# The Structure & Function of Price



## ducati916 (13 November 2006)

Price & Volume analysis, popular, been around since Charles Dow pioneered the theory circa the 1890's and is still grossly misunderstood by many.
The following quote from *Magdoran*;



> You are frantically focussing on minor indicators, when I keep telling you to just learn to read the chart. Forget the moving averages, RSI, stochastics, oscillators, Bollinger bands, etc, etc, until you can learn to read a chart. The objective is to determine the trend, then what part of the trend the underlying is in (beginning, middle or terminal phase), then when to enter, and when to exit. Easier said than done. Once you realise that a significant element in this pursuit is about filtering your psychological bias, you will fare much better.
> 
> Just learn to read a chart without the gizmos first. In my view, there are very few people who know how to really use these effectively (people like tech for instance have pioneered a system and refined it – reads input of effective effort), and they have spent years working out how to use them.
> 
> ...




Structure governs Function & the inverse;
Function governs Structure.

What is the structure of price, and how does it facilitate the function of market dynamics, and, how does the functioning of price, effect the structure of market participants?

By studying and quantifying the structure of price, we shall gain some insights into how price functions, and more importantly clarify principals and practical strategies of how to profit from the functioning of price.

jog on
d998


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## It's Snake Pliskin (14 November 2006)

ducati916 said:
			
		

> Price & Volume analysis, popular, been around since Charles Dow pioneered the theory circa the 1890's and is still grossly misunderstood by many.
> The following quote from *Magdoran*;
> 
> 
> ...




A difficult topic here Duc.


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## barney (14 November 2006)

ducati916 said:
			
		

> Price & Volume analysis, popular, been around since Charles Dow pioneered the theory circa the 1890's and is still grossly misunderstood by many.
> The following quote from *Magdoran*;
> 
> 
> ...




Hi Duc, Any insights/examples/info/discussions etc. on price structures and their meanings/and how to interprate different patterns etc. would be greatly accepted by myself (and others I'm sure)    Please fire away ......... Barney.


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## ducati916 (14 November 2006)

Starting with some of the *structural factors* of price;
*Technical
*Manipulative
*Psychological
*Management & reputation
*Competitive conditions and prospects
*Possible contrasted with probable changes in volume, costs, prices
*Earnings
*Dividends
*Assets
*Capital Structure
*Terms of the issue
*Others [any-one think of some more ......add them in]

Starting at the top, where I guess the most interest lies, *Technical*

The technicians will think chart analysis.
Increasingly charts are being utilized by market participants. The problem, and one that is being seemingly encountered by residents of ASF, is the unpredictability of your basic chart utilizing price alone, hence the migration to the employment of any number of measuring indicators. These suffer from a fatal flaw.....particularly in short-term daytrades, which will become clear as we progress.

Volume, is increasingly espoused as a vital ingredient to the increasingly accurate analysis of a basic chart based on price alone. I used to be a volume skeptic, but increasingly, volume can give some vital clues, especially in the short-term.

Price in economic terms conveys a huge amount of information. It is possible that chart analysis utilizing price [and volume] took the basic theory from economics, which also studies markets, and transferred the theory.

There are however some very basic and fundamental differences that need to be highlighted in order to understand how an *economic price * differs from a *financial asset price*

jog on
d998


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## tech/a (14 November 2006)

I'm amused that a "Fundamental trader" is all of a sudden an expert on Price.
As Such I will refrain from comment and learn.

The Fundamentals have to me atleast been less than impressive---perhaps a reversal of form---here.


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## Sean K (14 November 2006)

barney said:
			
		

> Hi Duc, Any insights/examples/info/discussions etc. on price structures and their meanings/and how to interprate different patterns etc. would be greatly accepted by myself (and others I'm sure)    Please fire away ......... Barney.



Barney, I've found this site to be very informative in providing guidance on what particular patterns indicate. 

http://stockcharts.com/education/

For example, their description of a pennant:

Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. These patterns are usually preceded by a sharp advance or decline with heavy volume, and mark a mid-point of the move.

   1. Sharp Move: To be considered a continuation pattern, there should be evidence of a prior trend. Flags and pennants require evidence of a sharp advance or decline on heavy volume. These moves usually occur on heavy volume and can contain gaps. This move usually represents the first leg of a significant advance or decline and the flag/pennant is merely a pause.

   2. Flagpole: The flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level. A line extending up from this break to the high of the flag/pennant forms the flagpole.

   4. Pennant: A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone). The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines.

