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Strategies & Market Trends : Systems, Strategies and Resources for Trading Futures
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To: F Robert Simms who wrote (39970)11/17/1999 9:11:00 PM
From: Matthew L. Jones  Read Replies (1) of 44573
 
Let me post the raw data for the calculation:

Mean: 2.1
Standard Deviation: 1.39

1st day: 0.786
2nd day: 0.529
3rd day: 0.259
4th day: 0.086
5th day: 0.018
6th day: 0.003
7th day: 0

Now plug the data into this calculator
psych.colorado.edu

You are doing a "normal distribution" sample with a single tail. The day number goes into the "Y" box. At the bottom (under the graph) it will give you the probability.

Now to convert probability into odds, you need to take the probability number and put it in a "yes argument" column and you need to take 1-probability and put it in a "no argument" column. (The rationale is that if the probability for (yes argument) is .78 (78%) then by default, the probability against (no argument) is .22 (22%) or 1-.78.

Then take the ratio of yes/no and you have the odds.

The "1st day" is a theoretical probability based on statistics. It is not of any practical use because every rally has it's first consecutive day. Where (as I tried to explain, but probably not very clearly) the odds become useful (from a practical standpoint) is when the number of consecutive days in the same direction gets to be excessive (3,4,5). It helps in the decision making process in evaluating risk/reward.

Hopefully this should clarify it better.

Matt
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