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Is it possible to apply 6 sigma in Stock Market !

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  • #24339

    Pai
    Participant

    Hi,
    Is it possible to apply 6-sigma in stock trading and if so how to start it. Trading and Six Sigma is what I wish to get information about.
    What are the factors that can be seen when it comes implement six sigma meathods in Stock Trading

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    #58470

    Saherngu
    Participant

    Rajesh,
    I tracked Ford Stock over a 12 mth period using minitab, I found that there was a 93% chance that when the stock went up by 40 cents or more in one day, it would go down the next 2-3 days. I used this info to greatly increase the number of shares that I have since I still have over 8 years til retirement.
    James

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    #59567

    Bruce Campbell
    Participant

    I have been looking into this for some time.  So far I’ve not come up with anything except we would want a stock to fall outside the USL. That would be a bullish trend.  Outside the LSL would indicate a bearish trend.  I have considered the daily R as the short-term variation over a 5-day period.  The long-term variation is 3 months (1quarter).
    I think Bollinger Bands is the closest in main stream thought.  If someone knows of publications along these lines I’d be very interested.
    SBCampbell

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    #59568

    Sloan
    Participant

    Way back in the dark ages when I was in college, I recall one of my economics professors telling the class about an economist who tried to create what was essentially a multiple regression equation to try to predict the stock market. (It might have been James Tobin at the time that he created “Tobin’s Q”). Anyway the story goes that he identified multiple factors for his equation and honed it for several years before he gave up because no matter what he did, the error quotient always amounted to more than all of the factors combined. Meaning: you can’t reliably predict the market.
    Maybe one day with super computer capability, someone will develop an equation that predicts the market well enough to reasonably guarantee success, but then EVERYONE will start using it and the markets will go back to a state of unpredictability.
    The moral of the story is that if you should ever succeed at developing a model that predicts the markets, keep it to yourself and start looking for your own private country to buy.

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    #59601

    Dave Hartzell
    Participant

    I agree..there has never been a system that can predict the direction of the stock market ALL the time. However, Six Sigma can help refine/enhance/improve a system that predict the direction of a stock MOST of the time.This is why we use Six Sigma, and why it is important for traders not to throw out the baby with the bathwater.Six Sigma is ‘gold’ if used properly to get the most of out each trade.I manage a hedge fund, Hartzell Long/Short LLC and would like to hear from anyone who has had great success (or, no success) with Six Sigma. 

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    #59602

    Robert S
    Member

    Please guys…SS can help your back office, your sales process, et al. But it ain’t helping oyu pick stocks.  SS has its strength in removing variation from repeatable processes. It cannot predict random activity.
    Now, you want to use statistical analysis in an effort to identify causal factors and relationships? Perhaps…

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    #59603

    Dave Hartzell
    Participant

    Bob,
       You hit the nail on the head.SS has its strength in removing variation from repeatable processes. The big problem that most (all) traders have is that they are inconsistent.Up one day, down the next.Trading is a repeatable process. One you have a stock you trade every day, there are only 3 critical X’s:
    -When do you buy?
    -How many shares do you buy?
    -When do you sell ?
    Control the X’s, you control the Y(final outcome).
    Again, and again, and again.
    Six Sigma is not a panacea…you need to know your way around the market.But, if you are a good trader, SS can help make you great.
    .
     

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    #59606

    Robert S
    Member

    OK Dave, good luck. But I see no way SS helps you determine what demand will be at any particular time for any particular stock…which is what drives stock prices.

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    #59608

    Dave Hartzell
    Participant

    Bob,
       I know what you mean.
       Every summer we hire a battery of MBA’s(our office is 15 minutes from the University) and let them bang away on the university’s supercomputers.This summer’s question: Is there any way that the SS process can improve a traders investment return? I think it can, but I don’t know for sure. I’ll let you know the answer in 12 weeks.
    Dave
     

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    #59609

    Robert S
    Member

    Thanks Dave, that will be very interesting….I’d love to be wrong!

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