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Strategies & Market Trends : DAYTRADING Fundamentals
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To: Tai Jin who wrote (7963)4/23/2000 2:59:00 PM
From: Dan Duchardt  Read Replies (1) of 18137
 
Tai,

In a bull or bear market the distribution is likely to be shifted and heavy tailed, meaning that it is more weighted to one extreme and the mean does not equal the median.

Well, like I said I don't have the data to work with, but I'd have to see it to believe it. Of course the distribution shifts (i.e., the average return shifts) in different markets. Bull and bear markets are defined, at least substantially, by those shifts. But distortion of the symmetry is far more likely to come from approaching a limit than from just shifting the average.

In my previous example, I would be hard pressed to make a case that for everyone who enjoyed a 200% return there has to be somebody who loses 190%. People don't often lose more than everything, although it's not out of the question for someone to go from wealth to debt. But that's missing the point. A strictly symmetric distribution is not required to support the general idea that for there to be big winners there are likely to also be big losers. A small shift away from symmetry simply means there might not be as many on one side as the other.

Suppose we lived in a world where it was impossible to lose money in the market. In other words, there is a hard low-side limit at zero gain. That would cause a significant distortion of the symmetry (a Poisson distribution actually), but there would be a ton of people compressed into the low end to offset the people in the longer high-side tail.

Dan
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