Stock movement, standard deviation and psychology

You're prompt to make conclusion: I can just own a dictionary but just never open it by laziness :D. As for BB, I will explain to you in detail what it really means - sorry it will not be for you exclusively since it will be in the article I said I prepare for my site - because you won't find the answer in your dictionary, but since I have been statistical engineer for half of my professional life - at the beginning of my carrier - I may perhaps (as you see I am not as conclusive as you) have some expertise in the field :D. And I think I will have to correct hugely some idiocies that I can read, I reassure you that it will not target you especially but what is heard generally on Bollinger's band which is statistical abuse because of lack of rigor on basic understanding about what a student test is.

Quote from dbphoenix:



Unless you've read Harry's posts, you may not know that he doesn't own a dictionary.
More...
 
I'm not offended: I know I'm mad it the others who ignore that they are also :D. As for being a genius, having a father that has had such public status, I don't arrive at the level of his feet, in fact I'm the slowest of all members of my family so I have to think more deeply than any of them to fill my handicap. That's why I am paranoïd whereas my brother is not : he doesn't go far enough in recursive and meta-thinking like me :D.

Quote from rodden:



I've read Harry's posts. Mad genius excuses a lot of shortcomings - including the occasional grammatical slip.

No offence intended Harry.
More...
 
Quote from rodden:

I was in such a hurry to respond to the first part of jbtrader's post that I didn't get the interesting notion presented in the last paragraph ( where the actual question is posed )
More...

Which is the point I was trying to make some time ago.
 
Quote from harrytrader:

You're prompt to make conclusion: I can just own a dictionary but just never open it by laziness :D. As for BB, I will explain to you in detail what it really means - sorry it will not be for you exclusively since it will be in the article I said I prepare for my site - because you won't find the answer in your dictionary, but since I have been statistical engineer for half of my professional life - at the beginning of my carrier - I may perhaps (as you see I am not as conclusive as you) have some expertise in the field :D. And I think I will have to correct hugely some idiocies that I can read, I reassure you that it will not target you especially but what is heard generally on Bollinger's band which is statistical abuse because of lack of rigor on basic understanding about what a student test is.
More...

Glad you're not offended, HT.

Looking forward to your dissertation on BB's; they seem to be one of the better indicators - especially when coupled with RSI.

Incidentally, I'm not completely deluded; I'm aware that I've been talking through my hat through this entire thread. I just like to argue.
 
Quote from ig0r:

I conclude by saying that there must exist a measure that will be able to gauge market psychology and forecast turning points in price and in time, what it looks like is yet to be seen, but it could be the holy grail
More...

Or, that measure could be your plain-vanilla price chart
 
Bollinger Bands are simply one tool of measuring standard deviation. You could use a % away from the 10 day moving average for example and calculate standard deviation from that. You could calculate standard deviation over the 200 day moving average. There are literally infinite possibilities.

I still find it remarkable that all securities tend to stay within this 95% range though. Even in the biggest bubbles in the history of the world (Japan, Nasdaq 1999, Gold in 1980, etc), the markets never went much above 3 standard deviations.

My question is, at the upper extreme of 3 standard deviations, there is obviously mass crowd pyschology at work. Everyone is euphoric. Go back to when BRCM or ARBA were going up $50 a day in a near vertical ascent. Occasionally there'd be days outside the bollinger band. But it very rarely lasts. Try finding a stock chart in which prices go completely outside the band for many days at a time. How about for a few straight weeks? It never happens. Wouldn't random walk theory suggest that stocks could go up for 30 days in a row for example. After all its a 50-50 random chance stocks can go up or down for a day. If you toss a penny enough times, statistically, you'll get 30 straight heads eventually. Even with a hundred years of stock data, I dont think stocks have ever gone up or down for 30 days in a row for example. I believe record up days in a row for the DOW is somewhere around 10 or 12.

I think stocks charts are simply a graph of mass crowd pyschology, nothing more. And throughout human history, even if you took a chart of dutch tulips in 16th century Holland (I'd love to see a chart of that by the way), I think you'd find the same patterns that you'd find in modern day markets. Even though many novice traders think "it's different this time" (i.e. we're smarter than the dutch tulip traders, we're more informed than the participants in the crash of '29 etc), we still behave exactly the same way they did.

The chart of Japan overlapped with the S&P is amazing. Even two completely seperate events (the Crash of '87 and the crash of '98), appear very similar on the chart. Japan was the first major market in the world to eclipse it's previous '87 high and thus added fuel to the fire for the bubble believers. Likewise in '98. The NASDAQ shot over its previous high and was off to the races.
 
A post mentioned pyschology as a possible holy grail in terms of market timing and trading.

I think it is the holy grail! The beauty about studying mass crowd pyschology in the markets is that it has never changed and it never will. Studying traingle formations, breakouts, technical indicators, etc does not provide IMO as deep of an understanding of the markets as studying pyschology.
 
You must log in or register to reply here.
Back
Top