You Are a Truffle

Imagine a field named Greek Gyros and renowned for the truffles lying at the roots of its every tree. Hundreds of pigs are hard at work trying to dig for the bounty.

Beside this field is another one named LinkedIn($LNKD), supposedly renowned for its truffles as well.

After a few weeks of hard work, the pigs have exhausted Greek Gyros of its truffles. The pigs are getting bored with Greek Gyros, so they decide to migrate to LinkedIn.

The behavior of the pigs migration from one source of food to the next is best described by a stochastic process called a Levy Flight Brownian Motion.

The Levy Flight is a great model to use to model the behavior of media. In our example the pigs are acting not differently than journalists, bloggers (myself included), etc. The food in this case is your attention. Got ya little truffle!

At Bigger Capital, we think there are three stochastic spaces of importance (there must be more than 3) working in concert to affect stock prices:

1. The intrinsic value stochastic process. Internal dynamics.
2. The stock price stochastic process. The market.
3. The media Levy Flight. The Media.
4. And so forth.

Observing how each component is affecting the other is a beautiful market melody. Figuring out how to incorporate these dynamics into an algorithm is our challenge.

You can find out more about Levy Flights right here.

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

P.S. If you are a scientist that has an interest in working on concepts such as the Levy Flight, you might be interested in joining our Creative Space.