OT Again, trying to keep this civil, I agree with most of what you wrote, except for the following:
IF EVEN RANDOM CHANCE TENDS TO TREND, then trendlines can be drawn and hence, trend-line breaks become buy and sell signals!
Technically, that is not correct. Random walks (i.e., cumulative counts of tosses of a fair coin), do not "trend". If you try to play trends in such a model, you would lose as often as you won, giving you a zero gain in the long term. In actuality, given investor psychology, one would probably lose in the long term.
But, as my previous post discussed, the best fit model is not a pure random walk, but a random walk with a deterministic (not determined, but deterministic) trend. It is the trend that you are trying to use to find buy/sell signals. Mathematically (in overly simplistic terms), Mt=Xt+Et, where Mt=market value at time t, Xt= trend term at time t, and Et=error term, which follows a random walk. If you can model Xt, you can make a fortune in the long term. And some have --- those few that are LTB&H, which is the only proven way to beat the system. As to traders, not many have been able to win in the long term, but I don't know if that is because Xt is in itself a complex random process (or another random walk, as ahhaha would claim), or if we don't have the patience to invest according to that trend. Some claim, for example, that there is a strong four-year presidential cycle based on government spending. Others claim that there is a cycle based on business capacities. I don't know, but whatever cycle there might be, it should be decipherable through a number of statistical (vice probabilistic) methods. PnF, macd, stochastics, etc -- if done properly -- might get at these, though I suspect they are not nearly as useful as some believe. |
