Do You Believe This Market Is Random?

source: forum

Aaronfb:

"Random" is a word that has no basis in reality. Nothing is really ever random. It is used to describe an outcome of events where you didn't have enough information to predict what that outcome would be. So the question is does the market give you enough information to predict where it is headed next?

SeanyTsunami:

Banks and hedge funds buy and sell currencies, these entities provide order flow which moves price. Looking at round numbers, longer term charts, like the daily and weekly. You can see areas that are respected and patterns that repeat themselves over and over. 

So, movements can be predicted fairly accurately with good technical skills and knowledge. There is dynamics to price movements and you can generally rely on the knowledge of these dynamics along with good discipline to have a good idea where price is headed.

TranceTrader:

The market is not random and you can find plenty of evidence to support this, a quick google search provides copious amounts of material debunking myths like the EMH and other academic theories trying to quantify the unquantifiable. However, the basis for this conclusion is understandable due to the frustrating reality which is the market is very difficult to predict.

 Without making it out to be more than it is and describing the market as some form of deity, put simply, it's just lots of different people doing lots of different types of transactions collectively, that's it. It's very hard to anticipate these transactions because they are so varied in size, quantity and reason... and for these reasons and through a process of exasperation, people conclude it's something more than this.

BeginnerJoe:

The market is part random and part not random. When individual or entities would come into the market is random. They may or may not affect the prices.

The part that is not random is where the market seeks to make money from guaranteed profit. For instance, when you buy 10 and stop 5, you are guaranteeing to buy high and to sell low. Such offers of guarantees are accepted by the market most of the time, although not always.

 So if you have information on where such guaranteed profits are, the market becomes often predictable. People should have no trouble appreciating that the market is efficient and it will seek out all guaranteed profits, in preference to other profits needing more work.

 dkrock:

Since this is still a viable question, and a lot of answers refer to fundamentals, allow me to provide a mathematical response to "randomness", since it is a mathematical anomaly.

In my experience, the markets are predictable, very predictable, in all but five situations.

1. Stop hunts. If you do not think your stop loss is intentionally triggered, you are only fooling yourself. The worst type of stop loss trigger is the spike candle and it is impossible to predict. It usually occurs within 30 minutes of a market open, 5 seconds to 5 minutes before a major news release, during double tops and bottoms, head fake trend line breaks, and spike candles going opposite directions near each other, or railroad spikes.

2. Double/Triple/Multiple bumps on a pivot line. Double tops and bottoms are mostly large orders being exited in increments so price does not spike the opposite direction, create panic/greed, and move the market from their desired exit point. The intent is to get all the orders closed at nearly the same price. 

They exit their positions, hold for bit, let other traders think a top or bottom has been reached and take the opposing trade, then exit more of their position. It causes the "other" traders positions to hit stop loss, retracting price back to where the large positions really want to exit. Once they complete their liquidity, the market can go the other way. This usually occurs at major pivot lines. 

It is random because you do not know when it will stop nor whether price will bounce or continue at the pivot. As traders go against the large order exit, but the large order exit continues until eventually the large order overcomes the opposing traders and you get the parabola shape that traders call a double top/bottom. You have to be patient until probability reoccurs.

3. Consolidation. This is the level where buying and selling begin to equalize. Well, not really, but it appears that way. Consolidation itself is not random. You can see it coming. It is just another market maker trick. The intent here is to get you confused so you enter and exit many times and usually for a loss. 

The other intent is to bore you into closing your position. The other intent is to make you guess which direction the market will go when it ends and to enter and hold onto your trade while they figure out when to stop hunt you. The direction following the consolidation is random...to you. You can predict it by finding the time frame that has the trend line containing the consolidation and waiting for it to break. 

Be aware that the first break might be a head fake because they want to activate pending orders that are in the wrong direction, and stop losses that are in the right direction. The pending order is an automatic loss. The stop loss hunt will cause you to lose rather than be in the market in the right direction after they activate your stop.

4. Stair steps. The reason the market can be predicted is because the volume of orders during a given day, or session, tend to be toward one currency or the other for the length of that session, or day. Now fundamentals, or the lack of them, finally have a role in the market. 

Volume will decrease when there is no news releases planned for that day. Without market sentiment to a news release, the market makers slow down their activity and it becomes more of trader against trader, or banker against banker. This creates a pattern I call stair steps.

 Your choices are either to sit it out, or look for a higher time frame chart that is still predicting the overall direction and be prepared to hold your position, and your breath, for the entire session. On the smaller time frame, price is in a somewhat predictable range trade heading in an overall positive or negative direction.

 However the range is usually too tight and requires too much involvement and skill to trade it effectively. Why walk into a battle zone. Just wait it out.

5. Sudden position trade by large bank. It is rare, but sometimes a monthly or weekly target is hit and a bank will transfer a huge amount of money from one currency to another all at once. Or some global crisis or banking crisis will happen and huge transfers will occur.

Hope this helps. The "randomness" most people refer to is caused by market action of opening and closing trades. Sure, each individual trader's action, timing, and order size is random, but when the majority of traders agree to a direction, it is predictable. 

This is easily found by increasing the sample size beyond "1". Your task as a trader is to figure out WHY the majority of traders enter and exit when they do. Once you figure that out, you simply join them and make your profit.