October 8th, 2009, 10:07 pm
QuoteOriginally posted by: Richyiee"the "chartist" would be trying to predict next coin flip's side. so, if the last three coin flips were head, tail,head, then the chartist would rationalize that "they alternate in short term", so he'll bet on next tail."your viewing markets from a prejudiced perspective, if you assume they're 'random' then of course technical analysis is stupid. actually given enough data from a random walk generated on matlab, it may be possible to make better than 50-50 predictions on future increment directions using 'technical analysis'. Although im not completely sure how pseudorandom numbers are generated on matlab i remember somewhere of a mention of a period, if it has a period its definatly deterministic, im not proposing "record the sequence, next time it starts we have the numbers", but if the thing driving it is anything like a chaotic equation where attractors exist, then a type of 'technical analysis' may workI am not sure what your point is. Sure, if the underlying distribution isn't Markovian, than you can do better than using a Markovian model. Your initial question seemed to have to do with knowledge of or assumptions about the underlying distribution effecting the "Markovianness" (did I just coin a word there?) of the distribution. I do not know how much clearer, simpler, or straightforward of an example we can give. We know exactly what the distribution of a coin flip is, yet we can study history all we want and we will never come up with a better guess than 50% heads, 50% tails for the next flip.As far as viewing markets from a prejudiced perspective...economists and market makers will be debating what inefficiencies, if any, exist in the market until we all join Mr. Markov in the grave. Most of the time, when an ineffieciency is reported, it disappears rather quickly. Is the market getting more efficient or was the inefficiency not there in the first place?