Monkeys: Don't do trend analysis! (with poll)

[mu_enrico]

Give a monkey enough darts and they'll beat the market. So says a draft article by Research Affiliates highlighting the simulated results of 100 monkeys throwing darts at the stock pages in a newspaper. The average monkey outperformed the index by an average of 1.7 percent per year since 1964. That's a lot of bananas!

What is all this monkey business? It started in 1973 when Princeton University professor Burton Malkiel claimed in his bestselling book, A Random Walk Down Wall Street, that "A blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts."

Source.

This phenomenon, about random dart throwers, can beat financial analyst already tested multiple times:

To test their idea, the writers threw darts at a stock list in the newspaper. From those random hits they built a portfolio to stack up against highflying financial elites.

Those elites meet at the Sohn Investment Conference, held each May in New York. The attendees are full-time active investors, people who spend 365 days and nights a year thinking hard about what investments to own and why.

So how did the dart-throwing journalists do this year? "The results were brutal," recounts Spencer Jakab of the Journal.

The random writer picks beat the pros by 27 percentage points in the year through April 22. "Only 3 of 12 of the Sohn picks even outperformed the S&P 500 SPX, +1.00%," Jakab said.

Source.

Why does this thing happen? Well, there is a theory called "Random Walk Theory."

Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, random walk theory proclaims that stocks take a random and unpredictable path that makes all methods of predicting stock prices futile in the long run.

Source.

Okay, the above examples are for stocks, but it should be somewhat applicable to the cryptocurrency market. What do you think?
Bonus, notable argument by a skeptic:

but these data can help us make better predictions.
Predictions backed up by relevant data are way better than predictions without any basis. hmmmm

[jackg]

If you've watched a chart for long enough you'll know where it's going next. TA for Hull and bear flags and repeat patterns also make it possible to have a pretty clear idea.

Also depending on how they traded is going to change things. If it was equities, while in a bull market, most are going to follow the trend.. If you just keep longing at 3x leverage for example, even in crashes you won't lose anything...

[Philipma1957cellphone]

Yes we can predict price.

 Can we do it with any degree of accuracy? 

Yes but only about 1 second in advance.

[leyton11]

I already know this kind of theory but it's only for gamblers, it's not for investors. no one would spend a lot of money betting on something we never knew and never analyzed. In investing, nothing is certain, but analysis helps us to reduce our risk and sometimes pick a very good stock. Anyway, we should prepare for any deal, luck does not happen to us forever.

[Coyster]

I would not trust the random walk theory with my money, nor with a risky investment like Bitcoin (you need to know when it's good time to invest). I'd give a good example, the pattern Bitcoin price usual takes after a halving is a prediction with a premise somewhat, a shrewd investor will rather follow that path, accumulating before the halving and waiting for the next 6-12 months to see if the pattern repeats itself, it very well could/could not, but what I know is it's an Investment that's based on a pattern that has been experienced before, chances are higher of it pulling through.

Random theories are just more or less lucky guesses, I'd rather be researching into an asset I want to invest in, be it stocks or cryptocurrency, to get an understanding of the market and even if not for the immediate profits, but so I'll be productive in that field in the long term. That being said, true random guesses could give you profits some time, but if you learn all there is about an investment market, you can always make profits for a lifetime.

[teosanru]

Yeah this is true. In almost every technical Analysis class you would have attended this is the day 1 lesson that you get. That there are some people who feel that market is a random walk theory. But you know the hypothesis of random walk theory? It doesn't says market moves randomly it says you cannot predict it using past data and two things are different. It says one cannot outperform the market without assuming "additional risk" this risk is called un systematic often referred to as Beta. Trader doesn't only predicts the direction of the market but along with that ascertains the risk of that trade and reward which he is willing to take. It's this difference of risk and return hypothesis which helps a person make money. Moreover there is this one study which you are talking about alternatively there are hundreds of studies which say markets are predictable. So just calculate accordingly.

