Hallo Every body! Random numbers and equity Prices

SwamiNathan · #1 19th June 2005, 06:10 PM

Hi everybody,
This is my first posting. I am trading for two years in F&O and not interested that much in equities. And the returns also not that much favourable.

I have been trying to forecast prices using TA for last four to five years. But still not able to find the differences between Charts generated by Random numbers in Excel (Without Volume) and equity prices.

Recently I have generated some charts in Excel, with Staring price as 100 and adding (2*Random number(B/w 0 and 1 minus 0.5) to get the next day price. After I do that for 10000 points I put that data in Metastock and get the weekly Chart and download the Weekly data, to get the open high low close. When I check with that with my analysis tools, This data is still having a trend, looking like having elliott waves sometime, obeying candles rules sometimes. I am afraid whether am I sitting in front of a monitor and spending time in the name of RESEARCH.

Cud anyboby help me by clearing my doubts
1) Could stock market can be really forecasted?

2) If fundamental analysis really makes sense, then while considering and analysisng the data for five years, if the data were really good, why does the stock has not reacted in the five years and why should it react after we analyse?
Also, When the stock prices react to News very fast, what is the use of watching the news when we can not use it?

3) If Teachnical analysis is meaningful that what is the diffrenences b/w random numbers and real price charts?

Pls Help

TradersEdge · #2 19th June 2005, 07:08 PM

Quote:

Cud anyboby help me by clearing my doubts
1) Could stock market can be really forecasted?

As traderji has mentioned many times before in this forum that the markets are not predictable except in the most general way.

In his book, Methods of a Wall Street Master, famous trader Vic Sperandeo, whose nickname is "Trader Vic," warns: "Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is always keep the odds in your favor."

Luckily, as Trader Vic suggests, successful trading does not require effective prediction mechanisms. Good trading involves following trends in a time frame where you can be profitable.

The trend is your edge. If you follow trends with proper risk management methods and good market selection, you will make money in the long run. Good market selection refers to trading in good trending markets generally rather than selecting a particular situation likely to result in an immediate trend.

CreditViolet · #3 20th June 2005, 05:56 PM

Hello
Its ironic tht TradersEdge mentions Vic Sperandeo as the last time i heard he blew up his and his clients account.many millions of dollars and is out of action.

Also abt Swaminathans question of random and TA charts..the crucial aspect missing is the stationarity aspect of price action.Randomly generated price charts are not stationary while price charts often are (not always).
What TA offers is a slight postitve expectancy unlike dealing in a purely random event like roulette for eg.

Those who say elliott waves are for prediction are missing the point.Its just a way to measure the trend of the market and a pretty good method at tht.The good thing is ...tht it doesnt lag like the canned indicators and requires some degree of skill.Recent research by Mandelbrot even confirms some aspects of elliott wave.Thing is...whts publicly known and is generally expected in TA is pretty much useless..u have to dig deeper.
Good Luck

Hope that helps

CV

SwamiNathan · #4 24th July 2005, 01:49 PM

Hi CV,

U r right. the randomly generated charts miss the stationary aspect. thanks for ur comments.

bye