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I subscribe to TradingMarkets.com. I imagine many others do as well.
I'm not a big proponent of reading the work of market commentators.
This site, IMHO, however, is run by true pros. There was a recent
article that really, really caught my attention. Since I've been
working on pivots and swings, it hit home. I'm pasting a quote from
it that I think you will be glad you read. This is from an article by
founder Larry Connors this past Sat., beginning and ending inside the
double quotes:
"A Brief Review Of Last Week's Findings
We now know that had we bought new 10 day highs in the S&P's and
exited when prices crossed below their 10-day ma, we would have lost
money in the bull market of the past decade. We also know that had we
acted counter-intuitively and sold when everyone else was buying at
these times, we would have made good money. And most importantly, as
the world was throwing in the towel and grumbling about how bad
things were and how "the internals" were deteriorating, if we had
been buying during these times (at 10 day new lows) and had sold when
prices rose above 10-day ma, we would have far outperformed buy and
hold plus we would have been in the market less than 40% of the time.
A nice combination. Wow, buying low and selling high...what genius!
Now Let's Move To Other Markets
Let's now go further. Let's look at some other indices. First the
Nasdaq. The market that had one of the greatest runs in US history in
the late 90's and then one of the greatest collapses. I'm going to
first show you the annual results for the past 11 years. The column
on the top shows us the number of Nasdaq points that were made by
buying a new 10-day low (buying the pullback) and exiting when prices
crossed above the 10-day moving average.
Buy The 10-Day Low -- Exit When Prices Close Above The 10-Day Moving
Average
Period Net Profit % Profitable
03 344.08 91.67%
02 90.30 62.50%
01 218.42 58.33%
00 1,426.24 68.75%
99 460.21 77.78%
98 8.13 50.00%
97 71.46 58.33%
96 93.22 76.92%
95 140.55 100.00%
94 33.25 84.62%
93 54.99 92.31%
Total Nasdaq points gained: 2940.85. Percentage of Trades Profitable:
75.1% (does not include slippage and commission). And, you
accomplished all this by being in the market less than 32% of the
days during this period. Yes, that's right, 68% of the time your
money was not at risk. It was in cash.
The column on the bottom shows what happened if you only traded the
breakouts -- you plowed in when everyone else was buying and jumping
up and down about how great things were. You bought the 10-day highs
and exited when the market crossed under its 10-day moving average.
Doing The Opposite -- Buy The Breakouts -- 10 Day New Highs, Exit is
When Prices Close Under The 10-Day Moving Average:
Period Net Profit % Profitable
03 (24.47) 40.00%
02 (159.18) 20.00%
01 (368.75) 36.36%
00 (1,390.77) 30.77%
99 547.27 31.25%
98 530.76 46.15%
97 43.83 33.33%
96 52.45 43.75%
95 3.70 35.71%
94 (38.47) 11.76%
93 (36.42) 28.57%
Total Nasdaq points LOST: -840.05. Percentage of Trades Profitable:
33.5% (does not include slippage and commission).
"
Enjoy.
Gordon
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