[fiulpro]

Reading your article reminded me of the movie :
Wolf of the wall street

The person there said how: No One can predict what is going to happen to the stocks , literally no one. (Therefore all these predictions were a sham)

I do understand that there are certain factors that can change the way price changes like:

Bitcoins being banned by some country
Mining farms being seized

Etc...

These numerous news can help us predict the bitcoin movement to an extent because its obvious , therefore i do believe that we can do that to an extent for sure . But predicting it point to point takes a lot of time and effort ( even luck) therefore is dissolute for longer term.

Bur here the theory that you have suggested is something that i have serious doubts on, since this is very weird and twisted , I do believe that this Random walk theory might be applicable in some things , but for sure not here , plus i don't think Bitcoins and other cryptocurrencies can be predicted like this.

You should know on thing about scientific experiments:
One experiment showing results opposite to the one the theory can kill the theory instantly , even if it has years of backing up and data.

[bitbollo]

the same strategies I think can't work for crypto currencies, for sure not in short time (1-2 years)
look on the hype of 2017-2018.
Most of these project literally collapsed of 80-90%.
I think no one coins launched on that period has been able to growth in value vs ICO price.
This is not related to "scam" of projects but just to hyper inflation that has pumped the value of "everything" with a massive growth.

[mu_enrico]

Yes but only about 1 second in advance.

Why one second?

Random theories are just more or less lucky guesses, I'd rather be researching into an asset I want to invest in, be it stocks or cryptocurrency, to get an understanding of the market and even if not for the immediate profits, but so I'll be productive in that field in the long term. That being said, true random guesses could give you profits some time, but if you learn all there is about an investment market, you can always make profits for a lifetime.

What makes you different than professional analysts whose beaten by darts?

it says you cannot predict it using past data and two things are different. It says one cannot outperform the market without assuming "additional risk" this risk is called un systematic often referred to as Beta. Trader doesn't only predicts the direction of the market but along with that ascertains the risk of that trade and reward which he is willing to take.

And how do we calculate individual stock's beta?

Bur here the theory that you have suggested is something that i have serious doubts on, since this is very weird and twisted
...
One experiment showing results opposite to the one the theory can kill the theory instantly , even if it has years of backing up and data.

Lol weird and twisted?! Read this paper's conclusion mate

[fiulpro]

Yes but only about 1 second in advance.

Why one second?

Random theories are just more or less lucky guesses, I'd rather be researching into an asset I want to invest in, be it stocks or cryptocurrency, to get an understanding of the market and even if not for the immediate profits, but so I'll be productive in that field in the long term. That being said, true random guesses could give you profits some time, but if you learn all there is about an investment market, you can always make profits for a lifetime.

What makes you different than professional analysts whose beaten by darts?

it says you cannot predict it using past data and two things are different. It says one cannot outperform the market without assuming "additional risk" this risk is called un systematic often referred to as Beta. Trader doesn't only predicts the direction of the market but along with that ascertains the risk of that trade and reward which he is willing to take.

And how do we calculate individual stock's beta?

Bur here the theory that you have suggested is something that i have serious doubts on, since this is very weird and twisted
...
One experiment showing results opposite to the one the theory can kill the theory instantly , even if it has years of backing up and data.

Lol weird and twisted?! Read this paper's conclusion mate

Thank you for the suggestion , now let us analyze what the main conclusion is:

We examine the value of investment advice given monthly by investment analysts in the “Investment Dartboard
Column” of the Wall Street Journal. The portfolio thus formed is compared with another portfolio which consists of
stocks selected at random. The results indicate that the pros portfolio generates significant positive abnormal return on the
day of publication in the WSJ. However, upon comparison of this portfolio with the dart portfolio, the pros portfolio
outperforms the dart portfolio only when the holding period is one week or less. For holding periods longer than a week,
the pros portfolio does not perform better than the portfolio of random picks. The pros portfolio, in fact, generates significant negative abnormal returns over the longer holding period intervals. Therefore, a profitable opportunity can be
realized by going short on the buy recommendation and/or long on the sell recommendation over the six-month
investment horizon.
This leads us to believe that the publicity effect, is potent only in the short-term which then lends support to a moral
hazard problem encountered by investment professionals. In other words, the effect of the recommendation in the long-
run is transitory.

