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Assume that we (or someone else who is brighter than we are) can model
market movements using an equation consisting of several terms -- say long
term trend, plus long time cycle, plus short time cycle, plus supply and
demand, plus news, plus market maker manipulation, plus sunspot activity,
plus anything else that can be imagined. Anything that cannot be attributed
to a specific term, or any error in our modeling process, is lumped together
as residual. The modeler will repeatedly analyze the residual looking for
non-random characteristics and remove them by adding additional terms to the
equation. Whatever is left (whatever cannot be understood or modeled) is
random noise. At least until a better model with a smaller random component
is developed.
Howard
> -----Original Message-----
> From: uenal.mutlu@xxxxxxxxxxx [mailto:uenal.mutlu@xxxxxxxxxxx]
> Sent: Monday, November 17, 2003 9:40 AM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: Re: [amibroker] "Random prices" (was Re: Backtest using equity
> curve)
>
> Why should there be a random component in price movement?
> Supply and demand (plus News) drives the price.
>
>
<<<SNIP>>>
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