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Eman93
4,571 posts
msg #81575
Ignore Eman93
10/22/2009 10:18:17 PM

Patterns exist.

But what happens next is random.
=============================================

Each roll of a pair of dice is random but the probabilty of getting a 7 is higher than any other pair.

So what is the probabilty of RIMM filling on a gap down?

four
3,275 posts
msg #81715
Ignore four
modified
10/25/2009 9:59:00 AM




Is this correct? ...The items noted on your image (credit:TheRumpledOne).

Kevin_in_GA
3,742 posts
msg #81717
Ignore Kevin_in_GA
10/25/2009 10:39:21 AM

Patterns exist.

But what happens next is random.
=============================================

Each roll of a pair of dice is random but the probabilty of getting a 7 is higher than any other pair.

So what is the probabilty of RIMM filling on a gap down?
+++++++++++++++++++++++++++++++++++++++++

In the last 100 days, RIMM has gapped up 65 times (and filled that gap 44 of those 65 days) and has gapped down 35 times (filling that gap only 20 times)

Probability of a gap up = 65%
Probability of filling = 67.7% (44/65)

Probability of a gap down = 35%
Probability of filling = 57.1% (20/35)

Probability of a gap in either direction = 90%
Probability of filling = 71.1% (64/90)

TheRumpledOne
6,358 posts
msg #81719
Ignore TheRumpledOne
10/25/2009 11:34:55 AM


Each roll of a pair of dice is random but the probabilty of getting a 7 is higher than any other pair.

So what is the probabilty of RIMM filling on a gap down?

==========================

There is NO probability when it comes to trading.

There are only statistics.

Statistics are concerned with the past. Probability is concerned with the future.

You can predict based on statistics but it is NOT the same as probability.

The difference is subtle but you have to understand the difference exists.

With dice, the probability never changes.

You can, based on statistics, say that RIMM filled the gap X% of the time over the last N days. But that is not the same as probability.



Walid
109 posts
msg #81737
Ignore Walid
10/25/2009 8:14:24 PM

“Patterns exist. But what happens next is random” Well, I have to disagree. Patterns add a degree of predictability of the subsequent direction of the price move. What happens next is “uncertain” that is for sure but not random. A random process has no favorable outcome.

****************************************************
There is NO probability when it comes to trading.
There are only statistics.
Statistics are concerned with the past. Probability is concerned with the future.
You can predict based on statistics but it is NOT the same as probability.
The difference is subtle but you have to understand the difference exists.
****************************************************

Again, I have to disagree. I can’t find a sold scientific ground for any of the above mentioned claims. The probability theory distinguishes between to different type of probabilities, Statistical probability and Inductive probability. Statistical probability is the relative frequency with which an event occurs in the long run. The Inductive probability is the degree of belief which it is reasonable to place in a proposition on given evidence. Read Professor M.G. Bulmer for more info. The above two definitions are also known as Frequentists versus Bayesian interpretation of probability. See Wikipedia, Probability

Technical analysis in general is all about statistical probability. As it appears very clear from the name “statistical probability”, statistical analysis is a method of determining a “statistically significant correlation” between an event and a certain outcome. In other words, using statistical methods to determine a “more probable” outcome based on statistical analysis. This goes strongly against all of your claims above. Patterns do exist and what happens next – based on statistical probability analysis – is whatever that pattern predicts with frequency x of the times. Because we know that the outcome is only statistically probable and not certain, we protect ourselves against the probability that we are wrong (1- P(we are right)) by using protective stops. As we all know, the simple idea is that if you follow the pattern (be it is your own or a widely accepted one) you will be right most of the times and with good money management skills, your gain will away outweighs losses you have incurred when the price did actually move to the other direction. But the word “most” in the last phrase is a direct result of the high probability outcome predicted by the pattern in question.

