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Stock price movements are literally text book examples of unpredictable (or more specifically, random walk) time series in university time series courses. A pro

by em500 3y ago

Stock price movements are literally text book examples of unpredictable (or more specifically, random walk) time series in university time series courses. A proper statistics course teaches you that you can predict with great certainty that the mean of the fraction of heads over many coin flips converges to 1/2, while you cannot predict anything about the outcome of the next flip. A good statistics course will also teach you how both can be true. TA is like trying to use statistics to infer something about the outcome of the next coin flip.

ignorante 3y ago
100% agree
ijidak 3y ago
> Stock price movements are literally text book examples of unpredictable (or more specifically, random walk) I never understand the above argument. How is that possibly true on long time scales? I can say with relatively strong confidence that Tesla is going to be worth more than $1 trillion in three years. In March, it was clear NVIDIA would boom in the scale of one year. Just, nobody knew how soon and how fast. So the walk is not random in these cases... So is the walk pseudorandom? Random with a bias? It clearly can't be purely random.
- saltcured 3y ago
  Doesn't "technical analysis" mean pretending that you can ignore that it is Tesla or NVIDIA and just believe that the time-series itself tells you what comes next. I.e. you believe that there is some "nature" of stock ticker data independent of the financials and business environment of the particular company.
- codethief 3y ago
  If stock prices are so easy predict, why aren't you putting your money where your mouth is? :P Or are you? Then I'd love to hear about that obscene fortune you've made so far. :) In all seriousness, though, there is an entire field of research whose results substantiate GP's point. This is not to say that you can't beat the market but the challenge lies in doing so consistently.
  - wruza 3y ago
    They may have missed it this time, but if you look at a recent stock market history, it was impossible to not make a fortune out of a pretty obvious portfolio. /s
- em500 3y ago
  The standard model is not a plain random walk, but a random walk with drift. (Actually a geometric random walk with drift, but thats besides the point.) The drift term for the broader US stock market is usually assumed around 8% (long term average gain based on around a century of data). That works out to around 0.022% a day, which is not what TA traders are looking for.
- jjav 3y ago
  > I can say with relatively strong confidence that Tesla is going to be worth more than $1 trillion in three years. How relative is your strong confidence? If you feel this is inevitable, you can become essentially infinitely rich. Why not do it? Of course so could others. And all your collective trades move the market. At which point it's no longer true. It can't be, not everyone can become infinitely rich.

by em500 3y ago

ignorante 3y ago

100% agree

ijidak 3y ago

> Stock price movements are literally text book examples of unpredictable (or more specifically, random walk) I never understand the above argument. How is that possibly true on long time scales? I can say with relatively strong confidence that Tesla is going to be worth more than $1 trillion in three years. In March, it was clear NVIDIA would boom in the scale of one year. Just, nobody knew how soon and how fast. So the walk is not random in these cases... So is the walk pseudorandom? Random with a bias? It clearly can't be purely random.

saltcured 3y ago
Doesn't "technical analysis" mean pretending that you can ignore that it is Tesla or NVIDIA and just believe that the time-series itself tells you what comes next. I.e. you believe that there is some "nature" of stock ticker data independent of the financials and business environment of the particular company.
codethief 3y ago
If stock prices are so easy predict, why aren't you putting your money where your mouth is? :P Or are you? Then I'd love to hear about that obscene fortune you've made so far. :) In all seriousness, though, there is an entire field of research whose results substantiate GP's point. This is not to say that you can't beat the market but the challenge lies in doing so consistently.
- wruza 3y ago
  They may have missed it this time, but if you look at a recent stock market history, it was impossible to not make a fortune out of a pretty obvious portfolio. /s
em500 3y ago
The standard model is not a plain random walk, but a random walk with drift. (Actually a geometric random walk with drift, but thats besides the point.) The drift term for the broader US stock market is usually assumed around 8% (long term average gain based on around a century of data). That works out to around 0.022% a day, which is not what TA traders are looking for.
jjav 3y ago
> I can say with relatively strong confidence that Tesla is going to be worth more than $1 trillion in three years. How relative is your strong confidence? If you feel this is inevitable, you can become essentially infinitely rich. Why not do it? Of course so could others. And all your collective trades move the market. At which point it's no longer true. It can't be, not everyone can become infinitely rich.