This is a mean reversion strategy that yields results. This pattern mainly appears in the form of momentum or mean regression, and in the case of strategy C, which appeared in the AI asset management report, it is quite good when short selling stocks that have risen sharply every day at the rising ratio and buying the stocks that have fallen the most at a falling ratio. There are a lot of patterns in which subsequent price movements are affected by price movements. It can be said that George Soros’ theory of reflexivity is also broadly the same. This is a phenomenon common to all markets, not just the stock market, and is the biggest source of alpha. All market participants contribute to the price movement by executing their own decisions, but they are greatly affected by the price movement and test and revise their hypotheses by constantly receiving feedback from the market price. Qraft Technologies, where I work, is also a company that researches methodologies to capture these kinds of patterns through AI technology.Īlthough price is a result of various causes, the most interesting and important characteristic of the financial market is that the price movement (action) itself acts as a very important factor leading to the subsequent price movement (reaction). However, this response is not a vague directional bet, but a prediction of a future price movement (reaction) for a specific event (action), and it is also true that many patterns that enable such prediction exist in the market. If you buy stocks in response when the market plummets, this is more like a prediction that the stock price will rise rather than the current price in the future. The response is also broadly included in the realm of prediction. There is a famous stock market adage that “stock prices are the realm of response, not a prediction.” It may be referring to the importance of risk management by viewing response as risk management, but to me, this maxim seems to be talking about an important concept beyond that. Capturing action-reaction chains in price data
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