Runs: A method for detecting 'rhythms' in prices by Clifford J. Sherry, Ph.D.
Do runs or clusterings of like observations, such as 'rhythms' of price increases or decreases, occur by
chance alone or is there some deterministic process at work? Statisticians have provided us with several
simple methods for determining if the number of runs (clusterings) in a set of data (like the prices of
stocks or commodities) occurs by chance or not.
The data used to illustrate these methods are shown in Figure 1. These data were abstracted from a longer
series (Closing prices, soybean meal, 4/1/80—4/30/81) that has been used to illustrate other statistical
methods in technical analysis. In the first method (Stocks & Commodities, October, 1985), we examined
the sequential pairs of prices and determined if the first price pair was larger or smaller than the second
and recorded a – or a + respectively. Then we compared the second and third price, the third and fourth,
and so on. The results of these comparisons for the months of April, May, and June, 1980 are shown in
the table under Method 1.