Price movement: coincidence or pattern?

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Now as to the closing prices generate OPEN, HIGH and LOW. In the third line of the column <Open> put the formula:

= ((C3-D3) * RAND ()) + D3,

in column <High>: = E3 + (E2 * $ I $ 2/100 * 2 * RAND ())

and in column <Low>: = E3-(E2 * $ I $ 2/100 * 2 * RAND ()).

In the last two formulas involve a change in the High and Low percentage, the maximum value is placed in the ninth column. <Volume> To use the formula: = 1000 + ($ F $ 2 * RAND () * 2).

Using the built-in Excel, fill the formula down column to a reasonable amount for each line get quotes one day.

Table generates data every time the terms are new values. To compare the results, you need to copy columns 1.7 to a new table and import data from it in MetaStock. Let's look at the result.

Schedule is very similar to the real stock charts. You can build the trendlines, support and resistance, to use all existing indicators. Here is the same graph in compressed form. It is clearly visible long-term trends, usually - the main argument of supporters of non-random nature of price movements.

If you want to experiment with the values of the eighth and ninth columns, you will find many interesting things. Sometimes the schedule will be similar to the plot of exchange FOREX, and sometimes on the blue chips. Some <action> have a pronounced upward or downward long-term trend, and some are almost always in some kind of trading ranges. And how much a continuation and reversals can be found!

<Brown> or <black> ...

Senior Technical Analyst will notice that the behavior of prices of real securities differs from <artificial> graphs. Yes, it's true. First, during the market crashes <Brown> noise gives way <black> noise. Black spectrum describes the time evolution of disasters: such as flooding, drought, and markets with a sharp drop in prices. Therefore <brown> model is simpler, but not as accurate. And one more thing. We used a random number generator with normal distribution. That's why graphics seem more <sleek>. In practice, we do not know under what law are distributed delta value. But the question is: so what all these experiments, what is the practical meaning?

First of all, try to reconcile the part of opponents. Even if you can follow all the causal relationships in the movement of prices, worth trying to analyze them? Today, the volume of stock information is huge. He's no longer cope leading analysts. The more difficult it is to make an individual trader. Instead of exhausting and costly to collect and analyze information more practical totality of influences on prices are considered a random process. Financial data themselves come in a probabilistic way. If you are expecting an economic indicator, it has three random values: <coincidence with the expected "," worse "and" better ".

Probabilistic model simpler. We may assume that the day closed with a 50 to 50 in each of the parties, and does not try to predict the outcome. New data often come in for a session and exchange views and completely change the mood prevailing before the opening. If you are taking a probabilistic model, the question arises: what shows the classic technical analysis? Any chart reflects only the story, and no indicator is impossible to predict the future value of the price, the new data are independent of the previous values. Building lines are qualitative in nature, breaking the trend line you built does not mean a reversal. Spread - a long process. What about the display? They will never run at 100%. Trying to predict the random process leads to random results. However, the obtained graphs show trends. So, if you get into a trend, you can make a profit. Trends do exist and sometimes very stable. The reason lies in the properties of the <brown> noise. Above all, he self-similarity. This property is known to all traders: daily charts qualitatively indistinguishable from the week, time of day schedules. <Brown> noise often generates monotonous series. Closing <plus a> can last five, seven, and all ten days. Similarly, for the price drops. There is a series.

Unfortunately, we can not predict when the series starts, and when it will end. Therefore, in the trader uses the trend - a set of positive and negative series. It is noteworthy that the trend is always a series of lies older time series. Schematically describe how the trend is formed. Take the 5-minute charts, and time. On the hourly chart formed a series of three positive candles. Now open 5-minute chart. Prices moved erratically, positive series alternated negative, but there was a steady upward trend.

Money management

An important question for any trader - money management. If the price movement is unpredictable, it is obvious that not all invest in a single transaction. Hence, a system. First of all, a trader sells one contract, should understand that the schedule of its accounts - <Brown> noise. The result of each transaction - an independent increment to its capital. It is therefore desirable to use a system of several contracts. Trading systems based on technical indicators, and even offer to trade one contract, are unlikely to be profitable. They are well fitted to the historical data, but it is useless in the processing of new values. Really profitable system - a system of risk management, but the owners of these systems prefer to make the exchange, rather than sell them at a price of one exchange transaction. Considered, and rightly so, that the exchange trading defies conventional logic. It is often very intelligent people fail. They make <homework>, through careful analysis of daily and still lose money. The result can be depression and lack of self-belief. The reason they are not in the hard work. And the reason is obvious: no one can control the random process. Hence the set of rules of exchange trade: take mistakes without regret, not to worry because a series of losses and many other useful rules. That's just the reason no one wants to explain: you see a random process, and if you do not learn to use it, so manage it just can not.

Experienced speculators say that they feel the market. Perhaps this is true. They have learned how to analyze the probabilistic characteristics of the subconscious. For example, they believe that there are no infinite series, and the magnitude of price changes has a mean and variance.

If you just start trading on the stock exchange, take a probabilistic model and save yourself the self-flagellation: the market is random, and your not at fault. Offered arguments can not be considered as indisputable evidence. And even more so as an attempt to impose their views. Every trader its stable views. However, after another failed deal ask yourself, maybe this is a coincidence? ...