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Gene,
> We know that flipping a coin will create a "tendency" over time to revert
to
> a mean.
> We know that the stock market can "overshoot" more than flipping a coin
> before the same reversion over the same time.
But they aren't the same thing. The coin has no memory. It's not subject
to event spikes. The market has three possible outcomes - heads, tails, and
no change.
> My question is... what is the "factor", probability or otherwise, that
> allows one to "bet" on this reversion over time and how is it measured?
The factor? It's a market characteristic that can be exploited with varying
degrees of success depending on the market. For indices, it's the
perception of rich and cheap. For the energies, it's seasonality. For
interest rates, it's the mandate of the central bank to gently manage
interest rates so as to produce steady economic growth with no inflation.
Quantifying these characteristics is a tougher exercise. I only know
indices. In my days as a wage slave, I worked for pension and mutual fund
managers and got to be very comfortable with the movement of equity markets.
When I checked out in order to trade futures, it seemed natural to trade
indices. I could represent the perception of rich and cheap through
advances and declines. It worked well but didn't have anywhere near the
elegant simplicity of Oddball.
> Please correct me if wrong, but is this not what Mark's system is about?
Not
> the odds of the "next" flip, but the tendency of the flips, once skewed to
> one side, to revert?
Yes. Oddball reflects the characteristic of equity markets. It has nothing
to do with the odds of the next flip. That falls into the area of stops and
betsizing.
Regards,
mike
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