   5. Duration: Flags and pennants are short-term patterns that can last from 1 to 12 weeks. There is some debate on the timeframe and some consider 8 weeks to be pushing the limits for a reliable pattern. Ideally, these patterns will form between 1 and 4 weeks. Once a flag becomes more than 12 weeks old, it would be classified as a rectangle. A pennant more than 12 weeks old would turn into a symmetrical triangle. The reliability of patterns that fall between 8 and 12 weeks is debatable.

   6. Break: For a bullish flag or pennant, a break above resistance signals that the previous advance has resumed. For a bearish flag or pennant, a break below support signals that the previous decline has resumed.

   7. Volume: Volume should be heavy during the advance or decline that forms the flagpole. Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the resistance (support) break lends credence to the validity of the formation and the likelihood of continuation.

   8. Targets: The length of the flagpole can be applied to the resistance break or support break of the flag/pennant to estimate the advance or decline.

Even though pennants are common formations, identification guidelines should not be taken lightly. It is important that flags and pennants are preceded by a sharp advance or decline. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. Look for volume confirmation on the initial move, consolidation and resumption to augment the robustness of pattern identification.


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## Sean K (14 November 2006)

And the type of chart that would come with the article above:


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## It's Snake Pliskin (14 November 2006)

ducati916


> Starting with some of the *structural factors* of price;
> *Technical
> *Manipulative
> *Psychological
> ...




Duc, wouldn't it be better to simplify this a moment? The ones in red be classed FUNDAMENTAL?



> Starting at the top, where I guess the most interest lies, *Technical*
> 
> The technicians will think chart analysis.
> Increasingly charts are being utilized by market participants. The problem, and one that is being seemingly encountered by residents of ASF, is the unpredictability of your basic chart utilizing price alone, hence the migration to the employment of any number of measuring indicators. These suffer from a fatal flaw.....particularly in short-term daytrades, which will become clear as we progress.
> ...




Bring out the economists for this one


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## It's Snake Pliskin (14 November 2006)

kennas said:
			
		

> And the type of chart that would come with the article above:




Kennas,

Basically that penant is showing consolidation. There are various ways of looking at it. Patterns are in my view like looking at clouds and seeeing a picture. But they work for people and those that have success with them need not be concerned with what some might say about them. 

What is driving the price in these formations?


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## Sean K (14 November 2006)

It's Snake Pliskin said:
			
		

> Kennas,
> 
> Basically that penant is showing consolidation. There are various ways of looking at it. Patterns are in my view like looking at clouds and seeeing a picture. But they work for people and those that have success with them need not be concerned with what some might say about them.
> 
> What is driving the price in these formations?



Theory is that it doesn't matter. Whatever it is, is factored into the price. That's all you need to know. The pattern produces a probability of a future move. A pennant in a general upward trend would indicate that it's going to go up. Pennant in a downward trend, down. Again, it's just a probability. Then you use your brain, and tarot cards, to make your own best guess. Well, that's what I do anyway. I haven't lost my girlfriends house yet, although would be pretty hard to do over the past 3 years!


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## It's Snake Pliskin (14 November 2006)

kennas said:
			
		

> > Whatever it is, is factored into the price.
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## Sean K (14 November 2006)

It's Snake Pliskin said:
			
		

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## It's Snake Pliskin (14 November 2006)

kennas said:
			
		

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## Sean K (14 November 2006)

It's Snake Pliskin said:
			
		

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## Casper (14 November 2006)

ducati916 said:
			
		

> Starting with some of the *structural factors* of price;
> *Technical
> *Manipulative
> *Psychological
> ...




Using the KISS principle, all of the above can be summarised imo by the fact that human fear and greed drive prices up and down in accordance with the concept of supply and demand.

The above "structural factors" all effect supply and demand, and hence fear and greed, in one way or another.

Share price charts are a very useful tool imo showing how fear and greed have pushed prices up and down in the past and so allow those looking at a chart to *interpret the probability of share price movements * in the short term based on previous trends, support and resistance levels.


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## It's Snake Pliskin (14 November 2006)

kennas said:
			
		

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## Sean K (14 November 2006)

It's Snake Pliskin said:
			
		

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## It's Snake Pliskin (14 November 2006)

kennas said:
			
		

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## Sean K (14 November 2006)

It's Snake Pliskin said:
			
		

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## It's Snake Pliskin (14 November 2006)

kennas said:
			
		

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## Casper (14 November 2006)

It's Snake Pliskin said:
			
		

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## ducati916 (14 November 2006)

Some of the comments on this thread already highlight some of the commonly accepted *truths*........



> Theory is that it doesn't matter. Whatever it is, is factored into the price. That's all you need to know. The pattern produces a probability of a future move.