How can this be consistent with you claim “there is NO probability when it comes to trading, there is only statistics”? The way I see it, there is only probability when it comes to trading. Statistical analysis is our tool to determine such probability. What is more confusing is that it seems as if you are arguing against your own work. Your work – what you call it statistical – is no more than counting the frequency by which a certain event happens over a relatively long period of time. How many times AAPL filled the opening gap over the past 100 days? How many x happened over the y past days? x/y in these questions is called statistical probability analysis.

In regards to
****************************************************
Statistics are concerned with the past. Probability is concerned with the future.
****************************************************
I was under the impression that Regression is a statistical method to forecast the future based on the past behavior of the data within certain limits and degree of confidence. No?

Regards,


Eman93
4,571 posts
msg #81741
Ignore Eman93
10/25/2009 10:25:15 PM

Walid where you been?

I agree......statistical probabilty is used everywhere to try too predict the future......from weather to baseball.

The major drawback SF has is it lack of statistical tools and pattern recogniton tools......... for example you could use 2006 data to predict 2007 data run your program and see how you did. You could have a much better picture of what is happening. Chart patterns seem more predictabel than indicators...IMOH no way to tell with the limited tools here.


timfor
17 posts
msg #81832
Ignore timfor
10/27/2009 10:28:14 AM

Hello,

FIrst of all a big thank you to TRO and others who have responded to my questions regarding the milk the cows strategy. I'm reading and re-reading this thread constantly to try and improve my understanding of how to trade this method.

I need assistance in one area that I'm struggling with and I'm hopeful that someone can assist.

Namely, in the span of a one minute candle, the color of the candle can change rapidly between green and red. If I understand this method correctly, you should only be entering a long or short (respectively) on a green or red candle as it enters the buy zone. I have seen firsthand a green candle enter a long buy zone (in the proper direction to fade the gap) only to turn red and then green and then finally close red outside of the long buy zone. If one had bought the long (when the candle was green) upon entering the long buy zone, one would have been stopped out...more then likely at loss (albeit small). The green candle only went about 5 cents into the long buy zone, but with an entry at the open plus 10 cents, a fill would have likley occurred, even with a limit order.

I realize that there must be some type of distinctions being made during this period of red/green/red/green, etc. candle movement that could help me better master this method. Alternatively, perhaps taking the loss is simply part of the risk of entering the trade based on this method and that you may have to enter several times until the candle moves more aggressively in the direction that is favorable to your trade.

Any insights, comments or suggestions on this specific issue would be greatly appreciated as I am eager to learn!!

Thanks in advance to anyone who can help me on this and become a better trader.

Tim

stratiG
147 posts
msg #81849
Ignore stratiG
modified
10/27/2009 2:22:32 PM

What a ride.......

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TheRumpledOne
6,358 posts
msg #81850
Ignore TheRumpledOne
modified
10/27/2009 2:40:55 PM

Walid:

"I am not forcing you to accept my concepts. I only request the traders to review the market from time to time keeping in mind my concepts and if found suitable use in the trades or just ignore. Thanks for your opinion."


http://www.yale.edu/admit/freshmen/application/index.html

TheRumpledOne
6,358 posts
msg #81851
Ignore TheRumpledOne
10/27/2009 2:45:57 PM

Namely, in the span of a one minute candle, the color of the candle can change rapidly between green and red. If I understand this method correctly, you should only be entering a long or short (respectively) on a green or red candle as it enters the buy zone. I have seen firsthand a green candle enter a long buy zone (in the proper direction to fade the gap) only to turn red and then green and then finally close red outside of the long buy zone. If one had bought the long (when the candle was green) upon entering the long buy zone, one would have been stopped out...more then likely at loss (albeit small). The green candle only went about 5 cents into the long buy zone, but with an entry at the open plus 10 cents, a fill would have likley occurred, even with a limit order.

================================

You have to be quick to trade this.

No time to think if you are trading manually.

Or you can enter your order with preset TP and SL, and leave it up to the market.



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