4 Questions
Why do traders plot points in price history to model price movement as a normal distribution?
To identify potential trades based on price deviations from the mean
Why do most traders who model price movement as a normal distribution limit their transactions to shorter intervals of time?
It is easier to judge when to enter and quit a trade on shorter time frames
Why is it mentioned that asset values have fat tails and kurtosis often bigger than 3?
To highlight deviations in asset prices from the expected normal distribution
Why do traders find it difficult to judge when to enter and quit a trade on longer time frames?
Longer time frames result in more significant deviations in asset prices
Test your knowledge of how asset prices and price behavior are assumed to follow a normal distribution in financial markets. Explore the concept of over or undervaluation based on deviations from the mean, and potential trade suggestions using standard deviations.
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