> Using the KISS principle, all of the above can be summarised imo by the fact that human fear and greed drive prices up and down in accordance with the concept of supply and demand.




The two above quotes highlight these generally accepted truths, yet, they are without any practical use to the vast majority, as, seemingly they are platitudes that are rolled out ad nauseum to explain _price action_
Before moving on, it may actually shed a little additional light on the topic if we were to have a look at the inverse, or, *function governs structure.*

Through examination of function, we can seek insight into the structure. Prior to the examination of the functions of capital markets, we can look at an economic definition. The economic function of the firm, or business is to produce a profit. Price in the economic model, through supply and demand will drive ceteris paribus or equilibrium.

Returning to financial assets, or products, the question becomes, what drives supply and demand of financial assets, and thus the price of those financial assets. Does the market reach a state of ceteris parabis?

So, before returning to the structure of price, here are some of the functions of the market; [in no particular order of importance]

*provide liquidity [depth]
*provide returns [profits]
*to provide valuations *[absolute & relative]*
*provide capital
*provide regulation & order
*provide transparency
*others

Drawing in Efficient Market Theory, which was actually a defining theory within financial markets, yet decried particularly by technical analysts, primarily through lack of understanding. EMT states that markets are efficient.

Efficiency relates to two definitions; the first definition relates to absolute valuation, the second to relative valuation. Absolute valuations are where the likes of myself hang out, the value investors, and inefficiency is quite common. Relative valuations however are a very different matter, and they are the driving force behind the functions of markets, and therefore a driving force in day to day structure of price, and are highly efficient, maintaining price in a state of ceteris parabis

jog on
d998


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## ducati916 (15 November 2006)

There have been some examples of *price* appearing on other threads that should convey a great deal of information in the price [due to the function and structure of price;



> My understanding is that an inverted yield curve generally occurs when inflation is becoming a problem, and as Inflation can lead to recessions if you are holding long positions and dont want to be unemployed, then i guess an inverse yield curve could be bad.






> Back in 2000 the yield curve was inverted from Feb through to Nov whilst the market topped and levelled off, and then the market corrected sharply. If it follows that pattern again,  Has been flipping back and forth between normal, flat, and inverted this year, can't seem to make up it's mind. (Last two weeks have been inverted). Watching with interest.




I particularly enjoyed the inadvertent pun on the second example.
This price, is of course the Federal discount rate, that forms monetary policy, thus setting the benchmark for interest rates to adjust to.

This is a particularly important price to start with, as it is utilized as the benchmark, or *risk-free return* from this price, *all relative values are calculated*.

It will in addition provide the underpinning for absolute valuations, and hence price within this context also.

Structure;
*Federal Monetary Policy
*Adds to, or subtracts from, M3 liquidity.

Function;
*Adds to inflationary pressure, or, adds to deflationary pressure.

This price is set a number of different ways.

jog on
d998


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## ducati916 (15 November 2006)

It is the determination of the discount rate, that we can clearly illustrate the interdependance of structure & function within the determination of a single market price.

Structure variables;
*Government liabilities
*Government assets

Function Variables;
*National GDP
*International GDP

From the macro-environment, price can be set, but, the micro-environment inputs values that directly influence the macro-environment. It's a bit of a chicken/egg question.

However, this price, the Fed Discount Rate, will as previously mentioned provide the benchmark for all further calculations in the market price of securities in the financial markets. [and hence partly explains the importance of yield curves]

jog on
d998


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## Kauri (15 November 2006)

ducati916 said:
			
		

> I particularly enjoyed the inadvertent pun on the second example.
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  Never make assumptions...


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## It's Snake Pliskin (15 November 2006)

Casper,



> If you mean that on the market opening each day or at any other given time a given stock's share price has a 50-50 chance of going up or down then I disagree.




No I didn't mean this at all. 



> There are 3 possible outcomes at any given time:
> 
> 1. Up
> 2. Down
> ...




"Consolidation" - stock prices only go up or down.



> Another example to consider:    if you take that classic story about the race between the tortoise and the hare then again there are 3 possible outcomes to the race.
> 
> 1. hare wins
> 2. tortoise wins
> ...




I think the market is a lot more complicated than the example.



> So in summary - yes share prices are predictable




I disagree. That 's holy grail stuff.



> but imo the probabilities of each prediction (or possible outcomes if you want to call them that) should also be stated.....and the probabilities of each outcome are not just simply 1/(number of possible outcomes).




So, an accumulation of results would probably lead to a 50/50 outcome. The money made from that accumulation of results is important, not the win factor.


