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An asset’s “range” is the variation of prices at which it has traded over a period. The longer the period, the more meaningful the range and the more confident you might feel, [[all other things being equal]], that the asset’s price will stay in that range in a particular ''forward'' period. This confidence is relative to the length of the forward period and the length of the range. | An asset’s “range” is the variation of prices at which it has traded over a period. The longer the period, the more meaningful the range and the more confident you might feel, [[all other things being equal]], that the asset’s price will stay in that range in a particular ''forward'' period. This confidence is relative to the length of the forward period and the length of the range. | ||
For example: if an asset has traded between 5 and 15 over the last decade, and is presently trading at 7, it is unlikely to trade at 20 ''in the next hour''. It ''might'' do — but that would be weird. Your confidence level should drop as your forward time horizon extends: the asset ''could'' trade to 20 in the next ''month''; it may well | For example: if an asset has traded between 5 and 15 over the last decade, and is presently trading at 7, it is unlikely to trade at 20 ''in the next hour''. It ''might'' do — but that would be weird. Your confidence level should drop as your forward time horizon extends: the asset ''could'' trade to 20 in the next ''month''; it may well do so over the coming ''year''. | ||
Now you all know the JC is a “words” fellow and doesn’t really understand, or like, numbers. So take this in the spirit of joyful innumeracy in which it is imparted. This is not science but a [[heuristic]]; it owes little to advanced maths, | Now you all know the [[JC]] is a “words” fellow and doesn’t really understand, or like, numbers. So take this in the spirit of joyful innumeracy in which it is imparted. This is not science but a [[heuristic]]; it owes little to advanced maths, quantitative modelling techniques or principles of probability (which typically do not work with [[complex adaptive system]]s) and a lot to the [[Lindy effect]], or the principle of [[mean reversion]]. | ||
Corollary: if your asset has traded between 5 and 15 in the last decade, has been gradually declining, and it is currently trading at 5, it is not implausible to suppose it could go back to 15 in fairly short order. | Corollary: if your asset has traded between 5 and 15 in the last decade, has been gradually declining, and it is currently trading at 5, it is not implausible to suppose it could go back to 15 in fairly short order. This ought to be food for thought to [[short seller]]s, who stand to gain 5 at most (i.e., the gap to zero), and could therefore lose 10, or more, in that non-unlikely scenario. | ||
===[[GameStop]] and the [[outsider trading|outsider traders]]=== | ===[[GameStop]] and the [[outsider trading|outsider traders]]=== |