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Strategies & Market Trends : Moomin Valley (formerly Troll-free Zone)

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To: RealMuLan who wrote (1043)	8/27/2005 9:38:05 PM
From: Moominoid	Read Replies (1) of 2852

That's just wave 3 of 1! You then need a wave 1 up and then a 5 down and then you have only completed the first of either 3 or 5 waves down. In order to break things up enough to get a move down, we need a strong up bounce as I drew there. Going down and staying down has a vanishingly small probability I would say at this point based on the autoregressive coefficients that that would generate. A fall here of 30-50 points would generate a very high autoreggressive coefficient for a regression of a few weeks. That always would then predict an up move. But after that up move, new down moves do not push up the regression coefficient to anything like that extent. It is simple, the larger the noise to signal ratio the smaller the regression coefficient is :) So we need to get a lot of noise to allow a down move without pushing things to unlikely extremes. Currently the trading range is too tight for big moves. I think this is likely that while tight and narrowing Bollinger Bands often predict big moves, there is often a headfake move in the opposite direction. This widens up the trading range enough to allow a crash.

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