Local Stock Market Gurus
Yesterday afternoon, Olina organized a small group meeting at the Escape. Olina bought tea for Bo and Max. I had water already. The meeting lasted three hours from around 4 pm till 7 pm. I got there first, then Bo came, then Max was there, Olina came at last. The discussions were very good. As a record, I am trying to write down what the discussion were about.
Based on my understanding, Max's model has the following logics.
(1) His model can identify repeatable historical patterns with 60% to 80% chance being right. Since each identifiable pattern is almost independent events, so there is an increasing probability of being right for N events. The probability of being right for N events is:
P = 1 - p^N
where p is the probability of being right in each event, N is the number of repeatable events, P is the total probability.
(2) He tries to reduce the time interval for his trades so that each trade is almost risk-free. This way he is avoiding the market risk. Since the trading interval is directly related to risk, so by reducing one can reduce its market risk. Many believe that the transformed stock price (y = Log X, where X is stock price) is a Brownian motion process. If that's case, then the standard deviation (a measure of risk) can be expressed by the following equation.
S = C t^ (1/2)
Based on the above equation, the shorter trading interval means the smaller standard deviation or smaller risk.
(3) His model tries to generate independent events. So the regression 0r autocorrelation coefficients among all trading events are minimized.
So based on the above system, I believe that his model will ultimately be successful. It is only a matter of time before his model works in real practice.
Bo Model actually has some fundamental rigor as well. Based on the discussions, I believe his model has the following logics.
(1) There are institutions which are intentionally jack-up stock prices for their private gains. By observing carefully, he has the ability to identify which stocks are under the manipulation of such institutions.
(2) These stocks are typically relative small (about 50 million outstanding shares). He believes that the manipulation institutions usually control 1/3 to 1/2 of the outstanding shares.
(3) Bo tries to get into such stocks after the institutions established their shares and sell before the institutions do. So he can make enough profit in the mean time.
Max's wife Xiemin tried to help Bo to find a job in Central Garden & Pet Company (CENT). However, the current opening is not available.
This was written on June 27, 2006.
Based on my understanding, Max's model has the following logics.
(1) His model can identify repeatable historical patterns with 60% to 80% chance being right. Since each identifiable pattern is almost independent events, so there is an increasing probability of being right for N events. The probability of being right for N events is:
P = 1 - p^N
where p is the probability of being right in each event, N is the number of repeatable events, P is the total probability.
(2) He tries to reduce the time interval for his trades so that each trade is almost risk-free. This way he is avoiding the market risk. Since the trading interval is directly related to risk, so by reducing one can reduce its market risk. Many believe that the transformed stock price (y = Log X, where X is stock price) is a Brownian motion process. If that's case, then the standard deviation (a measure of risk) can be expressed by the following equation.
S = C t^ (1/2)
Based on the above equation, the shorter trading interval means the smaller standard deviation or smaller risk.
(3) His model tries to generate independent events. So the regression 0r autocorrelation coefficients among all trading events are minimized.
So based on the above system, I believe that his model will ultimately be successful. It is only a matter of time before his model works in real practice.
Bo Model actually has some fundamental rigor as well. Based on the discussions, I believe his model has the following logics.
(1) There are institutions which are intentionally jack-up stock prices for their private gains. By observing carefully, he has the ability to identify which stocks are under the manipulation of such institutions.
(2) These stocks are typically relative small (about 50 million outstanding shares). He believes that the manipulation institutions usually control 1/3 to 1/2 of the outstanding shares.
(3) Bo tries to get into such stocks after the institutions established their shares and sell before the institutions do. So he can make enough profit in the mean time.
Max's wife Xiemin tried to help Bo to find a job in Central Garden & Pet Company (CENT). However, the current opening is not available.
This was written on June 27, 2006.
posted by Unknown at 8:38 PM
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