Apr

13

From time to time I wonder if a man from Mars could make a profit in the markets. I figure a good way for the Martian to start might be with Bunds, which trade one million contracts of a 100,000 Euro item, each day.

The bund is approximately a 10-year German debt security, and if one is going to make a beachhead, this seems a good way to start. Rather than starting with sequences and reversals the way the early stock market men from the weather bureaus, (such as Davis, Jones, and Cowles) did, I thought I'd start with survival, as it somehow seems more 'Martian.'

When thinking about this, I asked myself what happens when a plus or a minus Bund move has survived for a given number of days. This is as they do in medicine; "how long can a person expect to live, given that he has already survived x years, and taken this or that medicine?"

Expected survival for a bund move based on past number of events.

event exactly      number     life expectancy to rise
1 day down            523                  2.0
2 day down            232                  2.1
3 day down            107                  2.3
4 day down              58                  2.3
5 day down              31                  2.4
6 to 10 days down    53                  2.2
11 to 15 days down    2                  1.5 *

* expectancy to rise or next decline 36.

     event             number         life expectancy
     exactly                                  to decline
     1 day up         516                       2.2
     2 days up        276                       2.1
     3 days up        143                       2.1
     4 days up          72                       2.2
     5 days up          36                       2.3
     6 to 10 days up 46                       1.9*

It seems that one must marvel at the utter randomness of the results. That is, the incredible constancy of the life expectancies after survivals plus or minus so many different rises or declines in a row. What a fathomless mystery the market is, but that makes the challenge all the greater and more to be desired. 


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