Larry,
>> Using "Student's t-test" one is able to come up
with the probability that the next trade will be
a winner. Meaning a gain greater then zero. <<
Without reading the Futures mag you mentioned, I'd conclude that the assumption may be not a perfect example. It may also means the loss is also greater than zero.
The Student T, by itself, implies an abnormal risk/return behavior, a fat tail, Leptokurtosis. First of, the market direction is mutually exclusive; binomial distribution. If it goes up, it must not be down, and vice versa. Therefore, the probability of the market going up on any trading day is the same 50% chance as the market may be down on that day. Personally, I think VaR is perhaps a more appropriate way to determine the gain or loss on the following trading day; 'what is the maximum loss on a given day with such and such confident level'.
All I'm saying is that the market may and can go up or down for an extended period of time, eventhough it's unlikely. One may decide to hold the long/short when the position turns against them and waiting for it to come back, as long as one has the unlimited fund. Yes, that down (if you're holding short) may and will come, but along all these times you spend holding the short position while the market continues to ascend higher, the Risk/Reward + opportunity cost may not justify the reason of holding it.
Just a thought. Good luck with your BRCM.
Regards,
Lepto
Disclosure: holding SNDK short @28.90 - slightly underwater; and holding QQQ short @28.77 - slightly gain.
AI
