Odds for the Dow on 11/18/2010

Category	Prediction Rate	% Correct	Notes
Direction	16/20	80%	18/20 disregarding minor closing range (losses were 0.30% and 0.65%)
Range	10/20	50%	14/20 disregarding minor closing range
Significant High/Low*	0/1	0%
Next Day Gap**	3/5	60%
Gap Fill+	1/1	100%

* A significant high/low occurs when the market makes a move greater than 0.5%. This test is measuring the following case: If the odds of a significant high/low are >= 70% in either direction, a significant high/low was made the following day.
** The next day gap determines if the condition correctly predicted the gap.The next day gap test is measuring times the odds of a positive low or negative high were >= 14%.
+ When the odds of a negative high/pos low <= 3% and the market gaps in the low odds direction, the gap fills.

Tests:

• Since the odds of a significant low tomorrow are over 70%, does the market makes a low lower than -0.5% from today's close? NO

Note that the test above is valid for tomorrow as well. If it doesn't work, I may have to toss out the rule altogether. Every threshold I test for that metric seems to be failing, so maybe nothing can be gleaned from it.

Special Note: Tonight I'm posting my summary of the test I've performed on this method and how to use it in different trading systems.

I'm giving my results credit today even though the market closed slightly down. It was a 50/50 day and that's more or less what happened. The market was positive most of the day, but eventually closed flat. Things look positive for tomorrow. Actually, a significant high is predicted. I will go into more detail in my summary tonight, but essentially since this would recommend a long position for tomorrow, I won't be taking it until I see the trading action tomorrow since this is a "counter-trend" trade. I'll explain exactly how I'm determining what the trend is. The theory is that you will increase your odds by trading with the trend and not against it, and even more so if, for example, you went long tomorrow on weakness rather than buy at today's close and risk a negative surprise for tomorrow.

Tests for tomorrow:

• Since the odds of a significant high tomorrow are over 70%, does the market makes a higher high than +0.5% from today's close?