I came across the term maximals in this article. Can someone explain what a maximal curve is and how you would calculate it?

  • $\begingroup$ you forgot to add the article :) $\endgroup$ – Jan Sila Jul 12 '16 at 17:16
  • $\begingroup$ I understand it as a probability that the price deviates more than x pips and could be I guess calculated from historical distributions. Then just calculated as quantiles of ordered observations..similar to empirical cumulative distribution function. But I never seen it before or read the article properly :) $\endgroup$ – Jan Sila Jul 12 '16 at 17:39

The article says: Taking the volatility as input these curves will tell me the probability of a maximum price (either up or down) being reached.

Using standard deviation of price data a volatility is calculated into a pips per hour number. That's nice. Based on that calculation the "maximal" gives probabilities that a market moves a particular distance over a particular time.

You calculate the maximal using a probability density function. That article uses a random walk function and has a spreadsheet you can download.

Therefore this "maximal" can be used as a probability for stops and profit targets being hit, because they are set a certain distance away from a current price.

The problem is historical volatility is not a guide to future volatility.

I guess what you could do is get into a trade, set your stops and targets for a particular time using these maximals, and if they aren't hit - given a margin for error - you take profit anyway because the calculations were "wrong".


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