Nearly all of the symbols failed because their history showed poor odds of a profitable downside trade since the present S&P 500 trend began. The rest failed because their bear trades were insufficiently profitable to meet my criteria -- the idea behind the latter test being that I don't want to take a risk for chump change.
The reason for the poor odds and low profits to the bear side is no great mystery. The S&P 500 and been in a huge uptrend since Oct. 4, 2011, one that carried prices up 57% to an all-time high on May 22, seven trading days ago.
When the market as a whole is moving up, trades to the downside come during corrections to the main trend, and corrections by definition cover less ground than moves in the direction of the trend.
If the downtrend continues, the paucity of trades will sort itself out in fairly short order. My standards require at least even odds of a profitable trade -- a 50% success rate.
Eighteen symbols that failed the odds test had success rates of 40% or better, meaning they're just a few profitable bear signals away from meeting the odds test. Eight were within five percentage points of even odds, which is very close to meeting the test.
Five of the 18 symbols with 40% or greater odds also had sufficient profit to meet my criteria.
And of course, if the downtrend reverses and the uptrend reasserts itself, then I'll have a wealth of potential trades as the high bull-signal odds of success flow into my analysis.
A private trader's greatest strength in the market is the ability to stay on the sidelines when conditions warrant.
By producing no potential trades, my analysis is doing its job: Keeping me out of the market until the trend, one way or the other, attains a degree of clarity.
The reason for the poor odds and low profits to the bear side is no great mystery. The S&P 500 and been in a huge uptrend since Oct. 4, 2011, one that carried prices up 57% to an all-time high on May 22, seven trading days ago.
When the market as a whole is moving up, trades to the downside come during corrections to the main trend, and corrections by definition cover less ground than moves in the direction of the trend.
If the downtrend continues, the paucity of trades will sort itself out in fairly short order. My standards require at least even odds of a profitable trade -- a 50% success rate.
Eighteen symbols that failed the odds test had success rates of 40% or better, meaning they're just a few profitable bear signals away from meeting the odds test. Eight were within five percentage points of even odds, which is very close to meeting the test.
Five of the 18 symbols with 40% or greater odds also had sufficient profit to meet my criteria.
And of course, if the downtrend reverses and the uptrend reasserts itself, then I'll have a wealth of potential trades as the high bull-signal odds of success flow into my analysis.
A private trader's greatest strength in the market is the ability to stay on the sidelines when conditions warrant.
By producing no potential trades, my analysis is doing its job: Keeping me out of the market until the trend, one way or the other, attains a degree of clarity.
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