V.4:9 (355-356): The n-method by Clifford J. Sherry, Ph.D.

V.4:9 (355-356): The n-method by Clifford J. Sherry, Ph.D.
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The n-method by Clifford J. Sherry, Ph.D.

Are large increases or decreases in the price of a given stock or commodity evenly distributed throughout the trading day? The trading week? The trading month? Or are there detectable patterns in these price changes? I recently demonstrated that, for soybean meal, a large price increase is more likely to occur on the first day of a trading week than on any other day. I used the triggered price change histogram (described in detail in Stocks & Commodities, June 1986) to find this pattern. The histogram is shown in Figure 1.

Now, you can take this finding, or findings you develop yourself using the triggered price change histogram or some related technique, at face value and use the information derived in your trading decisions. Or, you may require some statistical confirmation of the finding. If you do, you can use a technique that meteorologists and astronomers use to confirm patterns in the phenomena that they study. This statistical technique is called the n-method.

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