Friday, May 30, 2014

mean reversion, deviation detector, pattern recognition

Nothing, including real time mkt data analyzers, can predict the future. They can point out unusual deviations which often precede reversions to norm. In such a case timing is unpredictable though.

Case in point -- When I saw historical highs in copper price, I thought it would drop (reversion) within hours, or at most couple of days, but it just kept rising and destroyed my position. (A necessary condition for my undoing is margin. No margin, no collapse.)

I guess China Aviation Oil might have something like this?

Such a reversion is one type of pattern. Some patterns have a strong rational, logical basis. Consider historical vol's mean reversion pattern. Consider the widening spread on-the-run vs off-the-run.

Mean reversion is one type of deviation detector.

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