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## Sean K (15 November 2006)

It's Snake Pliskin said:
			
		

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## It's Snake Pliskin (15 November 2006)

kennas said:
			
		

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## Sean K (15 November 2006)

It's Snake Pliskin said:
			
		

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## babyboomer (15 November 2006)

It's simple basic high school maths.

At a set point in time, there can only be 3 possibilities for the next transaction.

It can either go 1. Up 2. down or 3. sideways (next transaction is at the same price as the previous transaction)

In an ideal world with everything being equal then each of the 3 possibilities would have a 1 in 3 chance of occuring.  But the market is not an ideal world and so the probabilities of each possibility will vary from each other but with the sum of the 3 possibilities adding up to 1.0

Charting and TA is a technique you can use to determine what the probabilities of the 3 possibilities are at any time.  Everyone will come up with their own values based on their skills in TA and experience.  If you can get them right more often than not then you will have a much better chance of surviving in the long run.


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## ducati916 (16 November 2006)

Interesting to note that the same old, same old thinking still predominates.
From this thread, and a couple others that I keep an eye on;



> Sure, any market analysis is necessarily flawed, and as Mark Douglas says “anything can happen”, and “every moment in the market is unique”.




I'm no fan of Mark Douglas, I find him shallow in his thinking, this is simply a brief example. Every moment in the market is far from unique, in point of fact the same trades [in terms of function] are executed 100's of times every day.
Some market analysis is always 100% correct.



> Charting and TA is a technique you can use to determine what the probabilities of the 3 possibilities are at any time. Everyone will come up with their own values based on their skills in TA and experience. If you can get them right more often than not then you will have a much better chance of surviving in the long run.




The word probability keeps popping into any discussion on chart based analysis. Chart analysis is not probabilistic, it is deterministic, and people really need to understand the difference.

Let's return to the first example, as after rubbishing MD, I should really present some evidence of my assertion;

*The Law of One Price
The Law of One Expected Return*

These two basic economic Laws, define moment to moment prices within Financial markets, and are executed possibly 100's of times in any number of securities.

*The Law of One Price;
States that the same investment, must have the same price, no matter how that investment is created.

*The Law of One Expected Return;
States that equivalent investments should have the same expected return.

These two laws, provide the intellectual framework, that constitutes a component of the structure of price, that governs the function of price in the financial markets.

As an example, I shall use the Currency [Fx] markets [hence my previous interest in the tightest spreads] If we look at the US$, Can$ Au$, but, it can be any currencies that catch your fancy

Current exchange rates are;
US$/Au$ = 1.3068
Au$/Can$ = 0.8731
Can$/US$ = 0.8764

These prices are equivalent, and fulfill the two laws.
If however, lets say, the US$/Au$ = 1.4068
There would be a *relative valuation differential*, and under the two laws a 7.6% spread would develop allowing a risk free profit.

Thus the rise in the value of the US$ would be blunted until, the fundamentals warranted the rise in value [increase in interest rates etc] and or a devaluation across other currencies, to offset [the same rise]

This trade via the two laws, holds true across any type of security & commodity, through multiple timeframes, and is written in stone.
*The probability is 100%, with a coefficient of 100%, with a confidence factor of 100%, to a standard deviation of 10* This is a true high probability trade.

It also explains selling pressure that causes breakdowns in deterministic chart patterns, and why a chart pattern will always remain a 50/50 proposition. This assertion is bourne out time and time again, when examining the data of any longer term studies of chart based trading. My own technical trading was almost exactly 50/50 over a 10 month period. tech/a and TT are in the same 50/50 distribution, and currently my Fundamental portfolio is approximately 50/50

jog on
d998


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## tech/a (16 November 2006)

> tech/a and TT are in the same 50/50 distribution, and currently my Fundamental portfolio is approximately 50/50




Throw in Reward to Risk and the profit distribution is anything but 50/50.
The vast cavern between my and your use of numbers.


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## ducati916 (16 November 2006)

tech/a said:
			
		

> Throw in Reward to Risk and the profit distribution is anything but 50/50.
> The vast cavern between my and your use of numbers.




That is true, but completely irrelevant to the topic under discussion.
The topic, was once again this old tired chestnut regarding probability.



> Charting and TA is a technique you can use to determine what the probabilities of the 3 possibilities are at any time. Everyone will come up with their own values based on their skills in TA and experience. If you can get them right more often than not then you will have a much better chance of surviving in the long run.




TT, based on current open trades [in profit] and closed trades [losing trades] is currently approximately 50/50, and this is in a bullmarket.

