Monday, November 22, 2010

Odds for the Dow on 11/23/2010

Category Prediction Rate % Correct Notes
Direction 17/23 74% 19/23 disregarding minor closing range
(losses were 0.30%, 0.65%, 0.20%, 0.22% 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.
+ When the odds of a negative high/pos low <= 3% and the market gaps in the low odds direction, the gap fills.

Another failure for the system today, but I wouldn't call it a disaster. We were properly warned that the long side wasn't favorable when I saw that the most frequently occurring range in Friday's table was negative, even though the odds were higher for an up day. That's why I didn't take a trade. So overall, I'd say it worked. Also note that today's low was 1.34%, which again was above my suggested stop level of 1.5%. Imagine if someone was long friday and sold on the lows, they could have gotten nearly everything back by the close.

Tomorrow is the exact opposite -- the most frequently occurring range was positive but the odds were higher for a down day. Another reason to stay away and not get suckered into trading a mixed picture. I'm in cash.

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