Wednesday, December 1, 2010

Odds for the Dow on 12/2/2010

Category Prediction Rate % Correct Notes
Direction 22/29 76% 24/29 disregarding minor closing range
(losses were 0.30%, 0.65%, 0.20%, 0.22%, -0.85% gains could have been made on 2 of those days)

A great day for this method but a bad day for me as the trade went against me and now I'm caught short. The decision to stay in a partial position stands only because the "Dow leads" prediction is still valid, although it might cause me to take several more percent of draw down before the market tops. My momentum indicator validated the trend change today, but the VIX did not. The VIX can sometimes lag, so all in all I'd say the trend has more than likely changed to being up. I told myself I'd robotically trade this system, but I failed to do so. It's critical that a trader finds a method and sticks to it, rather than trusting other systems and gut feelings. Unfortunately, I failed to do that.

The odds are clearly up for tomorrow, but I personally won't enter a long position as a hedge until I see some selling. Today was way overbought. I don't think the market can gap up again tomorrow and run away. There should be some dip to hedge, probably around 120 SPY. Tomorrow looks pretty positive, but it seems like every time there's a big move in the market, the system predicts a move in the same direction the next day, so I'd take this with a grain of salt. (I am short but looking to hedge against my core short position, because I feel the market is more than likely going to make new highs now.)

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