Conceded the open trades render the methodology profitable.
However, that is a function of risk management,* not trade selection* which is the topic under discussion under the umbrella of *probability*

jog on
d998


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## ducati916 (18 November 2006)

*Psychological*

Here we have the interesting phenomena of price acting upon itself through the rise or fall of price itself. In addition, outside, emotional factors can influence price.

Price feeds upon itself, and forms a trend, based on volume of orders.
For this to continue for any length of time, or percentage increase in price, a number of factors need to be in place; [assuming a trend higher]

*significant short interest at various levels.
*variability in news flow [mixture of good and bad news]

These first two factors are important in that a sustained rise, needs continued buying pressure at a variety of levels to offset;

*profit-taking
*arbitrage
*short-selling due to news [Fundamental or otherwise]

These three points, will blunt, and in some cases end a trend, unless they are offset by covering of sold positions + new buyers attracted by the trend in price.

If the price rise is ended, then, the same principal works in reverse with the last to buy, selling on stops, and working back through the various levels.
A price decline is halted by the value investors gradually taking positions, and ignoring further declines, thus stabilizing the volume of selling.

These examples are of *price influencing price*
Emotional triggers [externalities] are generally unexpected bad news events.
These tend to cause very large, and very fast declines.
The ultimate effect is very dependant upon valuation.
If the valuation is very high, this can trigger a trend reversal.
If the valuation is very low, it tends to shake out traders, and the trend will remain intact.

In the middle of the range valuation wise, random, based on too many factors to accurately analyze, and generally results in choppy consolidation with increased volatility.

jog on
d998


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## tech/a (18 November 2006)

> Conceded the open trades render the methodology profitable.
> However, that is a function of risk management, not trade selection which is the topic under discussion under the umbrella of probability




I'm seeing the *need* to analyse,disect,and explain.

When in fact its not necessary.
If you just *accept * that price will rise and fall for *who cares what reason* (End of emotional trading),simply get on rising stock and stay there as long as it rises,get off falling stock as quick as you can.

I know its annoying and it shouldnt be so---- but trading profitably is so so so  simple.
*Most of its participants by their actions make it so incredably hard.*

Analysis paralysis is one very real affliction both of entry ,exit and *SELF*


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## ducati916 (18 November 2006)

tech/a said:
			
		

> I'm seeing the *need* to analyse,disect,and explain.
> 
> When in fact its not necessary.
> If you just *accept * that price will rise and fall for *who cares what reason* (End of emotional trading),simply get on rising stock and stay there as long as it rises,get off falling stock as quick as you can.
> ...




Yes, I have that need to understand.
Why, you may ask?

For the simple reason that your methodology is not new or original, it is in essence the old Turtle system. The Turtle system also worked well for a period of time, and then blew up.

I am interested therefore in understanding how to consistently & safely make money within the financial markets irrespective of market beta.

jog on
d998


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## tech/a (18 November 2006)

> it is in essence the old Turtle system




Duc

The *only* similarity it has to the Turtle system is that it is a longterm trend following system.So is Stevo's you may wish to check his blog.

Ive shown some short term stuff in this section.More profitable % wise again---more time consuming as well.

Mate I'm convinced your looking for NO RISK.
You have only found it in Arb.

What youve got to do in all honesty is get comfortable with RISK and simply manage it.
Aint that hard.


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## ducati916 (18 November 2006)

tech/a said:
			
		

> Duc
> 
> The *only* similarity it has to the Turtle system is that it is a longterm trend following system.So is Stevo's you may wish to check his blog.
> 
> ...




I am mostly interested in low, or zero risk, quite correct.
Which is why at heart I am an arb.
Surprisingly, there are many strategies that fulfill this requirement [or come passably close] and present numerous opportunities on a daily basis, so that there will never really be a requirement for speculation, even on a mechanical basis.

jog on
d998


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## barnie (20 November 2006)

ducati916 said:
			
		

> The word probability keeps popping into any discussion on chart based analysis. Chart analysis is not probabilistic, it is deterministic, and people really need to understand the difference.




It is possible to determine the probability, based on accepted TA techniques and/or personal or others' experiences, of each of the 3 possible price movements just like it is possible to determine that the probability of a tail coming up on a given coin toss is 60% if you found that a tail came up 6000 out of 10000 times in previous trials, even though there are only 2 possible outcomes.

Of course, after 1M trials you might find that a tail came up 650,000 times and so the probability of a tail would then be 65%. So, the more trials (or in the case of share trading the more back testing data ) you have the more accurate your probability determinations will be.

So, identifying high probability possible outcomes from scanning and interpreting charts will result in a much higher probability of you being profitable in the long term.


