Home › Forums › Trading Systems Discussion › Nature of Markets – Randomness & Probability
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This is a continuation of “Nature of Markets – Power of Probability, Compounding & 1pip”
I want to expand on the nature of the markets and break it down further. This thread is all about the Randomness of the market.
I have read many threads and discussions at forexfactory where “high ranking” individuals stating that the forex market is not random. This topic is like arguing whether the earth is flat or round. From one perspective you will see only half the truth. The correct answer is, it is random and it is not random at the same time. TIME is the most important factor!
For each currency and each time period, there is a certain pip amount in distance, which the markets are random for. For example, in EURUSD M1, the markets are random for 4pips. Which means if you were to go long, you would win exactly 49.23% of the trades and lose 50.77% (With TP and SL). But for 20pips, it drops to 47.69% and for 100pips, drops further down to 40% . BUT, in EURUSD H1, for 50pips targets, 50.96% of the longs would win. (Please don’t be confused with the other thread because in that one, it was without stop loss to get 99%)
As the above stats show, its all about the time. Higher the TP, higher the time frame which you look at has to be. Markets are certainly random for a very small TP. Every period has a perfect TP target which will give you a probability of 50%.
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Now you must be asking whats the point of proving that the markets are random? The reason is, if the markets are in fact random in nature, then the markets are predictable! We want randomness, that means the manipulation is insignificant to us and if we take a blind trade, we know that we would have about 50% chance of winning and losing.So the important point is this, we only have to be slightly good at reading the trend to have an edge to give us odds that’s higher than 50%.
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Other interesting things that you can do with probability is run scenarios such as, if price moves X amount, then whats the probability of price going up again Y pips vs going down Y pips. This is an example of applying randomness and recurrent nature of the markets.
With such a setting I was able to get 79% probability success rate WITH SL! And I only spent about 30 minutes on this script. The next step is to sweep through different tp levels and signals to reach a very high probability of success. This is a method of trading with zero chance of experiencing a margin call.Probability is the way to go. Understand the nature of the markets and use it to come up with your unique way of beating the odds. You can either be the gambler or the casino!
I will post the results later. Feel free to ask any questions if you don’t understand something.
Focus, Patience, Determination & Order in chaos
Forex market is NOT random.
It might looks like random movements because of the way most traders are looking at it, call it a “point of view” if you like – which, in most cases is wrong.
1.
If you are looking at daily data of USD, for example, you will see that it “moves” only a fraction of percent on each “normal” trading day.
If you look at a COMBINED daily movement of the EURUSD, which is a combined movement of the two currencies, you will also get a percent fraction – but this fraction is showing even less info, because it holds combined info of the two currencies.
Thus, if you go to lower TimeFrames and watch a certain currencypair you will get a view of a “fraction of a fraction” movements.
On top of those “fraction of a fraction” movements there is a “noise” which will make it impossible to follow coherent trend.
There is NO EURUSD “trend”. If you “Buy” EURUSD – you are basically exchanging future “worthless” USD for future “valuable” EUR (or so you hope…) ;}
There is an EUR trend and there is USD trend.
2.
Forex is not a standard “Buy/Sell” market.
Forex is an Auction environment – with its own rules, which differ from a “standard” market. If you want to buy $100 worth of EURUSD and I want to sell $100 worth of EURUSD – we (our transactions) will never “meet” and do the exchange in the Forex market…
3.
A Forex market transaction is done between two people that can’t agree on “Value”, but agree on “Price”.
Speculation, in its truest sense, calls for anticipation (Wyckoff).
G.
Forex market is NOT random. It might looks like random movements because of the way most traders are looking at it, call it a “point of view” if you like – which, in most cases is wrong.
I will have to agree with you since you said NOT random which I agree because from one perspective (TIME) it is not random but from another it IS random. I have proven this. It’s very easy to prove. Place the same trade long and short on each bar open for a fixed TP and as you move the TP up and down, you will find the perfect TP amount to which the market is random for yielding ~50% probability of success.
It’s all about the time window, this is what EURUSDD called revolution. TP means you are extending or shortening the time. It’s not a matter of are the markets random or not, its a matter of how random is it?
