Tag Archives: standard deviations of the mean

By definition, rare events should seldom occur and applying that understanding to financial markets assumes that all market events follow a normal distribution or, in layman's terms, a bell-shaped curve. More specifically, the statistics say that 99.7% of all daily movements should fall within three standard deviations of the mean, no more. Well, guess what? New research suggests that they clearly don't follow such a pattern - that "unlikely" doesn't mean "never". [Let me expand on that.] Words: 1079; Charts: 1

In the investment management process...[it is important to] actively monitor both short- and long-term cycles...in order to manage expectations based on historical patterns...[as well as] oscillators - diagnostic tools that help us measure a security’s upward and downward price volatility - but to understand how oscillators work, though, you first need to become familiar with standard deviation and mean reversion. In this article, we do just that.