In deciding on strategy, I think it efficacious to consider, for the intended holding period of the trade or investment, the ratio between the expected return on the one hand and the 'coastline' on the other.

Some specs may not have heard of the concept of the coastline in markets. It refers to, at the tick by tick level, how far a market actually 'travels' in getting from point A to point B.

In terms of markets, an investment or trade may depreciate 6% from point A to point B but the 'coastline' might be 30%. i.e all the up and down squiggles add up to 30%.

Another way to think about the coastline is as a measure of pure path dependency. By definition the coastline will always be longer than the simple difference between A and B.

Those who care if their transactions move against them may want to study past examples of the trade and ascertain:

1. Whether the ratio of expected return to coastline over the predetermined holding period tells you whether buy( or sell) and hold is more or less efficient than an active trading strategy.

2. In market moves in general of a given elapsed time and net magnitude, might the future distributions subsequent to shorter coastline measurements be more harmonious with a counter trend or momentum approaches.

3. Might relatively longer coastline measurements be indicative of impending volatility.

4. For a move of, say, 1% in the price of a macro market- do the different coastlines for the different markets foretell subsequent individual and relative performances.


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