do the markets random walk ?

[Andre_Goldman]

 

I was thinking about how unpredictable bitcoin trading can be and then came to my mind "Random walk hypothesis"[1]. Then I found this interesting article "Stock Market Prices Do Not Follow Random Walks"[2] which challenger Random walk hypothesis, interesting debate ...


[1]https://en.wikipedia.org/wiki/Random_walk_hypothesis
[2]http://www.turingfinance.com/stock-market-prices-do-not-follow-random-walks/

ed; typo

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[KillaGT]

bitcoin is famous for its volatility, the price has been through two periods of random walks.  random walk is a large pattern that is formed by the cumulative effect of small changes. This is often applied in finance to mean the price of an asset drifting in a particularly direction, with no major price swing being the sole cause. Consequently, price changes appear to be random and hard to predict.

[2double0]

It should not be called a random walk currently as we all know the reason why this is happening, and it's the August 1 we are all waiting and as well, scared about. The possible chain split is a big risk and all this hypocritical drama could lead the values (not price actually) of bitcoin in our hearts go uninterested. On the other hand, it confuses me to say this too that where there is speculation, there is random walk and that's obvious.

[Andre_Goldman]

I think I do understating what you guys are saying ...

One point that got my attention about how unpredictable the market is ... is "memory"

Each actor knows at what "price" you set your position, but how can the market, as a whole, knows where to go ? I mean how an individual trader can better set a strategy to follow the crowd ... after read some papers and think a bit about the "memory effect" ... I end up at ... reading about

https://en.wikipedia.org/wiki/Flocking_(behavior)

Hemelrijk and Hildenbrandt used attraction, alignment and avoidance and extended this with a number of traits of real starlings: first, birds fly according to fixed wing aerodynamics, while rolling when turning (thus losing lift), second they coordinate with a limited number of interaction neighbours of 7...




 

[Low Sigma]

I was thinking about how unpredictable bitcoin trading can be and then came to my mind "Random walk hypothesis"[1]. Then I found this interesting article "Stock Market Prices Do Not Follow Random Walks"[2] which challenger Random walk hypothesis, interesting debate ...


[1]https://en.wikipedia.org/wiki/Random_walk_hypothesis
[2]http://www.turingfinance.com/stock-market-prices-do-not-follow-random-walks/

ed; typo

Hi,

Well I really like your thread. Here is an interesting thought: the quantitative traders or risk managers(if they do MonteCarlo analysis for models which can't be resumed to a closed formula but instead they need to do it numerically for complex models) usually are starting from using a Brownian motion(for the noise/randomness) and apply a drift to it. This is the easiest one.
As you saw in turingfinance.com, different models are trying to add different factors.

This are called stochastic models and are different from a deterministic model.

In a nutshell: yes, the markets do random walk but sometimes patterns appear and can be exploited.

[Low Sigma]

Here is a nice one: "In the short run, the market is a voting machine but in the long run, it is a weighing machine."

[Andre_Goldman]

Here is a nice one: "In the short run, the market is a voting machine but in the long run, it is a weighing machine."

nice one indeed.. thanks... I will write down that quote on my trade book journal