Info!! The Momentum Curve: Expanding The Search For Marketplace Set Profits

Let's country an explorer discovers golden inwards the mountains of Alaska.  The initial grouping of miners prospecting the territory has a pretty broad opened upwards plain of opportunity.  They don't demand sophisticated equipment to come across in addition to extract the golden from river beds.

As to a greater extent than prospectors displace in, the low-hanging fruit is gone.  Now golden must survive extracted from rocks in addition to from deeper inwards the ground.  This requires particular equipment.  The unmarried miner alongside his pan, combing through the river bed debris, no longer has an "edge" inwards discovering gold.

Still later, equally to a greater extent than of the territory is mined, extracting what remains becomes a to a greater extent than complex task.  Deep drilling into the soil in addition to exploration of to a greater extent than remote mount areas is required to brand the investment of fourth dimension in addition to endeavour worthwhile.  Individual miners, picking through areas that cause got already been explored, cause got most no wages inwards discovering gold--even though they yet recount the stories of big strikes only a few years prior.

A well-mined expanse agency that either you lot cause got to discovery novel areas to explore or you lot cause got to discovery novel agency of exploration.  In the illustration of natural gas in addition to oil, fracking has been a novel way of exploration.  Drilling inwards the Arctic would survive an illustration of finding novel areas to explore.  Either way, ingenuity is required to discovery value i time others cause got been searching for a while.

Financial markets cause got been well-mined for a while.  Excellent traders, portfolio managers, in addition to organization developers roughly the globe cause got been attracted to the golden rush of markets.  While looking for nuggets of profitability inwards novel ways in addition to inwards novel places does non guarantee success, looking for them where others cause got been searching for years alongside sophisticated tools inevitably invites failure.

I late cause got been posting on the topics of understanding vs. predicting markets; looking at markets inwards novel ways; in addition to using quant processes to aid discretionary expertise.  The mutual theme is becoming ameliorate at the exploration for profits past times looking at novel things in addition to looking at erstwhile things inwards novel ways.

Above is a nautical chart of what I telephone cry upwards the Momentum Curve.  It takes every stock inwards the SPX in addition to gauges whether it is trading higher upwards its 3, 5, 10, 20, 50, 100, in addition to 200-day moving averages.  The aggregated information are charted (available through the first-class Index Indicators site), in addition to then that you lot tin hand the sack come across how the percentages of stocks shift over time.  Observe from the graphic that--going into Friday's session--we had been undergoing a meaningful short-term correction (most stocks moving below their 3, 5, in addition to 10-day averages) inwards a potent uptrend (most stocks higher upwards their 100 in addition to 200-day averages).  

It turns out that the shape of the Momentum Curve is of import inwards forecasting hereafter stock marketplace returns.  The render profile looks rattling dissimilar depending on where the kinks are inwards the curve, whether the fold is steep or flat, etc.  I discovery it useful equally a qualitative tool--it provides a quick visualization of where nosotros stand upwards across multiple fourth dimension frames--and also equally a beginning of quantitative hypotheses regarding fold shape in addition to forwards cost movement.  

Some of the best marketplace tools don't generate conclusions.  Rather, they advise hypotheses worth testing.  The start stride inwards finding fresh answers is call for fresh questions.

Further Reading:  The Psychology of Quantitative Analysis
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Info!! Momentum Inwards The Market: Merchandise It Or Fade It?

A tendency twenty-four hours is basically a twenty-four hours amongst momentum on the twenty-four hours fourth dimension frame.  The buyers or sellers in addition to hence dominate the marketplace activeness that the other side backs off for the ease of the session.  That is what nosotros saw inward yesterday's trade:  1 time nosotros broke to novel highs amongst pregnant uptick readings, the buyers remained inward command for the session.  I honor it useful to rails the distribution of NYSE TICK readings during the trading twenty-four hours to position when nosotros convey made pregnant shifts inward buying/selling in addition to when nosotros are extended inside a relatively static range.  That shift of distribution frequently makes the difference betwixt trading push clit or weakness versus fading it.

