What would you do if market prices were truly a random walk?
Re: What would you do if market prices were truly a random walk?
@shemp: It's obvious that computers are better at pattern recognition and execution speed. But these are not the only drivers of performance as you seem to indicate and their impact is only really relevant in day trading. Size matters. Liquidity matters. Ability to concentrate heavily matters. All of them tip the balance in favour of 'the little guy'.
@Lucky C: sorry for derailing this thread.
@Lucky C: sorry for derailing this thread.
Re: What would you do if market prices were truly a random walk?
No problem, I satisfied my curiosity as to what the responses would be when I first posted it in the summer 
Re: What would you do if market prices were truly a random walk?
@Bankai: you don't need liquidty (size and concentration are variations on the same theme) when using technical analysis, precisely because almost all technical analysis boils down to trend following aka momentum investing/trading. Without much liquidity, you can force a trend. Then you primarily need execution speed to take advantage of the trend faster than amateurs. Renaissance Technologies and other computer driven trading systems locate their computers right next to the exchange computers to take advantage of speed of light factors.
@LuckyC: Sorry, I guess I didn't read carefully the question, since the question as posed is so silly. Everyone except technical analysts assumes Random Walk Theory is true. Truth of Random Walk Theory is the base assumption of everyone in this forum (including me since I am certain I can't outcompete computers at technical analysis). Which leaves fundamental analysis. Efficient Market Theory complements Random Walk Theory by saying fundamental analysis is also very hard. (Wikimedia article confuses this issue.)
So to answer your question, probably no one in this forum would do anything differently if Random Walk Theory were true because we already assume it to be true. People who believe Random Walk Theory true either dollar cost average into index funds, or use fundamental analysis to pick individual stocks or market time. Though maybe there are done technical analysts in this forum, likr you and Bankai, though not clear if either of you even understand the terms Random Walk Theory or technical analysis.
Inability of some people in this thread to properly understand Random Walk Theory, plus other evidence of investor naivety in this thread and others, is precisely why I and many others believe Random Walk Theory is not true. Naive/dumb investors tend to follow non-random patterns as they fall prey to universal human psychological biases. Those non-random patterns can be exploited by smarter investors.
For short-term (under a month) trading, computers almost certainly do a better job exploiting patterns than humans. Long-term patterns may or may not exist, but it is much simpler (and safer) to exploit long-term patterns using fundamental analysis than technical analysis. For example, much simpler and safer to use fundamental analysis to decide to sell Tesla now than using technical analysis. (I'm assuming long-term investor in Tesla.) Back around 2000 or 2008, much simpler and safer to use fundamental analysis to decide to switch from stocks to bonds than using technical analysis to make this market timing decision.
@LuckyC: Sorry, I guess I didn't read carefully the question, since the question as posed is so silly. Everyone except technical analysts assumes Random Walk Theory is true. Truth of Random Walk Theory is the base assumption of everyone in this forum (including me since I am certain I can't outcompete computers at technical analysis). Which leaves fundamental analysis. Efficient Market Theory complements Random Walk Theory by saying fundamental analysis is also very hard. (Wikimedia article confuses this issue.)
So to answer your question, probably no one in this forum would do anything differently if Random Walk Theory were true because we already assume it to be true. People who believe Random Walk Theory true either dollar cost average into index funds, or use fundamental analysis to pick individual stocks or market time. Though maybe there are done technical analysts in this forum, likr you and Bankai, though not clear if either of you even understand the terms Random Walk Theory or technical analysis.
Inability of some people in this thread to properly understand Random Walk Theory, plus other evidence of investor naivety in this thread and others, is precisely why I and many others believe Random Walk Theory is not true. Naive/dumb investors tend to follow non-random patterns as they fall prey to universal human psychological biases. Those non-random patterns can be exploited by smarter investors.
For short-term (under a month) trading, computers almost certainly do a better job exploiting patterns than humans. Long-term patterns may or may not exist, but it is much simpler (and safer) to exploit long-term patterns using fundamental analysis than technical analysis. For example, much simpler and safer to use fundamental analysis to decide to sell Tesla now than using technical analysis. (I'm assuming long-term investor in Tesla.) Back around 2000 or 2008, much simpler and safer to use fundamental analysis to decide to switch from stocks to bonds than using technical analysis to make this market timing decision.
Re: What would you do if market prices were truly a random walk?
Sorry for being so silly!
Re: What would you do if market prices were truly a random walk?
Here's what an actual hedge fund manager has to say about this (and he 'only' manages a 9-figure fund, this is even more of an issue for 10-11-figures funds):
https://youtu.be/cpNVHCydUr8?t=1069