The YOLO Curve aka our own Broken Market Hypothesis
The market is broken. No really, it is. Well maybe you already thought this but we set out to prove it and think we found just the distribution that does. TL;DR; the market follows a weibull distribution for certain stocks that we try and find.
A lot of statistics is funny math to many people; in its simplest form, statistics seeks to describe a series of events and create order where people think there is chaos. This makes it the perfect tool for identifying, and finding ways to predict outcomes that are hard to understand from a macro level.
This is you, the retail community - a community looking to take it to the big players and profit the way the wolves of wall street have. Our model looks to give you a 2 week heads up on underlying currents driven by the suits so you can track the market and make strategic decisions informed by data.
How does it work?
In statistics you test a small series of mini-hypotheses. Our’s was that there are key indicators that can fit common well known statistical distributions so that we can create a single score and rank key stocks that have YOLO characteristics.
We began by trying to model 20 metrics to see which ones fit literally any common statistical distribution. Was it normal aka the bell curve aka the reason any of us passed our science classes? Was it skewed?
Weibull (no not the app)
We tested 8+ statistical distributions, and there was one family that stood out. The Weibull distribution, often used in industry to characterize when something was going to break. The weibull family of distributions is well documented and has common purposes, particularly in manufacturing.
The ironic part is that this distribution basically said one thing to us - the market is broken, and that is where retail traders are able to win. It’s when the big players are over-leveraged, but there’s levers for small players to pull to break the market. We saw this happen a few times, to the point where places like Robinhood blocked trading.
After using these distributions, we engineered an algorithmic scoring model with 10 key features. Today distributions in volatility, distributions in momentum, and sentiment from social platforms are some of the more highly weighted metrics.
In the next post, we’ll describe the significance of momentum. It’s the reason we sometimes present stocks that are dipping hard.
For more details on the weibull distribution, check out this link - https://www.weibull.com/hotwire/issue14/relbasics14.htm.
As always, thanks for reading. If you feel like some of our work could help you feel free to sing up here. And if you have any suggested enhancements or just want to talk shop about funny math, reach out to me at firstname.lastname@example.org with any suggested enhancements.
HypeTeam 6, out.