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Hi, Ron:
As Kevin mentioned, stock action does not follow normal Gaussian
distribution ... many feel that log-normal distribution is a more
appropriate model. Quite often, stocks with moderate to high
volatility tend to have "fat tails" ... i.e. the (least-likely)
outermost ends of the bell-curve encompass more points than is found
in a "normal" distribution.
John Bollinger did some studies on the actual distribution of prices
within the 20-day, 2-SD bands. I believe that he found the actual
distribution of prices over the stocks and time periods he studied
put about 90% of the prices within the 20,2 bands ... FWIW.
IMHO, the thing that really matters however is not what the
terminology is or the specifics of the percentages ... but whether it
WORKS or not. I have found BB's (20,2) and other SD-envelopes to be
very useful to my trading. Keep experimenting and don't take
anyone's word for anything!
Jim Dean
--- In Metastockusers@xxxxxxxxxxxxxxx, Kevin <kevin_barry@xxxx> wrote:
> Hello Ron,
>
> Two SDs will not necessarily encompass 95% of data between the
bands. The
> reason is that stock prices do not conform to normal statistical
> distribution; there are more occurrences towards either end of the
spectrum
> than one would expect in a normal distribution. This phenomenon is
known as
> 'fat bottoms'.
>
> In order to contain 95% of prices within the bands for a particular
stock,
> you may have to increase your standard deviation parameter.
However, every
> stock has it's own 'personality' so what works for one may not
yield the
> same result for another.
>
> Regards,
> Kevin
>
>
> At 19:34 07/10/2003 -0400, you wrote:
> >
> >Is it not the case that 2 standard deviations on either side of a
moving
> >average (as is the case with Bolllinger band settings) won't
encompass
> >about 95% of the data between the bands?
> >I don't understand
> >=>=>+>+>=
> >
> >or
> >
> >"breaking another indicator's legend"
> >
> >I think I understood
> >no it does not
> >
> >
> >
> >le corbeaux masque wrote:
> >
> > > I believe 2
> > > > std devs account for about 95% of the data.
> > > >
> > > =>=>+>+>= no it does not
> > >
> > > "breaking another indicator's legend"
> > >
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