Sunday, November 17, 2013

Analytical Procedure Change

I've changed my start date for screening bull and bear signals. In explaining why, I'll be referring to this chart of SPY, the exchanged-traded fund that mimics the S&P 500:

SPY 3 years 2-day bars

My initial screening is based on the historical odds of a successful trade in the direction of the signal. History, however, is a malleable commodity: The odds change depending upon what date I calculate the odds from.

Up to now I've used Oct. 4, 2011, as my start date. That's when the S&P 500 began the long, 68% rise that has yet to end.

The magnitude of the rise tends to bias the results toward stocks that may well be nearing the the top of their run and excludes bearish stocks for the most part.

But, as always in trading, I play the hand I'm dealt, so I stuck with the October 2011 start date in my analysis.

The hand started to change on May 22, 2013, when the market began struggling to make new highs. Rather than a beeline to the top, the chart began to trace a roller coaster ride of peaks and valleys. This is typical topping behavior, what people called "air pockets" in the run up to the Great Crash of 1929. (I'm not predicting such a crash, just citing history.)

The change to the May 2013 start date will give greater weight to newer bull and bear signals and will be friendlier to bear plays. The goal, as always, is to identify potentially profitable trades for further analysis.

The first analytical report to reflect this change is "Monday's Prospects", posted earlier today.


My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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