Market Discussions

My English fails at understanding this sentence.

Anyway, considering I deal in the top liquid EvE markets you can't realistically expect neither for me to be able and manipulate those markets all by myself nor for somebody else to "steal" my ideas and manipulate those markets against me.

If I feared anything from publishing these charts, I would just not post them.

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Let me explain everything in depth.


DUDE HOW DOES THIS VOODOO THING WORK AND WHY?

It works on the premise that something in motion has a momentum and inertia. That is time and effort are required to reverse or change direction.

There are thousands of practical implementations of this mechanic. Every bicycle and gyroscope stays in equilibrium thanks to this. Every flywheel exists to implement this.
Even in MMORPGs, there exists something improperly called "prediction code" that basing on the past 1-2 seconds of player's motion, will guesstimate that the player will probably keep going that direction for a bit longer. This is why in some games when somebody disconnects you see them keeping running in circles or straigth ahead, even if they are not even in game any more. This is part of the network code of most MMOs.

How does all of this maps into markets?

Simple. Price reaction is rarely instant. Price runs across with a set direction called trend. That trend has a momentum and inertia, based on the collective inertia, inefficiency and opposing objectives of the market participants.

Example: imagine a perfectly flat market. I buy 200B worth of stuff. The market does not just "hop up" or something. Price won't draw a sharp rectangle. It will create a series of delayed oscillations, a dampened ripple effect. A small trader might have tools to let him detect this change, to buy along with me and then sell before the counter-oscillation is over.

Therefore:

- Charts show what price is doing and there's really little anyone can do to hide it (in RL there's shadow liquidity and iceberg orders but not in EvE).

- Charts show many things that have been thoroughly studied over the decades.

- In particular, price borrows behaviors of greed and fear created by the very market participants. Those behaviors lead to having a lot of overshooting in where price should go VS where price actually goes. It takes time for a market to stabilize after a change in demand and supply as well.

- "Connecting the dots" on a chart reveals the current trend. It's not just "chartology". Look at somebody absolutely opposite to charts like Mynna: he buys and sells... but he does not it in the void. He too has PAST reference points: both price references and behavioral references (patch notes say this => prices will rise for that).

- Once established the trend (AKA trend following method) and NOT by scrying the future, a trader may "bet" that price will keep going in the same direction for a little while longer. "The trend is your friend" is the #1 trader rule.

- All the tecniques I add past that, are just a sum of street tricks learned by a moltitude of people to min max the benefits of having entered the market. In particular, a lot of human behavior patterns have been learned about how markets (over)react close to when the trend is over. This helps closing positions with a profit before a crash.


Basically, there's no voodoo, no prediction, it's all an educated bet that something going a direction will keep going the same direction. The rest is a vast number of street smarts to maximize the benefits of riding a trend.


The thing gets more complicated when talking about range markets but the base principle is always one: go the beaten path, let OTHERS risk before you and then ride their trend and finally take profit.

But if you say to follow a trend and at the same time you say that charts do not predict future I find these statements possibly contradictory.

If a trend you get from the charts is up or down then chart reading has predictive value. Do you disagree with this statement?

Or are you saying that the charts are not predictive precisely because the trend is oscillations, i.e. the charts show that there is no trend, just noise?

I don't "get" a trend. I see price is rising, it trends all by itself.
Considering the explanation I have written earlier, basically:

- I see a trend rising. In example, look at the diagonal trend line that supports the whole nitrogen isotopes market.

- Centuries of studies show that statistically trends don't change immediately, but keep going for a while.

- There are additional tools (also based on statistics) thta help optimizing where exactly to enter in the market and where to leave.


Therefore, nobody can say a chart has a predictive value, it's not magic or something. It's just use of statistics, exactly like statistics are used so much for many aspects of life.

Nobody cries scandal or "voodoo" if technicians use Monte Carlo simulations, regression tests to check how much materials generally resist to forces and so on. The principles used are the same.


About "no trend, just noise": no, price moves by means of swings. Swings some times are sinusoidal, other times they are not, but in the end are a foundation of price. The noise is a relatively small random offset added or subtracted to price, it only affects small time frames.
Since I show daily charts and put a lot of importance on weekly+ bars, noise is adequately taken care of, as it becomes an o(signal).

