Financial Markets and Gaussian Distribution Quiz
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Questions and Answers

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?

  • 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?

  • 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?

    <p>Longer time frames result in more significant deviations in asset prices</p> Signup and view all the answers

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