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## Porper (20 November 2006)

barnie said:
			
		

> Of course, after 1M trials you might find that a tail came up 650,000 times and so the probability of a tail would then be 65%. .




Sorry, I don't see this.No matter how many times a tail comes up in a row there is a 50/50 probability of a tail coming up next time.




			
				barnie said:
			
		

> So, identifying high probability possible outcomes from scanning and interpreting charts will result in a much higher probability of you being profitable in the long term.




This is totally different from tossing a coin.A coin toss has no other influences, it is a totally random act.Price action is not totally random so we have a chance of making decisions based on something other than a random event occuring.

I am happy to be proved wrong.


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## bettie (20 November 2006)

Porper said:
			
		

> Sorry, I don't see this.No matter how many times a tail comes up in a row there is a 50/50 probability of a tail coming up next time.
> 
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Hi Porper

That is where so many get it wrong.

Keeping it as simple as possible, mathematically the probability of an outcome occuring at any point in time is defined as the number of times that outcome has actually occurred in the past divided by the total number of trials.....hence the 65% probability of a tail on a given toss when historically the coin has spun up tails 650000 times out of 1M

With a flat coin whose weight is exactly evenly distributed then the actual occurences of heads and tails would be very close to 50/50. But if the coin's weight is not evenly distributed or if it is not exactly flat and allowing for varying wind gust strenghths etc etc then the number of occurrences for heads or tails could be biased towards either heads or tails in the long run.

The same principle applies to "loaded" dice which are designed so that one or more of the 6 numbers have a higher probability of finishing face up when the dice is rolled.

Another way of looking at it is the tortoise and hare race.  Here there are only 2 possibilities just like the coin (3 if you include a dead heat) but the probability of the hare winning is very much higher than than that of the tortoise's and certainly not 50/50 as I assume you would suggest.

So just like the probabilities of possible outcomes of an event can be biased to one or more of the possible outcomes so can stock price movements be biased to being more likely to move up, down, stay steady depending on factors like human fear and greed being driven by announcements, economic outlooks etc etc etc and these probabilities can be determined using trends (short and long term), support and resistance levels and/or technical indicators on charts.

I hope this clarifies the definition of probability, in very simple terms at least, and how the 3 possible share price movements (up, down, steady) can be assigned probabilities of occurring and very rarely will they all be equal for a given stock at a given time.


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## Porper (20 November 2006)

bettie said:
			
		

> Hi Porper
> 
> That is where so many get it wrong.
> 
> ...




I think the goalposts are getting moved here.With a coin toss obviously we are talking about a non weighted coin with no outside influences on the toss.

I still maintain that after ten tails in a row the next toss has a 50/50 chance of being either a tail or a head.

My point however is that the market (and price action) does have outside influences and price action is not random, otherwise we would have no better than a random chance of making a profit.


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## bettie (20 November 2006)

In addition to my last post, if you take an extreme example of say a company like TLS announcing over night they expect a 30% drop in profits this year then imo it will be far more probable that the company's share price will fall on the next open than rise.

Of course this is an extreme case and in most cases there are may more subtle influences affecting buyer/seller sentiment but as I said earlier, very rarely will the probability of a share price going up be exactly 50%, if you exclude the possibility of it staying steady.

I hope this clears up how you can determine probabilities of possible future price movements from charts which show what has happened historically to share prices.


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## bettie (20 November 2006)

> I still maintain that after ten tails in a row the next toss has a 50/50 chance of being either a tail or a head.




Yes agree, but only in extremely ideal conditions as per my original post.

But if the coin or dice are not weighted evenly, and these uneven weight distributions are analogous to say human fear/greed affecting share prices as decribed earlier, then the probabilities of each possible outcome will not be equal to each other and hence that is why you can have possible share price movements with high and low probabilities of occurring.


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## professor_frink (20 November 2006)

bettie/barnie/casper/babyboomer/ said:
			
		

> Yes agree, but only in extremely ideal conditions as per my original post.
> 
> But if the coin or dice are not weighted evenly, and these uneven weight distributions are analogous to say human fear/greed affecting share prices as decribed earlier, then the probabilities of each possible outcome will not be equal to each other and hence that is why you can have possible share price movements with high and low probabilities of occurring.



Gee bullmarket, don't you ever give up?


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## bettie (20 November 2006)

Hi PF

I have openly posted that I regularly change my nic on this and other sites.

It's no secret.


