Investopedia

Continue to Site »

Entropy

Filed Under » , ,
Dictionary Says

Definition of 'Entropy'

A mathematical measurement of the degree of uncertainty of a random variable. Entropy in this sense is essentially a measure of randomness. It is typically used by financial analysts and market technicians to determine the chances of a specific type of behavior by a security or market.
Investopedia Says

Investopedia explains 'Entropy'

Entropy has long been a source of study and debate by market analysts and traders. It is used in quantitative analysis, and can help predict the probability that a security will move in a certain direction or according to a certain pattern. Volatile securities have greater entropy than stable ones that remain relatively constant in price. The concept of entropy is explored in "A Random Walk Down Wall Street."

Articles Of Interest

  1.

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.

  2. The 5 Biggest Stock Market Myths

    Stocks that go down must come up, right? Wrong. We bust this myth and four other common market misconceptions.

  3. Viewing The Market As Organized Chaos

    Find out how a cat and a ladybug prove markets are both random and efficient.

  4. Financial Markets: Random, Cyclical Or Both?

    Are the markets random or cyclical? It depends on who you ask. Here, we go over both sides of the argument.

  5. What is the "random walk theory" and what does it mean for investors?

    The random walk theory is the occurrence of an event determined by a series of random movements - in other words, events that cannot be predicted. For example, one might consider a drunken person's ...

  6. Market Summary for May 24 2013

    The major U.S. indices moved lower this week, ahead of the long Memorial Day weekend. After reaching all-time highs last week, many traders attributed the sell-off to a combination of profit ...

  7. What Type Of Trader Are You?

    There are different ways stock traders attempt to profit from market movements. Which of the strategies do you use?

  8. Strong Volume Gainers, Can It Continue?

    Volume is one of those indicators that gets overlooked, likely because it's shown by default on almost every chart, making it a little dull. But volume is what drives markets. Big volume jumps ...

  9. Market Summary For May 17, 2013

    The U.S. stock markets moved sharply higher this week, on track for its fourth straight week of gains, driven by ongoing improvements in economic indicators.

  10. Parabolic SAR Buy Signals

    The Parabolic SAR indicator is flashing "buy" in these four diverse stocks. Not simply relying on one indicator though, I take a look at the overall technical outlook and determine which ones ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.

  2. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  3. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  4. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  5. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  6. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
Trading Center