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A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits by Michael C. Thomsett

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Fat Tails and Trends

Statisticians take comfort in normal distribution, the well-known bell curve that illustrates how outcomes are likely to fall. As the curve moves upward, a greater number of occurrences are found; as the curve moves to the extremes, the number of occurrences declines. This bell curve is shown in Figure 2.1.

Image

Figure 2.1 Normal distribution on the bell curve (Prepared by the author)

However, the ideal statistical outcome is a model only. Stock trends are not normally distributed and, in fact, might appear random at first glance. There is order and predictability to the trend, but the trend itself cannot be measured in the ...

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