

Are random trading strategies more successful than technical ones? (2013) [pdf] - xvirk
http://arxiv.org/pdf/1303.4351v4.pdf

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cholmon
The most interesting point I think is in the conclusion, namely the idea of
central banks _adding_ uncertainty in the hopes of bursting bubbles while
they're small.

"...if the policy-maker (Central Banks) intervened by randomly buying and
selling financial assets, two results could be simultaneously obtained. From
an individual point of view, agents would suffer less for asymmetric or
insider information, due to the consciousness of a 'fog of uncertainty'
created by the random investments. From a systemic point of view, again the
herding behavior would be consequently reduced and eventual bubbles would
burst when they are still small and are less dangerous; thus, the entire
financial system would be less prone to the speculative behavior of credible
'guru' traders."

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binarnosp
"Thinking fast and slow" by Daniel Kahneman dedicates an entire chapter
analyzing why traders think that they know how to predict the future of
markets, even when faced with real data that proves otherwise. In fact, a
completely random algorithm often outperforms professional traders.

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meeper16
Relevant:

[http://cymetica.com/tuatara/returns-
long-v07.html](http://cymetica.com/tuatara/returns-long-v07.html)

[http://cymetica.com/tuatara/returns-long-
random-v07.html](http://cymetica.com/tuatara/returns-long-random-v07.html)

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carry_bit
Isn't this what you'd expect to see in a relatively efficient market? If
technical strategies did yield an advantage, wouldn't that suggest that not
all of the available information has been exploited?

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gd1
So-called 'technical analysis' is bullshit. News at eleven.

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valdiorn
there are two types of technical analysis, subjective and objective.

subjective ones, like "head and shoulders" patterns, are totall bollocks.
Objective ones, like MACD, EMA, RSI, etc... can be useful when _applied
correctly_.

Unfortunately it seems like the author of the paper was working with some very
naive use cases, causing him to not get very good results (I will admit, I
only skimmed the paper as it didn't seem that useful to me).

I can tell you from first hand experience that technical analysis trading
strategies, when applied correctly, are very, very, very effective.

~~~
gd1
>Objective ones, like MACD, EMA, RSI, etc... can be useful when applied
correctly.

True, they can serve as useful tools for describing market conditions. If I
want to tell a computer to do something when the market is falling rapidly,
then I might define "falling rapidly" as "price below the 15-second EMA" for
example.

But do they have any _predictive_ power? No.

>I can tell you from first hand experience that technical analysis trading
strategies, when applied correctly, are very, very, very effective.

I doubt it. I've never met a professional trader (i.e. at a reputable firm)
who uses them, and they'd be laughed out of the industry if they did - at
least in all the places I've worked. I imagine the only people who 'use them
successfully' actually derive their edge from elsewhere (institutional
advantages, etc.) and just don't realise it.

~~~
meric
I think it's possible they have both short-term predictive power, and for it
not to be profitable to trade the signals they generate. For example,
something like _" price below the 15-second EMA"_ might mean in the short-term
there is large probability of the price falling, and in the small possibility
it reverse, it spikes a lot higher, making it not profitable to take a
directional bet on the price. This can make those signals good for investors
to decide whether to invest in a rising bull market with low yield and a tail
risk of large negative return or a falling bear market with high yield and a
tail risk of large positive return. There may be no objective profit, while
allowing "subjective" profit in utility by matching investor's risk profile.
It does sound like gd1 has more experience than I do, though, so don't trade
off my perspective.

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z92
Or maybe technical tradings are no better than random ones.

