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Coin toss and what random series look like
Nassim Nicholas Taleb has some interesting thoughts about randomness in the markets.

Quote: “Flip a coin 50 times and write down an “A” when it comes up heads and a “B” when it comes up tails. But before you do so, jot down a list of As and Bs comparable to the one you’d expect to generate. When you’re finished flipping, compare the lists.

MORE REWARDING. What you’ll likely see is that the actual coin-toss results look far less “random” than the list of As and Bs you wrote yourself. Taleb says he can always tell a human-generated random list since it never includes long stretches of the same result, which is what actually happens when you toss a coin 50 times.

The lesson? Random events may not look random at all. And unusual events — such as a coin coming up heads 20 times in a row — happen far more often than you’d expect.

So how does an appreciation of randomness lead to successful trading? Take the coin-flipping example one step further. It might be tempting after a string of 20 heads-up coin tosses to think that you have a knack for turning up heads. You might be willing to wager that the 21st coin toss would also come up heads. Truth is, odds are still 50-50 the next coin toss will come up tails.”