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Rudolf,
See the following pages at John Conover's site...
he just posteed these within the last week or so.
There's a lot of math used to derive his results, but
feel free to skip to the "examples" given on these
pages. The main point is that if you are interested
in computing "risk", the normality assumption will
severely underestimate your risk.
http://www.johncon.com/john/correspondence/020213233852.26478.html
http://www.johncon.com/john/correspondence/020217114704.27107.html
Jeff
rudolf stricker wrote:
>
>List,
>
>I would like to get comments on some ideas on the subject above:
>
>From Fourier's theorem we know, that at least 4 points are needed to
>identify a "wave form" in a series of data vs time (like price data).
>Because this is valid independently from the kind of problem or the
>analysis method used, its also valid for "trading" and for any "TA
>technique". So based on eg day-to-day data, we can identify / predict
>only waveforms of at least (3 to) 4 days (to make some profit from
>them).
>
>If we look at the price data of our favorite security from this point
>of view, we can construct probability distributions for price changes
>for eg 1, 2, 4, 8 days (when working with day-to-day data) and compare
>eg the probability to loose / win more than xx% for these time
>intervals. To make it more simple, we can also calculate the standard
>deviation for these price changes (, assuming normal probability
>distributions).
>
>If we read from these data, that e.g. the price changes for 1 and/or 2
>days are much higher than for 4 days, my thesis is, that we cannot be
>consistently successful with applying TA techniques to trade these
>securities. Or otherwise: The size of 1 and 2 day price changes
>divided by the 4 day price changes is a measure for the "general risk"
>or "non-tradeability" of this security. - Improvement of the
>"tradeability" can be achieved (only ?) by an increase of the
>information frequency from this point of view.
>
>So my questions are:
>
>What do you think about these ideas? Is there anything fundamentally
>wrong with it?
>Are there around any approaches of similar or other kind to measure
>the "tradeability" of a security?
>How does your favorite security look like in this light, eg in terms
>of "standard deviations"? What "general risk" rates do you trade
>successfully using TA techniques?
>
>Any comments and suggestions are welcome.
>mfg rudolf stricker
>| Disclaimer: The views of this user are strictly his own.
>
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