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## Kauri (20 November 2006)

Bettie/Barnie ???  Heads or tails esok:  

    It's pedantic I know but isn't probability a measure randomness, if so a weighted or biased coin or for that matter even an _honest_ coin cannot have probability attached to it, it must be deterministic as it is either head or tail, in line with its bias, although in place of probability it is possible that you could possibly say possibility. 
     If the representation of a shares value, the closing price, was determined by probability we have a random market. If it is deterministic then what applies the bias to consistently move certain shares in a constant direction which defies the 50/50 rule.If enough people study fundaments and all reach the same conclusion at the same time, and then apply this as bias to the share price, and their bias (as dollars put into the share) is stronger than those who hold an opposite view, the weight of their opinion will determine which way the share price moves. Likewise technical analysis. Therefore I...hang on. someone at the door...

  Sorry, got to go, a couple of nice gentlemen in white coats are going to take me for a drive....  :silly:


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## bam-bam (21 November 2006)

Kauri said:
			
		

> Bettie/Barnie ???  Heads or tails esok:
> 
> It's pedantic I know but isn't probability a measure randomness, if so a weighted or biased coin or for that matter even an _honest_ coin cannot have probability attached to it, it must be deterministic as it is either head or tail, in line with its bias, although in place of probability it is possible that you could possibly say possibility.




Hi Kauri

Yes I agree that probability can be viewed as a measure of randomness.

But randomness does not mean that every possible outcome for an event, such as the roll of the dice or toss of a coin or tortoise and hare race, must have the same chance of occurring on any given trial.  The chances/probabilities may or may not be equal.

A probability can be determined for any possible outcome to an event and is measured in its simplest form as the number of times an outcome has actually occurred divided by the total number of trials.

As I posted earlier, the larger the number of trials you have then the more accurate your determination of each outcome's probability will be.

If for example you toss a coin 7 times and seven heads come up you would be drawing a long bow coming to the conclusion that the probability of a head coming up on any given toss was 100% and that tails had no chance at all of coming up (unless of course the coin was heavily biased towards heads some how).  But if you tossed that coin in say 10000 trials and found that heads came up 6000 times then by the definition of probability above imo it is quite correct to say that on any given toss of that coin, based on the results of the 10000 trials, the probability of a head coming up was 60% and the probabilty of a tail coming up was 40%.

The same principles can be applied in determining the probability of possible share price movements (up, down, steady) for a given stock using TA, FA or whatever you prefer to use.  An exaggerated example is my TLS example posted earlier.

Therefore, looking for high probability share price movements (up or down) via TA and/or FA and trading/investing in them will greatly improve your chances of being profitable in the long run.


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## professor_frink (21 November 2006)

Bullmarket,
have you done any real research on this?
It's all well and good to say that there is a higher probability of a down day during a downtrend, but what are the actual odds?
If a stock closes lower for 7 days straight, what are the actual odds of it closing up or down the next day? Or if it happens for 10 days straight?
Stories of weighted coins don't really help anyone make a decision on the behaviour of stock.


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## ducati916 (21 November 2006)

The following, unfortunately is just more of the same old nonsense.



> The same principles can be applied in determining the probability of possible share price movements (up, down, steady) for a given stock using TA, FA or whatever you prefer to use. An exaggerated example is my TLS example posted earlier.
> 
> Therefore, looking for high probability share price movements (up or down) via TA and/or FA and trading/investing in them will greatly improve your chances of being profitable in the long run.




You have committed the basic error of extrapolating something that contains probabilities viz. coin tossing, to try and explain a phenomena that is not probabilistic, but deterministic.

Until you understand the difference, and why, you will be highly inaccurate within your premise and assertions, and thus your conclusions.

jog on
d998


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## bam-bam (21 November 2006)

hi ducati

I don't think I am inacurate at all in what I have posted earlier


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## professor_frink (21 November 2006)

bullmarket said:
			
		

> Hi PF
> 
> I have a set of TA and FA criteria that have to be met before I will buy a stock.
> 
> ...



So that's a no to actually having hard figures then?


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## bam-bam (21 November 2006)

PF

yes I do have records and data from my investments over the years but I don't see how it is advantageous to me to post them because for obvious reaons I will not post personal information to verify them.

Therefore, you can choose to either believe or disbelieve what I post - it doesn't matter either way to me.


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## professor_frink (21 November 2006)

bullmarket said:
			
		

> PF
> 
> yes I do have records and data from my investments over the years but I don't see how it is advantageous to me to post them because for obvious reaons I will not post personal information to verify them.
> 
> Therefore, you can choose to either believe or disbelieve what I post - it doesn't matter either way to me.



I wasn't asking for your records. You are comparing market action to a weighted coin. Where is your evidence to prove this assertion? You haven't given any.


