can see from the research.

    The takeaway here imo, isn't that we should make use of these models to exchange, but instead that it's possible to obtain an edge in the market and the value of money management to permit these borders to perform out. If linear models can attain effects, what about humans looking at contextual information and performing all kinds of thinking based on visual information? Rule based/mechanical systems certainly can work, it's just not simple to specify appliion and everything something that works.

    Also see: https://ideas.repec.org/p/ces/ceswps/_4238.html for an superb post on Forecasting exchange rates from Investor's perspective. Composed from BlackRock by fund managers.

  10. #10
    Quote Originally Posted by ;
    quote If markets are unpredictable, then Exactly What Exactly Are we doing here, lets go to Las Vegas, at least we can ch some nice chicks That There
    Words of wisdom

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