Answer: 49% (0.70 x 0.70 = 0.49)
That means, on average, he will make both shots about half of the time.
We have a similar situation in trading. If we buy a stock right and sell it right, accomplishing both correctly 70% of the time, we have an even chance of making money.
An interesting study was done a number of years ago by Earle Davis at Purdue University on PnF signals (Point and Figure charts are simply a logical, organized way of recording supply and demand).
He found certain price patterns exhibited very high statistical probabilities. For example, a stock in a bull market that broke a triple top had an 87.9% chance of being profitable for an average gain of 28.7% in about 6.8 months.
He also found that in a bear market, a stock that broke a triple bottom had a 93.5% chance of moving lower for an average “gain” (short) of 23% over only 3.4 months on average.
I don’t know about you, but if I had a stock that had a 93.5% chance of going against me for a loss of 23%, I’d want to short it, or at a minimum, at least know about it.
Be careful that you don’t short UBS based on this post, or a yodeler in lederhosen might crash your next party, and you might lose some money.
No comments:
Post a Comment