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## ducati916 (21 November 2006)

bam-bam said:
			
		

> Hi PF
> 
> I have a set of TA and FA criteria that have to be met before I will buy a stock.
> 
> ...




Which simply elucidates further your ignorance on the difference between the true definition of a probability, the defining criteria, and a deterministic paradigm.

I have highlighted the relevant section in your post that illustrates the dichotomy of your comprehension. You see, an exit criteria, *is a money management tool* 

Money management [exit] may very well make your methodology profitable.
That however is totally irrelevant to the topic of probability [entry]
Come back when you understand what it is you are discussing.

jog on
d998


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## professor_frink (21 November 2006)

bullmrket said:
			
		

> Hi PF
> 
> I used the examples of weighted coins, "loaded" dice and the tortoise and hare race to help explain the definition of probability.  I then described in general (with the use of TA and FA) how I use probability to maximise the chances of my investments being profitable.



What's funny about this statement, is I think you actually believe that to be true. How sad.



			
				bullmarket said:
			
		

> There are countless strategies, criteria or whatever you would like to call them to help increase the probability of trades/investments being profitable and those are a whole different ball game and discussion.



Yes there is. By simply moving you stop up to entry+1, when you are up 2, is going to result in a profit being made. This has absolutely nothing to do with having a high probability entry though.


			
				bullmarket said:
			
		

> If you choose to not believe anything I posted that is fine with me



Now why would I not believe something said by an ill informed pest, who continues to stalk an internet forum that doesn't want him around in the first place? You are obviously a sincere, believable gentleman, who's word cannot be called into question


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## It's Snake Pliskin (21 November 2006)

redzed said:
			
		

> that's ok PF
> 
> I think the only sad thing is that you are letting the fact I openly publicise that I regularly change my nic get the better of you and you are clutching at straws trying to guess who is posting what.
> 
> ...




Redzed what are your thoughts regarding the structure of price? Is Ducati on the mark?


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## tech/a (21 November 2006)

A much sadder and much lonlier individual that I first thought.

Surely there is a romper room for pensioners without a life that would suit your persona??

Ahh the secrets out this could well be the Prof!


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## professor_frink (21 November 2006)

bullmarket said:
			
		

> that's ok PF
> 
> I think the only sad thing is that you are letting the fact I openly publicise that I regularly change my nic get the better of you and you are clutching at straws trying to guess who is posting what.
> 
> ...



Maybe I should- I wouldn't make much of a detective though- your too stupid to change the way you post- it doesn't require much skill.
If it's sad that I catch you out in your obsession for this forum, how sad does it make you- nothing better to do than to try and participate in a forum that you aren't welcome at 

Is Mrs bullmarket really that annoying that you prefer to spend your time on here, rather than spending time with her?
Although she'd have to be weird one to put up with you for more than 5 minutes!


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## It's Snake Pliskin (21 November 2006)

I am now extracting myself from this thread.


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## RichKid (21 November 2006)

It's Snake Pliskin said:
			
		

> I am now extracting myself from this thread.




Snake, if you're leaving b/c of bullmarket then please reconsider as that's part of his objective, to ruffle feathers and drive you away so he gets some attention. 

If posters on this thread could avoid quoting or responding to bullmarket's posts the mods will delete the posts in time.  Please ignore his posts.

If you see any bullmarket like aliases please use the report post feature to inform us immediately or pm a moderator.


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## It's Snake Pliskin (22 November 2006)

RichKid said:
			
		

> Snake, if you're leaving b/c of bullmarket then please reconsider as that's part of his objective, to ruffle feathers and drive you away so he gets some attention.
> 
> If posters on this thread could avoid quoting or responding to bullmarket's posts the mods will delete the posts in time.  Please ignore his posts.
> 
> If you see any bullmarket like aliases please use the report post feature to inform us immediately or pm a moderator.




This could be a good thread. Whoever the multiple name user is I don't care. But it is a bit silly when you get an answer from someone you haven't asked in their first post.  Thanks for the good moderating though RK.


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## ducati916 (22 November 2006)

I have continued the discussion here for any interested.

http://grantmacdonald.blog.co.nz/


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## RichKid (22 November 2006)

It's Snake Pliskin said:
			
		

> This could be a good thread. Whoever the multiple name user is I don't care. But it is a bit silly when you get an answer from someone you haven't asked in their first post.  Thanks for the good moderating though RK.




A pleasure to help Snake, and Yes, very odd behaviour there, I hope this discussion will continue.

Duc, please try to continue the discussion in this thread, I'm sure we'll all appreciate it.


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