regrettably.... even if you can find pattern with clear odds.... that likely means will perform worse in the future. and the reason being ...... order flow generated by that stat & number participants that jumped on this wagon. lets just remember RULE that was tested number of times and big names always mentioned : Always bet against central banks
Any more ideas, anyone, as to how and why it is possible for a simple positive expectancy game to arise and persist for retails to exploit in the given market reality? -ras72
you are 100% right. Cherry Picking! that is why I do not follow charts. Sell high and buy low, or buy low and sell high is my edge. any one sold, a tip : May/April is the best selling time in a year. People get to head to beach. SELLL... happy weekend
Human nature. Price runs up and retraces. A swing high appears on the chart. Price runs up again, but pulls back from a lower high, printing a lower swing high. Mathematical calculations are made by automated systems, a trend line is drawn by manual traders. Price moves back up to that line in the sand, commonly called a resistance or supply line. Instead of pulling back from it, price breaks through it. Mathematical calculations are made by automated systems, the trend line is watched alertly by manual traders. Price pulls back to the trend line that previous acted as price resistance and pauses. More often than not in the past, if this happened and price then started to move back up, it would move even higher and sometimes it would move higher and higher and higher. Do I want to be the trader/algo/entity who fights a reaction that has occurred more often than not in the past? Do I want to possibly lose a lot of money doing this, and look bad in relation to my peers (other fund managers)? Isn't it more profitable in poker over the long haul to fold early when your hand sucks than to bluff? So if price does X, fear of one sort or another (monetary loss, looking foolish) signals traders (and trading programs) to react by doing Y. "More often than not" occurring in the past becomes a self-fulfilling prophecy for the same thing to continue in the future. That is why certain price patterns in certain price environments can continue to have positive expectancy. As for the beloved double bottoms and double tops, traders may feel that there's very little absolute risk in placing a limit order at a previous high or low with a tiny stop and hoping the previous high or low holds and triggers a reversal which could result in a significant reward for the small risk.
An easy edge is to look for sharp one or 2 session moves in either direction then fade the move. The secret is to compare the fundamentals to the move. In other words, do the fundamentals support the sharp move?-- if they do, move on as the move may have legs. If not, fade the move! Does it work every time, no. Does it provide an edge over a series of trades, yes.
1) Define sharp 2) Define the fundamentals that would support a sharp move 3) Define the difference between the criteria for fading a one session move vs. waiting for a two session move before fading This is the sort of tedious prep work I had to do before I was able to properly test whether my trading ideas offered a true edge.
Our technical research is outlined in "how markets really work" by Larry Connors You can see the back testing there, done on the worlds largest available set of trade data at the time. I haven't worked with Larry for several years now so I'm unaware if he has tweaked the research. It still works for me when I add the fundamental aspect. What data base did you use for back testing, fact set? I tweaked Larry's stuff with simple fundamentals. Obvious stuff like is the company filing BK, is it getting bought, did the CEO just resign, fraud allegations, earnings, change in dividend and a variety of other simple observations to confirm if the move is likely to continue or fail after it occurs. Hh
As a newbie I had a lot of success with the strategy you outlined. If a bunch of companies in a sector got dragged down by the bad earnings call or poor guidance of one company in the sector, I'd check the fundamentals of the other companies in Navellier's Portfoliograder and buy the strongest company on the dip. Worked like a charm. Sadly I had no real risk management and when the bear hit, I gave it all back and more. :eek: I did/do all my statistical research/backtesting manually in a spreadsheet.