Friday, November 19, 2010

Odds for the Dow on 11/22/2010

Category Prediction Rate % Correct Notes
Direction 17/22 77% 19/22 disregarding minor closing range
(losses were 0.30%, 0.65%, 0.20%, gains could have been made on 2 of those days)
Significant High/Low* 1/1 100% Threshold changed to 72%
Gap Fill+ 1/1 100%
Hypothetical Portfolio Starting Date Compounded Return
$10,000 starting balance 11/18/2010 +1% $10,100 balance, profits are reinvested
* 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 >= 72% 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.

The system actually failed today, but I still managed to make money. Ouch, the first day I started trading this, it didn't work. Kind of funny, but even better was that I made my profit target and walked away. It's the prudent thing to do. Trading the markets should be thought of as an act of survival. If you get your piece of meat for the day, don't go back out at night because you're greedy and want more. You could be killed by a predator, and then your meal earlier in the day was meaningless.

Although today "failed", note that the lows were lower than the highs and the market was negative at least half the session. Just because it closed slightly up doesn't mean it exactly failed. My personal criteria for whether or not it succeeded is whether or not it made me money, and it did make me money.

I'm eliminating the range test because it has fallen under 50% accurate. It's clear that this system cannot and should not be used to gauge the size of the next day gains, it should only be used to gauge whether it will be up or down. I'm also eliminating the next day gap test because that fell to 50%. 

Monday presents no apparent edge since the odds are for an up day but the range is negative. For that reason, and the fact that it's the weekend, I see no reason to make a trade today. The best thing is to be patient and wait for a clear opportunity.

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