Focus, Patience, Determination & Order in chaos
Forex market is NOT random. It might looks like random movements because of the way most traders are looking at it, call it a “point of view” if you like – which, in most cases is wrong.
I will have to agree with you since you said NOT random which I agree because from one perspective (TIME) it is not random but from another it IS random. I have proven this. It’s very easy to prove. Place the same trade long and short on each bar open for a fixed TP and as you move the TP up and down, you will find the perfect TP amount to which the market is random for yielding ~50% probability of success. It’s all about the time window, this is what EURUSDD called revolution. TP means you are extending or shortening the time. It’s not a matter of are the markets random or not, its a matter of how random is it?
The above is not a proof of random…
1. You are trading NOISE.
2. Bar open from previous open contains some degree of the “trend”, and by trading from “Open” to next “Open” you are “considering” part of the “trend”.
If you want to prove random by TP – enter a trade at RANDOM point of each bar with both Buy&Sell, with same TP each. I’m willing to bet on the outcome of such experiment with large enough data…
G.
 This reply was modified 4 years ago by gg53.
It’s the same with ticks as well. Open price is just to make it simpler :) Take the trade on each tick and see what you get.
Focus, Patience, Determination & Order in chaos
It’s the same with ticks as well. Open price is just to make it simpler :) Take the trade on each tick and see what you get.
Good luck with that…
A word about TIME:
A car is traveling 10 km at 50 km/h and another 10 km at 100 km/h. What is the average speed?
An arithmetic mean will result in 75 km/h.
The above doesn’t take into account that the car spent most of the TIME at 50 km/h…
Taking this to the Forex market: How much TIME the price dwells in the range of 1.0 to 1.1 in comparisom to the TIME spent on the 1.1 to 1.2 range?
Does it mean something? does it affect (or should affect…) the MA?
Does it affect your current TZ & RZ calculations?
Does it affect next price prediction?
G.
Some of us are using 3 pip Renko boxes and Stoch 5 2 2 close/close LW to place trades. Taking 13 pip profits depending on type of account, still need work on better trend detection and not entering at tops and bottoms, but it is showing some promise.
The MAIN key to this 1 pip strategy is not priceaction, but identifying Trending market with high probability, and at the same time avoiding High/Low zones.
Basically, the most important thing in this 1 pip strategy is when NOT to trade…
I’m currently using separate indicators for Trending AND for Ranging market identification, and trade only when Trending=TRUE and Ranging=FALSE, thus doubling the probability of entering in trending market with greater chance of at least quick 1 pip Profit.
Trending & Ranging market identification is done by my own developed/variation on the ADX & OBV indicators respectively.
Entry signal is by ForexGT_Spaghetti (currency strength) and ForexGT_TickVolume combined signal, in trending market only.
G.
Thanks, I will add some of those into my charts and see if I can make some sense of it. Admittedly though I never have been able to figure out entry using currency strength.
Thanks, I will add some of those into my charts and see if I can make some sense of it. Admittedly though I never have been able to figure out entry using currency strength.
Focus on where NOT to trade!
Using CurrencyStrength:
Use only nondigital CurrencyStrength indicator – you need to see direction and not only numbers.
Buy signal is when Currency A is above 0 and rising while Currency B is below 0 and falling.
The above signal should be supported by some kind of volume increasing indicator as supporting indie.
G.
 This reply was modified 4 years ago by gg53.
What about when Currency 1 is at an extreme and currency 2 is inversely at an extreme
The probabilities of the USD & EUR (see attachment) remaining at these extremes apart is reduced as no 2 currencies diverge forever. They will converge in time.
This is a sign of non randomness, or am I not getting this thread ?
I like the idea of a TP or SL compressing time and potentially reducing or increasing the probabilities. I will regard this thought in my trading going forward.
One of the reasons why I am concentrating my trading on EUR/USD is because its the most manipulated by the banks in the eyes of the retail traders. So there is going to be a tell in the chart which if we can spot, ( i think I have 1 example already) we will be onside with the Clever Money. We will feel the rhythm of a market we’ll be able to instinctively know if we’re placing a TP at the right place. And more importantly for me the SL at the right place. As I need an SL in my trading. I say rhythm because even these last couple of days the EU feels different to last week, traders on holidays, less news etc. etc.
