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Two Sigma Movement Every 20 Days: Where Did That Come From?

Discussion in 'General Discussion' started by johnyoga, Sep 28, 2015.

  1. johnyoga

    johnyoga Guest

    Hello Folks,

    I was watching/listening to a Tony Sizemore video the other day, and the commentator stated a couple times: "There is usually a two standard deviation move every 20 days." Tony agreed with him.

    Where did this comment come from? Is this a truism born from historical research?

    Regards,

    Marc
     
  2. GreenZone

    GreenZone Well-Known Member

    Hi Marc

    1 std dev = price range with a 68% probability
    2 std dev = price range with a 95% probability

    252 trading days in a year = 252 / 12 = 21 trading days per month

    When looking at 2 std devs, then 95% of the time price will stay contained within the range defined.
    That implies that 5% of the time, you'll get a move which is larger than 2 std devs.
    5% * 21 days = 1.05 days
    So every month you should expect 1 day which will have a move beyond 2 std devs.

    Two days per month (on average) is too high, as you'll see from the math above.
     
    Challenger likes this.
  3. johnyoga

    johnyoga Guest


    Ah, that is fantastic, Ron. Thank you for taking the time to explain this!

    Regards,

    Marc
     

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