The Random Walk Hypothesis supposes that markets are essentially random in nature and thus cannot be predicted. I have to say from my experience this seems to be the case a lot of the time, especially on shorter timeframes. It also gives rise to the amazing fact you can build profitable systems based on nothing more than a coin toss and good money management !
Obviously there are trending periods and ranging periods in any stock, that's evident from looking at historical charts. I just think the market is more random than what most people think (or would like to believe). There's also a human tendency to apply logic and order to series of random data, as I alluded to in this post. This has been proven time and time again, where students (and professionals...) have been given charts to analyse that were secretly nothing to do with trading but were essentially based on random events such as coin tosses or decimal places of PI.
The reason I never do 'TA' or make predictions is mainly because I'm not frikken psychic, lol. Sure, I use TA as my main tool to enter and exit positions, but only over short timeframes. Those people that think they can predict prices in a couple months based on technical analysis alone are living in a dream world, unless they actually work in the industry as professionals and know a lot more information than we do.
You can find hundreds of them here on Steemit, all selling sunshine and moonbeams (you'll notice very rarely predict bad news, always good... for a reason)
"I sacrificed a chicken and cast some bones into the blood, and the great gods revealed to me, Bitcoin is about to go up ! (based on no tangible evidence)"
Now, whenever I see a chart like that, I always think
You'll notice also how specific some of the predictions are, like they always have a dogleg type retracement in the middle somewhere lolol.
I think people do this for a number of reasons
- They're selling sunshine and moonbeams to get votes (and money), from people too lazy to do their own analysis
- They're sitting on a pile of the currency they're trying to promote, in the hope that suckers will push it up
- They're genuinely deluded and think they are correct, and never check back to confirm if they were
In most cases, I think it's a combination of the 1st and the 2nd, I find it hard to believe that anyone actually believes their own hokum.
I just don't agree with it and think it's completely immoral. In the 1st case, people like to feel good about themselves. No-one wants to admit that they made a huge mistake, bought at the wrong time and want to believe that everything will be all right in the end. Look at the number of people still buying crypto in a sustained downtrend because it's now'cheaper' and the snake oil salesmen still telling them to.
The 2nd reason is just a plain old attempt at market manipulation. Could one person really change the price of a coin based on a forum post ? Perhaps, especially if it's a shitcoin trading at pennies and they have a lot of gullible followers. It's still immoral because the person making the prediction is sitting on a ton of it, and after the rise they're going to dump it and walk away with all the money, leaving the gullible suckers with a worthless investment.
So back to the original topic, is the market random ? I believe a lot of it is, yes. Who knows when some religious nutbag is going to blow up an oil refinery and the price of oil will ricochet about ? Who knows when an exchange is going to be hacked and their value disappear overnight ? Who knows when then the MD of a major company is going be caught snorting cocaine off a hookers ass ? Who knows when some crappy little tech firm somewhere launches the next Facebook ?
A lot of market movements are down to real world events, not because someone drew a line on a chart somewhere and now everyone must obey it. Yes I believe in Dow Theory, that the market does have periods of stagnation, ranges, up and down trends, but I think they're very hard to predict well in advance.
There's an old adage that 'the market doesn't ring a bell at the top', meaning peaks and troughs are usually only visible in hindsight, it's very very hard to see them when they're forming. That's probably the reason why a lot of traders go bust trying to predict them. You need some serious capital to weather the storms of predicting highs and lows, lots of bad trades before that good one comes along.
I think perhaps it's the only time you should average down into losing trades, if it's part of your trading plan, you've limited you're risk, your account can take it, and you're willing to walk away if it gets to a certain level.
Compare that to the other chumps who keep buying shitcoins on the hope (prayer) that they'll eventually turn round and make them millionaires. And it doesn't help when they're being fed bullshit by these voodoo artists all the time... Once again, it's not 'trading' or 'investing', it's 'gambling' and with really shitty odds.
Some people make very good money picking tops and bottoms or trading trends. Some people make very good money trading ranges or breakouts. What they both have in common is that they know what they're doing. They've developed systems that have proven to be profitable over long periods of time. They've tested their systems ad infinitum to be sure, and they are also aware of changing market conditions and that their system may work today but not next week, and are prepared to adapt.
Personally, I trade momentum. I've concentrated on finding times when the market is squeezing tight, and then take advantage of the sudden money flow into or out of the market when the dam bursts. It's a mixture of technical analysis (charts) but also raw price action (I would consider myself a 'naked trader'). It works for me in any case and it suits my personality.
I've rambled on for too long now and things are starting to pick up in the market, so I'll finish off. Be very wary of people peddling sunshine, and always look for the conflict of interest. The markets may not be entirely random but they mostly are, especially on short timeframes. Don't 'predict' tops and bottoms or believe those who think they can, you'll most likely lose all your money.
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Voodo image credit : Live and Let Die, Eon Productions
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Disclaimer : If you blindly act on the advice of strangers from the internet then you're an idiot and probably deserve to lose all your money. There's no fast track to success. Do your own research and only make informed decisions.