With 20 forward tested samples completed, fully documented on this site, I can now say with confidence that my method of predicting next day direction (up or down) is better than a coin flip. In fact, it is quite a bit better than that. With an 80% success rate taking things literally (like when the Dow was up 10 pts and the bias was for a down day), and a 90% success rate (!) when those days are not factored in, the system is unusually effective. I will now go into some ways the information can be used.
I need to start with a disclaimer in case someone actually decides to act on the information presented on this site. I am not responsible for your trades. I agree to provide the information right around the close for as long as I feel comfortable, but beyond that, you are on your own and how you choose to use the information is your responsibility.
Strategy 1: Buy/sell on close
The simplest way to use the information is to go long at the close using extended hours trading when the bias is for an up day (more than 50% of cases were positive) or go short when the bias is for a down day (more than 50% of cases were negative). This has worked 80-90% of the time, so I'd say it's not a bad approach. The position would then be closed the next day either on the close or at any point the trader feels comfortable exiting.
Cons: "Leap of faith" holding over night and trusting the system to work
Strategy 2: Open partial positions at close, the rest the next day on weakness/strength
Suppose the bias was positive, a trader could open half of the position at the close and then wait for some weakness the next day to buy, with the understanding that if things go really badly, to not open the rest of the position.
Pros: Less risky because you have less money on the line overnight
Cons: More complicated to implement. Also, if the day gaps in a big way, you miss out on profits. Furthermore, you then have to make a decision about what to do with the rest of your unused cash, which creates more decisions. The more decisions, the greater the chance for human error.
Use for Hedging Only
If a trader isn't a day trader and holds positions for longer periods of time, then they probably don't want to manage trades intraday. If they're at work, they won't be able to make good decisions about when to exit a position. The option for this trader is to use the data here to hedge their core positions. If the portfolio is short, and an up day is predicted, best to take on some call option protection on an index or buy a long ETF to protect gains. Vice versa for a long portfolio, except using put option protection.
Pros: Simple to implement, less room for error
Cons: Miss out on potential profit for a highly successful system (can your long term trading system work 80% of the time?)
Other Considerations and Ways to Increase Success
I mentioned in my afternoon report that there were some additional things that a trader could do to improve their chances of avoiding a loss using this system, since there were 2 cases out of 20 that were wrong. One thing is to check NYMO (McClellan Oscillator). If NYMO is pointing up and above 0 and the odds are for an up day, then I'd say that's an ideal set up for a long position. If NYMO is pointing down and below 0 and the odds are for a down day, that's an ideal set up for a short position. Using this approach, I don't think there was a day the system lost any money.
Pros: Less risky. Staying with the trend gives you a better chance
Cons: Fewer opportunities. If you have to wait for NYMO to go above 0 or below 0 to consider a position against the trend, then there could be many days you don't trade at all. Considering the high success rate of the system, you could end up losing out on quite a bit of profits.
Since this system does require a "leap of faith" in trusting that it will continue to work as well as it has, a stop should always be used on a position traded around this information. I would suggest a stop of 1.5% or so. If the S&P/Dow trade above/below 1.5% depending on how a trader is position, exit if the indexes have gone outside the 1.5% range in the direction that wasn't protected. This would burn profits, but fortunately I have yet to see a case where a 1.5% stop would have been hit. That's why I picked the number. The 1.5% stop will save you from a day like the flash crash where losses would have been huge if you were caught long. (FYI: My odds table had a negative bias heading into that day, so it was a short set up.)
I've presented a couple options as to how to use the information I provide here daily. I am personally going to use a combination of all these strategies depending on how I'm feeling and how comfortable I am. In the case of today, I was unwilling to go all in at the close because it was counter-trend. Could it cost me tomorrow? Yes, but there are some risks I don't want to take on. Now what happens if tomorrow gaps up and is hot off the open? I will do nothing. That's the problem with taking a more conservative approach.