I do strongly oppose animal experimentation.
You think they like throwing darts?

Secondly conclusion is like : A wannabe scientist , not being able to express what he did and what he intends to use it for.

Very easily he could have used random generator since the whole point was putting values up and selecting randomly.

Even if its true (which is absurd) its not for us long time holders.

[Upgrade00]

Okay, the above examples are for stocks, but it should be somewhat applicable to the cryptocurrency market. What do you think?

The process of creating a stock and a cryptocurrency are quite different, so even if this thesis works in stocks, it may not in cryptocurrency. Stocks are created from existing businesses which wants to raise funds by inviting shareholders (private or public), there are legal processes and they need to have a working product. Cryptocurrencies can be created by literally anyone with coding skills, without any product behind it or legal barrier to ensure it's not a scam. If you were to randomly pick out a cryptocurrency from a tracking website, you would more times than not select one with no utility; losing out in the long run.

[Latviand]

If you've watched a chart for long enough you'll know where it's going next. TA for Hull and bear flags and repeat patterns also make it possible to have a pretty clear idea.

Also depending on how they traded is going to change things. If it was equities, while in a bull market, most are going to follow the trend.. If you just keep longing at 3x leverage for example, even in crashes you won't lose anything...

Technical analysis is really helpful and this is what you need in order for you to have some ideas about the next price movement.

Being aware in the market is essential as it will guide you towards success in your investment.

I'm hoping that you don't belittle the importance of analysis in the market because that will be your basis on what action you are going to do with your investments. Just always observe the charts and make your own conclusion about what is going to happen next so that you can make it profitable for you.

[mu_enrico]

I do strongly oppose animal experimentation.
You think they like throwing darts?

What makes you think the monkeys hate the experiment if they earn sweet bananas?

The process of creating a stock and a cryptocurrency are quite different, so even if this thesis works in stocks, it may not in cryptocurrency. Stocks are created from existing businesses which wants to raise funds by inviting shareholders (private or public), there are legal processes and they need to have a working product. Cryptocurrencies can be created by literally anyone with coding skills, without any product behind it or legal barrier to ensure it's not a scam. If you were to randomly pick out a cryptocurrency from a tracking website, you would more times than not select one with no utility; losing out in the long run.

Great argument!
It's true that stocks market != crypto market because of this thing. In crypto, the ticker can range from blatant, obvious scams or useless tokens to legit cryptocurrencies. By a simple logic (without empirical studies), doing random darts in crypto will rekt the investor.

But how about if we do random in top-100 crypto, assumed the top-100 is more legit than the rest?

I'm hoping that you don't belittle the importance of analysis in the market because that will be your basis on what action you are going to do with your investments. Just always observe the charts and make your own conclusion about what is going to happen next so that you can make it profitable for you.

It's not me who belittle the analysis, but the monkeys

[Cnut237]

If there are some people basing their decisions on careful analysis, and other basing theirs on random picks, then this would arguably result in a situation where many of those using analysis end up reaching similar conclusions and making similar picks. I would say that if you are capable of making the analysis, then you could use this information to your advantage. Knowledge of how people think the market will move is extremely valuable - and this is especially true if we are considering some of the smaller crypto markets.

Regardless, I would suggest that giving darts to monkeys is a bad idea.

[Upgrade00]

But how about if we do random in top-100 crypto, assumed the top-100 is more legit than the rest?

Market capitalization is not a reliable metric with which to verify the legitimacy of a currency. The top 100 is just one of many indicators of which has a reliable project, and it's a very broad list which could contain fake/shilled projects. More cherry picking would need to be done to come up with an ideal list from which to select randomly from.
There are also stable coins on that list, and they do not pass as an ideal investment option.

[BrewMaster]

that is why i never liked technical analysis. there are too many errors in the result of this so called "analysis" that makes it very unreliable. that is also why traders who use TA aren't all rich!
but at the same time i think it is not as bad as being random. there is still some good conclusions to be made from it. combining that with fundamental analysis and years of experience is the only way one can succeed in trading.