I like this forum, keep up the thought provoking threads
 This reply was modified 4 years ago by nev.
Attachments:
You must be logged in to view attached files.What about when Currency 1 is at an extreme and currency 2 is inversely at an extreme The probabilities of the USD & EUR (see attachment) remaining at these extremes apart is reduced as no 2 currencies diverge forever. They will converge in time. This is a sign of non randomness, or am I not getting this thread ? I like the idea of a TP or SL compressing time and potentially reducing or increasing the probabilities. I will regard this thought in my trading going forward. One of the reasons why I am concentrating my trading on EUR/USD is because its the most manipulated by the banks in the eyes of the retail traders. So there is going to be a tell in the chart which if we can spot, ( i think I have 1 example already) we will be onside with the Clever Money. We will feel the rhythm of a market we’ll be able to instinctively know if we’re placing a TP at the right place. And more importantly for me the SL at the right place. As I need an SL in my trading. I say rhythm because even these last couple of days the EU feels different to last week, traders on holidays, less news etc. etc. I like this forum, keep up the thought provoking threads
I thought I was clear:
NEVER trade extreme market conditions with this 1 pip method.
Read my previous posts on the subject at the 1 pip thread.
Sure, you can trade those extreme if you like heavy DD for a l o o o o n g time and not being able to open other trades because of that…
G.
A car is traveling 10 km at 50 km/h and another 10 km at 100 km/h. What is the average speed?
I’m not sure if you can compare a car to a forex market.. but if that’s how you see it and if that makes sense, then that’s great! But I don’t really see the comparison. I’m not talking about time in the pure sense of clock time. If you read my first post you would understand I meant in terms of the time window.
Anyways, here are the tick results for about a year of ticks for 5pips TP/SL taking long trades on each tick.
Success Count:13869050, Fail Count:10802327, Success:56.215%
It’s not exactly 50% but it sure is pretty close! When one zoomes into a smaller time window such a ticks, to get 50% probability the TP has to be lower. Last night I just had it running for 5pips. This is how the window of time determines the randomness of the price as I mentioned in my first post.however my comment was based on This thread is all about the Randomness of the market. If we know that we’re at the extremes, the randomness is diminishing, in my opinion.
Yes, exactly! The reason why the 1TP system works is because of randomness!
Talking about markets being random is a tough topic because it depends on the set of glasses one wants to wear. This set of glasses IS the time window. Most people agree that markets are fractal in nature. This is WHY it is random. Like the way the branches come out from the tree and split up, there is a pattern, yet there is also a randomness to it. This is why people cannot agree because they fail to see from both angles. The randomness is based on the scale which you zoom in. Take a leaf for example, as you zoom in further and further, you adjust the length of the TP/branches. Each time window has its one scale. This is exactly what EURUSDD was referring to when he thought of revolution! It’s very difficult to explain when all you see is “not random”. Nature is random and not random at the same time. It’s how you look at it.
I hope this gave some clarity.. if not.. go look at trees and branches and leaves
Focus, Patience, Determination & Order in chaos
Here is an example.. look at this chart and tell me if its random or not.
If you answered Random, then you are correct! Each “tick” is randomly drawn to be either + or – 1 pip and that’s what it looks like. You can even draw trendlines and see “patterns”. Pretty remarkable isn’t it?
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Here is another. Beautiful, isn’t it?
This time its with random tick size within the full range of 1.000 to 1.000 pips.
Just for fun, lets take a look at an actual tick chart of the EURUSD
Doesn’t the fake chart look “better” in terms of “patterns”? The real tick chart looks even more like just random noise
As you see “patterns” in this, you see patterns in forex. Forex market is driven by random events that occur every given second. Hence why it is random. I saw this when I made a tick velocity indicator and when I looked at the combined tick velocity of EUR vs USD, the velocity on each 1 minute bar was +/ within a range and was completely random. There are many random news events and random decisions that millions of traders and institutions make resulting in completely random price charts.
This is really awesome news because if it wasn’t random, then probability principles wouldn’t apply as well. We can now treat this as an independent random event and come up with many cool ways to harness the power of randomness and probability This is what I’m working on now. Will post some results later!
