#Learning ‘Any thing can happen’ culminates from the concept that market movement is a factor of numerous known and unknown random variables; today’s gap down which is on account of a random variable called Trump/Iran variable shifted the entire market direction upside down...
.... in an otherwise up trending scenario; charts don’t reflect all random variables; it reflects only known random variable and markets expectation on them. For eg, coming budget is a known random variable, economic events like data announcement, monetary policy etc ....
.... are known random variables. Known random variables are already known by market but for its outcome. This will adjust the chart structure if the outcome of the known random variables is not what market expected / not what was priced in; Unknown random variables on the other..
.... hand can change the chart structure more drastically as and when it emerges suddenly and has the potential to change the complete trend. First category of unknown random variable has a tlrelatively reasonable probability of occurring than second category....
... Egs, NS candle, China devaluation couple of years back, Yesterday’s overnight Trump Iran effect, etc. Renember these are not necessarily low probability events and hence cannot be called as tail events / outliers. The other category of Unknown random variables ....
.... has tail events / LFHS (Low Frequency High Severity) events which usually is called 6 sigma events. Egs, terror strikes, natural disasters, etc.
This is the background of the famous #AnyThingCanHappen which was first coined in the context of trading by Mark Douglas.
This is the background of the famous #AnyThingCanHappen which was first coined in the context of trading by Mark Douglas.