Okay, the above examples are for stocks, but it should be somewhat applicable to the cryptocurrency market. What do you think?
Bonus, notable argument by a skeptic:

no, never.
the problem with cryptocurrency market is the high level of manipulation. this goes as far as some coins being complete pump and dumps which means there is never any way of predicting their price unless you are the one pump and dumping it and even then it is hard to predict it with 100% accuracy because someone else may dump while you pump or vice versa.

[tbterryboy]

I would say that if you see some sort of analysis and if you do not know what you are looking at, there is really nothing you can do about it, people will fool you because you do not know what you are looking at so they could make something up that doesn't exist at all and show you a chart that makes absolutely zero sense and you will believe them because you do not know what you are doing.

However if you do know what you are looking at, that means you will be capable of actually understanding what he is talking about, that way you would be also understanding if the person that is doing the analysis is actually doing a good job (doesn't mean he has to be right, just be correct about what he is talking about) and by that time you would be capable of doing some analysis yourself as well.

[mu_enrico]

I would say that if you see some sort of analysis and if you do not know what you are looking at, there is really nothing you can do about it, people will fool you because you do not know what you are looking at so they could make something up that doesn't exist at all and show you a chart that makes absolutely zero sense and you will believe them because you do not know what you are doing.

However if you do know what you are looking at, that means you will be capable of actually understanding what he is talking about, that way you would be also understanding if the person that is doing the analysis is actually doing a good job (doesn't mean he has to be right, just be correct about what he is talking about) and by that time you would be capable of doing some analysis yourself as well.

What if you think you know what you are looking at, but actually you do not know what you are looking at. You think you make a useful chart, analysis, etc., but actually it does not matter.

By the time you realize this situation, you would believe the monkeys lul.

[Sanugarid]

I would say that if you see some sort of analysis and if you do not know what you are looking at, there is really nothing you can do about it, people will fool you because you do not know what you are looking at so they could make something up that doesn't exist at all and show you a chart that makes absolutely zero sense and you will believe them because you do not know what you are doing.

However if you do know what you are looking at, that means you will be capable of actually understanding what he is talking about, that way you would be also understanding if the person that is doing the analysis is actually doing a good job (doesn't mean he has to be right, just be correct about what he is talking about) and by that time you would be capable of doing some analysis yourself as well.

What if you think you know what you are looking at, but actually you do not know what you are looking at. You think you make a useful chart, analysis, etc., but actually it does not matter.

Now that will depend on how you percept things, how you understand such thing to actually know it. There are times that you really feel that you are doing right coz you follow all the right thing in your mind, but with the market like this that contains a high volatility there are more chances of you losing than actually winning. Say in a price prediction, there is only 2 direction which is up or down you guess where the price is going based on your matters that you understand from chart, influence, etc.

[Wexnident]

Random theories are just more or less lucky guesses, I'd rather be researching into an asset I want to invest in, be it stocks or cryptocurrency, to get an understanding of the market and even if not for the immediate profits, but so I'll be productive in that field in the long term. That being said, true random guesses could give you profits some time, but if you learn all there is about an investment market, you can always make profits for a lifetime.

What makes you different than professional analysts whose beaten by darts?

Isn't that what makes random theories lucky guesses? Since even if it was an educated guess or just a plain ol' lucky guess, you both still have a 50/50 chance of hitting a jackpot and losing. I say educated since the guess is backed up with data that you think is relevant, and might just be relevant, but can also be not, but this really just increases your confidence of choosing the correct asset to invest in, not the chances of you actually successfully profiting off of an asset. Again, chances are ALWAYS 50/50, research and studies are just stuff that boosts your confidence in an asset, making you think that it's the correct asset to invest to.

TA's are great and all, lots of complicated stuff that I don't really understand, and might not bother even understanding them, but they're all in the end just predictions. This is why some people just throw away thinking and just go in. Predictions don't guarantee success, nor do they increase chances of success, so why bother thinking right?