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Hey Dan Murphy here and today I want to show you the most expensive chart in the universe. What is the ticker symbol? How would we trade it? How do most people that use technical analysis trade? Well we can see that maybe you can use a little trend line over here and then obviously right over here that was broken and then you can just ride that sucker up and then maybe we can add a little too it when it breaks up next time, and then we’d have our little trend line. Maybe when it finally went sideways we could cash out for a little bit of money. This is all hogwash. Let me show you why.
What chart is this? Here’s my answer. This is a random coin flip chart. Complete baloney. It was all made up. It looks like any chart you would pull up and look at stocks. My point is is didn’t it look like that was how you could trade? That you could actually use a bunch of lines and trade the markets? How is that even possible when most stocks are mostly random? In fact, I can just generate each of these with the push of a button. Sometimes you can get something that practically looks like natural gas going straight down, right? How can I prove that it actually even makes money? Well you have traders like Ed Thorpe that before Black Scholes even invented the Black Scholes method for pricing options, he said “Aha!” I think markets are mostly random so here is what I’m going to do. I’m going to use something called Brownian motion which is random motion and he’s basically created something like this to model where stocks where go. And he cleaned up. He made a ton of cash. A boatload of cash. What does that tell you? It should tell you that markets are mostly random. So theories like Elliott Wave I could probably throw that crap out the door. Well when Ed Thorpe did that, when he didn’t listen to any of that hogwash he cleaned up. The moral of the story is two fold. One there is very very little signal out there. Most of it is all noise. Two- you need to go against the grain, go against the establishment when it comes to pretty much anything in your life because it’s mostly wrong.
I know that this video is going to get me in trouble with a lot of people but this is the truth. Now you might, ask how is it we can make money in the markets? Let me give you an example. How is it that we’re doing really well in my oil system in my Million Dollar Target mentoring program. How is it that this system that I invented is at new time ever equity highs? Markets cant be mostly random if you can make money, right? Here’s the deal. Again, I’m here to really change your thinking, and I hope showing the randomness of markets will help. Most people think that markets are normally distributed and that random noise I showed you, that random noise assumed that markets are normally distributed meaning they don’t move much. If we get back to that chart I was showing you you can see pretty much every day is the same size. If it’s down one day- maybe you’ll get a slightly bigger day on here, but overall it’s normally distributed. You don’t see any kind of a big down or up moves on this chart. That’s not how the markets work. The markets have things like 1987 happened. Here is the crash in the market in 1987. Looks mostly like that chart that’s generated by random numbers but then you can have these days that randomly happen. A little more frequently than generally expected. This should only have been one in a billion years for the market to crash like this if they were normally distributed.
So, how are they distributed? I don’t want to get into all the crazy math, but its called- these are fat tails. So fat tails just means that prices don’t always move in these nice little bunches and sometimes you get these outsized events. That’s why we can clean up so much in these systems like oil baron. It relies on making money from these supposedly rare events, but they’re not very much rare at all.
My bottom line to tell you is that Black Scholes those guys won the Nobel Prize in economics- they were wrong. The markets are not normally distributed. At the same time they were right in so many regards that most of this stuff that you see on this screen is going to be random noise and is not something you can predict. If you are a discretionary trader you have been warned that you have been fooled by randomness that drawing those lines on charts is not what really makes money in the markets. You need to be careful and do something that everyone else is not.
In these videos I try to give you lots of methods that do work and that I’ve been trading myself for a long time. I also like to give you warnings and debunk most of the crap that you see out there. I hope this video has changed your paradigm of thinking at least a little bit. Give me some feedback if I can make this thought process even better for you, so you can understand it even better. Shoot me an e-mail, and the reason I ask is because I’m very close with this stuff. I’ve been dealing with it for my entire adult life so maybe I’m not explaining it quite up to what you want. If you have questions- go ahead and let me know.
I’ll catch you next time- this is Dan signing out.