Stock movement, standard deviation and psychology

[rodden]

Quote from dbphoenix:



Actually, it's just the opposite. Price stays within the bands because the bands are constantly adjusting to accommodate the price, just as someone inside a sphere can go pretty much wherever he likes, though he can't break out of the sphere.

Price doesn't follow the Bands; the Bands follow the price.

Actually, the bands don't follow "the price" per se; they follow the volatility which in turn is calculated from a set of most recent trades. True, the BB's reflect the volatility as at the moment of most recent trade, but no single normal trade is likely to affect the bands to a discernible effect.

I still maintain that the matter is not psychological; it is formulaic.

Incidentally, I think your person-in-a-sphere metaphor works as well for my POV as yours.

 

[dbphoenix]

Quote from rodden:



Actually, the bands don't follow "the price" per se; they follow the volatility which in turn is calculated from a set of most recent trades. True, the BB's reflect the volatility as at the moment of most recent trade, but no single normal trade is likely to affect the bands to a discernible effect.

I still maintain that the matter is not psychological; it is formulaic.

No single blip is going to affect any indicator other than a 1p MA (or similar). But saying that the BBs don't follow price but rather a set of prices is a quibble. The Bands would not exist were it not for price. Therefore, they go where price goes. If price doesn't go anywhere, neither do they.

 

[chasinfla]

Quote from dbphoenix:

someone inside a sphere can go pretty much wherever he likes, though he can't break out of the sphere.

great description.

 

[dbphoenix]

Quote from rodden:


Incidentally, I think your person-in-a-sphere metaphor works as well for my POV as yours.

Not unless you're claiming that the Bands can expand to infinity, so that price never leaves them. In that case, what's the point of the Bands?

 

[harrytrader]

Some little common sense (translated from a french statistical book untitled "Statistical techniques : rational tools for making choices and decisions" written by a chief engineer of Military Air Force):

"Contrary to natural phenomenas, economical phenomenas must take into account the intervention of humans who don't always obey to random law"

 

[rodden]

Quote from dbphoenix:



No single blip is going to affect any indicator other than a 1p MA (or similar). But saying that the BBs don't follow price but rather a set of prices is a quibble. The Bands would not exist were it not for price. Therefore, they go where price goes. If price doesn't go anywhere, neither do they.

BB's don't track either price or a set of prices; they track volatility, which is derived from a set of prices. BB's are only an indirect function of price.

Re. your subsequent post - using your metaphor to support my POV: The "person" is the instant price; the "sphere" is the BB's - but in this case, the sphere has a 5% flexible wall.

 

[dbphoenix]

Doesn't matter whether they are indirect or not.

BBs can't exist without price.

BBs can't move unless price does.

Whatever moves price moves BBs.

Psychology moves price.

 

[dbphoenix]

Quote from rodden:


Re. your subsequent post - using your metaphor to support my POV: The "person" is the instant price; the "sphere" is the BB's - but in this case, the sphere has a 5% flexible wall.

So? Like I said, if you're claiming the BBs can expand to infinity, what's the point? If they can't, my metaphor doesn't apply.

 

[harrytrader]

I like your formula "formulaic" is it really english

Quote from rodden:



I still maintain that the matter is not psychological; it is formulaic.

 

[harrytrader]

Since we are talking about "formulaicness" of BB, this is something that is close to the debate that is mean reversion: is it formulaïc ("COMMON cause") or does it have a "SPECIAL cause" - "common" and "special" are terms I introduce for they are specific to Walter Shewart and used inside his framework of statistical process control or Quality Engineering as I mentionned above.

From a statistical book:

"Regression to the mean can lead to mistakes with repeated observation or testing of the health or performance of an individual. Consider a patient with a chronic health problem. Depending on the problem, symptoms can fluctuate in severity over a period of weeks or months, for no apparent reason. When the symptoms get really bad, the patient may try a new alternative therapy. The symptoms then improve, because they were bound to improve from their atypical severe level. The patient can be forgiven for thinking that the new therapy worked. Later on, the patient stops taking the new therapy, the symptoms get bad again, the patient takes the therapy again, the symptoms improve... Get the picture? You can imagine a similar scenario with an athlete who turns in a particularly bad performance, then does something about it. Whatever the athlete does, it's likely to work–artifactually. Now you can understand why there is so much snake oil on the shelves of drug stores."