I do not think that you have centuries of data supporting your reading of charts. But let's assume that you do. Even if direction of a trend does not change on the spot if you go with a trend your winnings over time may not offset your losses over time if the trend reverses. Sometimes trends reverse, I think that you would agree with this, and if you are on the wrong side of a trend reversal your losses will be huge precisely because you are so sure that you had risk under control.

Getting the direction of the trend right may not be sufficient to be right over a long run. Imagine that if you are right you are making peanuts, but the one time when you are wrong you get taken to the cleaners, and that wipes out all your gains till that moment. So you can be right for a long while but then you can lose it all. What do you say to that possibility?

I am actually trying to learn from somebody who seems to like technical analysis, and again I say that you do not have centuries of data backing you up. You have quoted something entirely different which is the development of futures market idea. I mean yeah, this idea of futures market developed over centuries but what does that have to do with anything we are discussing?

I sent you an idea for a book to read. It is by Taleb and the title is "Fooled by Randomness." I only wrote this sentence because I can do quotations, too, so that you know. You should read this book by the way. It will help you IRL, regardless of what happens in Eve.

I do not think that you answered my question. The trend is easy to spot. But the question is how much do you bet on a trend that you spot to be safe from getting wiped out?

I mean let's say that I spot a trend in nitrogen isotopes. Your advice is to buy. I invest everything that I have to invest in nitropes. Is my isk safe?

Yes I could do that. That is exactly what I do regardless of what anyone says.

But here we have charts and science and centuries of statistics supposedly. Not just a hunch that I am being safe doing what I have been doing that worked in the past. I think that that the claim by VV is stronger here.

The specific question is whether it is science to invest in nitropes now or just a hunch.

From what I hear I would go all in. Should I?

Yeah in Eve I can do that. But I am trying to learn something for RL.

The question in Eve is whether we actually make trends that we see come true by our actions. If so then our theories are not worth much, and seeing them work in Eve may lead us to think that they work IRL. Maybe our ideas work in Eve because it is a small market which we are affecting.

I sincerely hope you are not asking ancient Greece speculators or 1700 rice merchants to have sat down to a terminal and have inputted market data into a SQL database, for us to verify!

They all did exactly like I and many others have done: they gathered years worth of the data available at their time and then done simulations to find if there were correlations, formulas, rules, recurring patterns. The ancient data per se are hard to find, despite some Assirian tablets were unearthed and they listed goods or prices, measurement and so on (not related to this topic).

The old studies about the "bull markets" I have mentioned are exactly studies on ascending trends, what do you ask for more?

There's also a XIX century trader called Gann who did extensive research and found the famous "Gann angle" (45°) which is still used today as I found trend inclined between 30* and 45* to be the best to trade of all: they are smooth enough to give low risk trades and their inclination allows for very long trends to develop. Less than 30* and we generally end in a flat market (= stuck with stock forever), more than 45* and we are in a bubble soon to collapse.

You won't miss how many analysis conclusions go directly against "famous" theorems, like the "efficient market hypothesis" in various forms. Well those hypotheses have found criticism already:



I also have my take on the flaunted markets efficiency and "random walk" theories: it's a bunch of crap.
It's precisely yet another Illuminism mentality arrogant take of men who believed to explain everything with rational proceedings.

Markets are self optimizing over time but are NOT rational, they are made BY and FOR men. Markets are not random either, and I'll show you later a demo.
There's NOTHING rational or efficient about a market sticking to ~1.2 for months yet we have examples of that (Japan and Swiss central banks loving to stick round numbers in the ass of everybody). Nor it's rational to see "psychological thresolds" for the Dow Jones and S&P indexes or Gold yet it's a very common occurrence. Occurrence we traders use at its maximum potential for profit.

As for Taleb books, I have read tons and tons of literature including those books (and I love them). As you see above they are actually used to debunk market efficiency theories not to reinforce them.

A simple fact: I am posting here and today because I could buy my subs (I don't use PLEX). I could buy my subs whilst being unemployed since Feb 2011 (but not being paid wages since 2010).
In a country with no unemployment support, I could buy my subs and my food (first!) because at the height of desperation, instead of doing what many my fellow citizen have done (committing suicide), I believed EvE could save my RL. EvE trading pushed in fact me to learn RL trading from two sources (the second being the best by far).
So, today, not only I am posting because I am the living proof markets are NOT efficient and trend exist, but I am also writing down exactly how I do it. This went to the point that in my RL finance thread I have posted off-topics: RL trades initiated in real time and screenshots posted and then I have described the evolution and take profit of them.