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The relevance of the car traveling speed and TIME – to the Forex market was explained, but here it is again.
How much TIME it takes for a price to go from point A to point B, and from point B to point C – when the distance AB=BC.
Does knowing those values affect your Forex analysis, direction and prediction?
I suggest you read Perry Kaufman’s (and others) work on the TIME role in Forex.
G.
Here is an example.. look at this chart and tell me if its random or not. If you answered Random, then you are correct! Each “tick” is randomly drawn to be either + or – 1 pip and that’s what it looks like. You can even draw trendlines and see “patterns”. Pretty remarkable isn’t it?
Very nice…
What’s your point? that you can create a “lookalike”?
How your randomly created EURUSD correlate to a random created GBPUSD?
G.
How am I tracking here? ADX below 20 and OBV flat. No trading. Possible entry area in the vertical box on increasing tick volume and CS A above B.
How your randomly created EURUSD correlate to a random created GBPUSD?
Here is an excellent exercise for you, create a random EUR and Random GBP and random USD. Now make a EURUSD and GBPUSD and EURGBP out of it and then you will understand my point. I’m trying to teach you something yet you put no effort into learning.
Focus, Patience, Determination & Order in chaos
I suggest you read Perry Kaufman’s (and others) work on the TIME role in Forex.
Thanks for the suggestion, I will look at it But if its anything like you say then its the same stuff kids learn in school and what people learn in the washed up recycled forex world… I dont think you still get it..
I have proven how markets ARE random and I can also prove how markets ARE NOT random. So I have no idea what your point is? Do you see how markets CAN be random? If not, maybe there is something for you to learn here. I know where you are coming from, I used to see things your way for a while but that’s not the whole story. When I have clearly proven with tick data and candle data how the markets ARE random and if you don’t understand how so, perhaps its best to ask questions leading to your understanding of how I see it to be random instead of criticizing saying how it is NOT random when in my first post I clearly stated that it IS Random and it is NOT Random at the same time.
Focus, Patience, Determination & Order in chaos
How your randomly created EURUSD correlate to a random created GBPUSD?
Here is an excellent exercise for you, create a random EUR and Random GBP and random USD. Now make a EURUSD and GBPUSD and EURGBP out of it and then you will understand my point. I’m trying to teach you something yet you put no effort into learning.
Perfect!!
You just proved my point: Forex is EUR trend combined with USD trend, and NOT EURUSD trend.
So EURUSD is NOT random, but a product of EUR trend and USD trend…
Good job!
G.
 This reply was modified 4 years ago by gg53.
You just proved my point: Forex is EUR trend combined with USD trend, and NOT EURUSD trend. So EURUSD is NOT random, but a product of EUR trend and USD trend…
I just updated my previous reply so take a look at it again please.
My point is if EUR is random and USD is random then the resulting EURUSD is ALSO random. You will see “trends” in a random chart as well.. we are only human, we see patterns even in sand. But I agree that there are “trends” but within these “trends” there are thousands of random events that occur in each day, even these trends are decided by random news events and events that occur around the world. The only person I know who could predict these events and understand the cycles of nature was Gann. I say over and over to you, YES the markets are NOT Random and also Radnom at the same time.. haha so there is nothing that you have to do in terms of proving that they are not random, there are TONS of proof online where people say it is not random. This is the place to learn and understand how it is not random and to learn ways to harness that.
I’m sorry, I don’t have the time to write this carefully.. about to get ready for work. I hope you see my point now.. can you see how markets could be random?
 This reply was modified 4 years ago by Saver0.
Focus, Patience, Determination & Order in chaos
Good job!
And why are you saying good job to me? It’s like walking into a teacher’s classroom and saying “good job” to the teacher.. its pretty rude GG..
You still don’t get what I mean so I can’t even give you a good job.. we are NOT on the same page. I perfectly understand EUR/USD is EUR price divided by USD, do you? AND do you understand RAND(USD)/RAND(EUR) = RAND(EUR/USD) ?
I hope you can earn a good job from me, cause clearly you are not getting it and I’m ready to move on without you.. haha
Focus, Patience, Determination & Order in chaos

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