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Questions and Answers
Why do traders plot points in price history to model price movement as a normal distribution?
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 (correct)
- To predict the exact future price of the asset
- To prove that asset prices follow a normal distribution
- To determine the kurtosis of the price distributions
Why do most traders who model price movement as a normal distribution limit their transactions to shorter intervals of time?
Why do most traders who model price movement as a normal distribution limit their transactions to shorter intervals of time?
- It is easier to predict the exact future price movement on shorter time frames
- Price deviations from the mean are less significant on shorter time frames
- Larger time frames have less accurate data for modeling normal distributions
- It is easier to judge when to enter and quit a trade on shorter time frames (correct)
Why is it mentioned that asset values have fat tails and kurtosis often bigger than 3?
Why is it mentioned that asset values have fat tails and kurtosis often bigger than 3?
- To explain why past performance reliably foretells future results
- To highlight deviations in asset prices from the expected normal distribution (correct)
- To emphasize that asset values strictly follow a normal distribution
- To prove that asset prices are not affected by kurtosis
Why do traders find it difficult to judge when to enter and quit a trade on longer time frames?
Why do traders find it difficult to judge when to enter and quit a trade on longer time frames?
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