Tuesday, January 10, 2006


Trading is like science. There are four keys to being a scientist and discovering something.

1. Make an observation that you find to be of interest.
2. Formulate a hypothesis about that observation.
3. Test your hypothesis.
4. Draw conclusions from your hypothesis, refine it, and repeat the expirement until your hypothesis proves statistically valid and can then be formed into a theory.

Stock examples:

1. stock X has been trading between $35-40 for the last month and the market is bullish.
2. If I buy the stock around $35 and wait it should go up to around $40.
3. You buy the stock at $36 and you wait and it goes to $38.
4. You were right about the hypothesis, and you repeat your experiment 100x and you were right 75% of the time making your hypothesis statistically valid.


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