The curse of the traveling mole appears to have struck again. Although it’s become an old joke among senior participants on this board I cannot help but wonder if the universe seems to have endowed me with a special ability of scheduling my trips right ahead of market corrections. Be it a random occurrence (likely) or a profitable super power (not likely), in order to maintain both our sanity and our trading accounts I thought it a good idea to re-post a few protocols aimed at maximizing our chances of surviving in a highly volatile trading environment:
Standard deviation. You see it mentioned all the time but if that inquisitive little niece of yours would ask you what it is, could you actually explain it? No, I’m not talking about googling the formula on your mobile and then telling her to scram and kick a ball or something. What I mean is explaining standard deviation (SD) in a way that actually makes sense and may lead to her to taking an interest in STEM sciences later in life. Yeah, I didn’t think so. And you call yourself a trader? Step aside and let uncle Mole handle this.
One of my readers, let’s call him Francis, sent me an interesting email yesterday. Apparently he had been inspired by Scott’s original post on the use of scatter charts for what I call raw edge discovery (RED), for lack of a sexier term. So he proceeded to spend a significant amount of time on slinging spreadsheets in Excel, which can get quite involved and in my opinion is rather error prone as each extra condition requires the addition of at least one more column. His primary focus thus far had been mean reversion and he is now attempting to apply a similar approach to trending or momentum systems.
I wonder what thoughts were triggered in your head when you saw the featured image above. The notion of a brewing storm is rather ominous and usually is associated with inconvenience, discomfort, and sometimes outright destruction of property. But I chose it very carefully to make a point which I’ll try to convey below. Let’s look at some charts: