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The foremost objective of this report was to devise a rule based trading system for a hedge fund. The basis for analysis was single scrip in which the fund was expected to be interested in a major way both as a buyer and a seller. The chosen scrip was Goldman Sacchs and its equity quotes over a select period formed the basis of the present report…
Similarly the fund would not wait for the market to bottom out before taking a decision on going long and that it would go long once market moves down somewhere between the peak and the bottom. Either strategies would imply that the fund is not looking for excessive and speculative gains; nevertheless it does maintain inherent profit booking targets. The trading system explained below is based on trading rules that were tested for profits results based on this risk philosophy.
Financial theory, taught in finance textbooks the globe over, normally exposes a student of finance to the concepts like the efficient market hypothesis and the economically rational individual. Bubbles and crashes seem to defy these two seminal concepts with an awkwardness equivalent to the awkwardness one would attach to those things on earth that defy gravity. Nevertheless such extreme stock market movements are a reality. Bubbles make investing decisions arduous as stock prices tend to deviate by substantial margins from their fundamental valuations. ...
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