And now, for a cornerstone book: Birds Watching in Lion's country by by Dirk Du Toit.
You can very very easily find the PDF of this book on Internet.

It's a book introducing what technically is called "grid trading", that is a completely markets agnostic approach, where a trader opens a large number of opposite trades, depending on if price is rolling above or below a certain value (see the book for details). You are meant to statistically cover the losses of the trades made in one direction with the gains of those in the opposite direction and then to cut the losing direction trades and only let the profitable ones run.

The book teaches a method that would work at best in:

- trend-less markets

- random walk price.


Too bad, every single trader who applied that book principles failed in extremely enormous ways except 2-3. Those 2-3 having blown their accounts till they mastered sublime money management (which is the art, not a science, about where to close trades).

(Continued from previous Rthor post)

Why did they fail and the method inventor himself is not swimming in billions (he could buy a cottage in South Africa, not an Hollywood luxury estate)?

Because markets do trend, do trend for a long time and destroy the wrong side trades enough that it's difficult to keep the account alive even with opposite side profit trades. And because The market can stay irrational longer than you can stay solvent.




How much to bet on a trend is not a "do 1 + 1 = 2" decision.

Since markets are not made by robots and never repeat themselves there's no magic recipe to create a rule that tells how much to invest in a given trend.
How much to invest and how much one can afford to invest is a personal responsibility and it's heavily influenced by how much one can afford to invest.

I.e. a large trader can invest in a weekly candle bar because his liquidity allows him to not be crushed in the initial phase, where market almost always reverses against you. The markets MUST breath and it does so by going to dig liquidity where there is some. Liquidity = sitting orders waiting to be taken and thus pulling price away. This is why the markets do a zig zag motion, they "dig" through competing orders, bounce like a pinball against walls made of competing orders and break the weakest wall they find and then go in that direction (trend) for a while till they lose steam and / or find new strong opposite orders.

A small trader instead, cannot invest in a weekly candle as it's way above his capability to resist against the initial phase. So he has to adapt to trading a daily bar. Even the daily trade will face a temporary reversal (markets are autosimilar and fractal) but with a size in proportion of a daily bar, so it's affordable.


So, what can I do? I can trade weekly bars so I mostly focus on those, even in my analyses, but many need to watch the daily chart and use what they find in there.
What do they find in there? They find the "trading signals" if they look at the market in the day it happens (NEVER enter a market after it told you to trade!) by using a number of yet another statistics based tools, called price action patterns. Those are tiny trends condensed into 1 or 2 bars and they tend to appear when a market is ripe for being traded. They are only valid if taken at a price level (big round number or monthly / weekly level) and nowere else. Why? Because elsewhere there's no level (duh!) and thus market is not doing anything significant with those patterns. Price only "focuses" at the levels.

Everywhere else, your reasonment immediately kicks in and it becomes unprofitable to trade long term, even knowing the trend.

Here I have posted 1 (one) analysis about Nitrogen Isotopes right?

The weekly chart statement is:



Does it read: "go all in NAO" in any way? If so, my problems with my English are devastatingly worse than I thought!

Instead, I have actually provided a trading plan, stated at the daily chart.

A trading plan is like a software:

- It starts from inputs, that is the market conditions at that given date

- it has got decisional "IF... THEN" clauses, see the three scenarios I have described. There are more scenarios but like for a software, I have decided to put all of them in a "default" clause (search for Switch() statement syntax in C++ or PHP) and ignore them as they are sub par or dangerous or at a loss.

- It delivers an output after those IFs: buy, sell or do nothing.

Since I don't know the future I have to plan in advance so that when the time will come (if it will come) then I will have everything setup already and I will switch from planning the trade to trading the plan.

Therefore, a guy who wants to trade with the method I have learned myself (I don't take any credit, I did not create it) would just keep checking the market every day and if it "activates" one of the IFs of the plan then he would buy / sell accordingly.
That's it.



As further reading and as proof that this is used in RL trading, here is the original website where it has been posted (in Italian) and here is the English version, posted on the world most famous RL trading forum, Forex Factory.