Reversion to the Mean

Quote from Arnie:

Take a look at range contraction. AMD today was a good example. Yesterday it had a very narrow range. All the contraction means is that you are more likely to get a break in either direction...an expansion of the range. Same with Volatility contraction. Plot the 100 day Volatilty and then plot a shorter period like 10day or 5 day. When the shorter period Volatilty dips below the longer, you are likely to get an expansion in Volatilty, (a reversion back to the 100 day) you just don't know in which direction. A lot of option trading is based on this principle.
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I hope you are not trading vols based on the 100/10 crossovers. Are you sure that a lot of traders using this strategy ?
 
Quote from Arnie:

Take a look at range contraction. AMD today was a good example. Yesterday it had a very narrow range. All the contraction means is that you are more likely to get a break in either direction...an expansion of the range. Same with Volatility contraction. Plot the 100 day Volatilty and then plot a shorter period like 10day or 5 day. When the shorter period Volatilty dips below the longer, you are likely to get an expansion in Volatilty, (a reversion back to the 100 day) you just don't know in which direction. A lot of option tading is based on this principle.
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This is interesting, I have approached this in the past when testing different breakout strategies. What type of volitality are you refering to? (what software? chaikin? tradestation? etc)


Quote from IV_Trader:

I hope you are not trading vols based on the 100/10 crossovers. Are you sure that a lot of traders using this strategy ?
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Why would you hope? Im curious, I have never used that strategy, but It sounds like your warning against it?

Just Curious, But thanks for the info.

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Thanks Again All,
- secXces
 
Quote from IV_Trader:

I hope you are not trading vols based on the 100/10 crossovers. Are you sure that a lot of traders using this strategy ?
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I used 100/10 just to illustrate. I never said a "a lot of traders use this".
 
Quote from jem:

This is interesting.

Whenever I have had conversations with quants - it seems to me they are doing techinical analysis without charts.

How do you see it being so different.

One guys model seems to be another guys four chartings screens of inter and intra market relationships

Once guys datamines for the reliations of advance decliners and tiki to price, the other guy looks over months of charts.

One guys mean reversion is another guys bollinger or atr bands.

Am I wrong?
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Yes and no.

Some elements of "techical analysis" may approximate the methodologies used in quantitative analysis...
The problem is...
That the field of TA is polluted with countless, unfounded beliefs like "pattern repetition", "resistance levels", on and on...
All jacked up by Insatiable Greed and Industry Propaganda.

In 2006... every aspect of TA can be rigorously backtested by a talented 16 year old and debunked...
But no one ever bothers... everything is an article of faith.
After having met 100s of amateur traders... I believe that TA is like crack.
Someone indoctrinated into the "easy money" of TA... can NEVER be deprogrammed.
(There is no such thing as easy money).

Quants only use charts to get a good overview of the situation...
Meaning "chart patterns" are NEVER a basis for a trading decision.

The mathematical techniques used by Quants to find mispriced securities...
Cannot be approximated by "looking at charts."

Also... the ** actual definition ** of "data mining"...
Is to use statistically fallacious techiques to scan mountains of data...
And pull out worthless, random patterns that do not continue into the future.
It is a brilliant con by the Securities Industry to actually re-invent "data mining"...
As a way for a noob to take money away from experienced pro traders.

Basically...
Any Doctoral Stats level expert would dismiss 90% of TA out of hand in 60 seconds...
And not bother to argue with someone who's dog was kidnapped by aliens.

Hope I addressed a few of you points...
 
Quote from HoundDogOne:


The problem is...
That the field of TA is polluted with countless, unfounded beliefs like "pattern repetition", "resistance levels", on and on...


In 2006... every aspect of TA can be rigorously backtested by a talented 16 year old and debunked...
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False


Ridiculous
 
Quote from Buy1Sell2:

False

Ridiculous
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Thank you for your thoughtful response.

This is exactly what I mean...
TA junkies are blindly driven my greed and greed and greed.

Dreams of easy money by buying off-the-shelf books and software...
Is the hallmark of a Loser.

And for the adults among us...
Here is a very good analysis of the Hedge Fund universe...
And the variety of groups and strategy types within:

http://www.vanguard.com.au/library/pdf/RL_Hedge_Fund_Evaluation_P01 05.pdf

Note: Please try a search.

The phrase "technical analysis" does appear in the document...
Because it is the preserve of desperate noobs and degenerate gamblers...
Not world class money managers.
 
Quote from HoundDogOne:

Thank you for your thoughtful response.

This is exactly what I mean...
TA junkies are blindly driven my greed and greed and greed.
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Nearly 26 years of success put me in a good positon to say

False


Ridiculous

Believe me TA is extremely valuable. My work is done in this thread.
 
b1s2, is correct...hi b1s2........the fact is most everything that occurs emini's will be seen over and over and over ad nauseum....if you look at enough stuff long enough..........ta or whatever u construe it to be or wish to call it is simply is fact that there are limited # of events that occur and re-occur.......limited... that is to say that there are so many pictures the chart can produce resulting from price action obviously.....not you and not me.......that is, we are teenie fish in the school......not the big fish...everyday the chart will end the day looking like a previous chart.....some previous chart....everyday is deja vous all over again. Patterns such as shaven heads, hammers, trend, all become repetitive pictures wit h similar results....but not if we change our appraoch every day as we try to curve fit system and find the chart for the day.....like trying to find the end of a circle......
 
The phrase "technical analysis" does appear in the document...
Because it is the preserve of desperate noobs and degenerate gamblers...
Not world class money managers.


That may be the case but http://www.elitetrader.com/vb/showt...erpage=6&highlight=beach capital&pagenumber=3

This link convinces me that you are poorly informed. It gave me a very definate exit point to every trade that wasnt just based on how much i could afford to lose (and discovering that my out was at the reversal point).
 
Quote from rdg:

What a perfect example of the Gambler's Fallacy. A coin flip is 50-50. Given that you have flipped 10 heads in a row, what are the odds that the next one will come up tails?
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Yeah, I know, only 50 percent. But a real strong 50 percent.:p
 
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