The momentum regulation is truthful on longer fourth dimension frames equally well.  Yesterday's post took a await at the absence of marketplace weakness equally an indication of potential hereafter marketplace strength.  Now let's await at the presence of marketplace strength, such equally nosotros saw inward yesterday's session.  Does that tend to Pb to hereafter weakness equally an overbought signal, or does it tend to yield farther gains equally business office of momentum?

If nosotros rails the unwrap of NYSE stocks closing to a higher house their private Bollinger Bands in addition to those closing below, nosotros honor that 412 unopen to a higher house their bands.  That is a huge number; 1 of the highest since I began aggregating these information inward 2014.  For comparison, since 2014, the median unwrap of stocks closing to a higher house their bands each twenty-four hours has been 62 amongst a measure divergence of 69.  We've had 48 occasions over that menstruation inward which to a greater extent than than 200 stocks convey unopen to a higher house their upper bands inward a trading session.  Five sessions later, the average toll alter inward SPY has been a loss of -.13%, compared amongst an average gain of +.15% for the ease of the sample.  When nosotros await 20 days out, however, the average gain inward SPY after the strong session has been +.96% versus an average gain of +.49% for the ease of the sample.  While it's been normal to convey approximately near-term pullback after extreme strength, it's also been mutual for the push clit to resume.

The marketplace spends much of its fourth dimension trading inward a range.  During that arrive at trade, past times Definition the moves higher in addition to lower lack the momentum to hold upwards sustained.  The best trading strategy is to recognize the loss of momentum in addition to fade the push clit or weakness.  Once nosotros expand buying or selling, however, nosotros tin croak the breakouts from ranges inward which push clit or weakness leads to farther push clit or weakness.  We lose flexibility when nosotros position ourselves equally arrive at (mean reversion) traders or tendency (momentum) traders.  One of the bang-up challenges of trading markets lies inward recognizing shifts inward buying in addition to selling regimes.

Further Reading:  Tracking Institutional Participation inward the Market
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Info!! Banking Concern Security Together With The Hidden America Non Inward Crisis

There's a floor that the fiscal media is missing entirely, as well as it's nearly the segment of the banking arrangement that is working simply fine. These are non the largest banks, and--for the most part--they don't operate inward the largest markets. Rather, they tend to live located inward little towns that conduct keep seen neither blast nor bust inward existent estate markets. They did non involve themselves inward subprime lending, as well as they did non brand large existent estate structure as well as evolution loans. They conduct keep never involved themselves inward trading inward derivatives; they accept inward deposits, brand prudent loans, as well as stick to what they know best: the needs of their communities.

As purpose of a question project, I went to 2 sites that are devoted to rating banks for security as well as performance. The get-go is Veribanc (www.veribanc.com), as well as it generates "blue ribbon" lists of banks that stand upward out on such metrics equally profitability, liquidity, depression employment assets, as well as a high ratio of deposits to full assets. Banks that excel inward all these measures are called "Blue Ribbon banks". In my research, I focused on banks that achieved bluish ribbon condition for each of the yesteryear 8 quarters.

The minute site I visited was Bauer Financial, which rates banks amongst a star system. Those amongst 4 as well as 5 stars are deemed strongest as well as safest. Those receiving 2 as well as fewer stars are considered troubled. The footing for the stars is similar to the CAMELS criteria, which focuses on working capital alphabetic character adequacy, property quality, management quality, earnings, liquidity, as well as sensitivity to marketplace position risk.

For my research, I identified all Illinois banks inward my share that met the highest bluish ribbon criteria from Veribanc *and* the 5 star rating from Bauer. Interestingly, thirteen banks made the cut--a large release considering I was examining 1 segment of a unmarried state. Of those thirteen banks, none were from Chicago or fifty-fifty large cities inward the region. All were located inward little communities. For all but 2 of the banks, full assets were nether $500 million, as well as 8 were nether $200 million. By contrast, a regional banking concern good represented inward our area, Fifth Third, has assets of over $50 billion. Most of the thirteen high lineament banks are headquartered inward towns I had never heard of; many good due west of Chicago, far from whatever existent estate booms.

There's an America that doesn't alive yesteryear credit cards, that is grounded inward community, that treats banking equally a stewardship, as well as that makes decisions prudently as well as conservatively. We don't listen nearly that America real much inward recent media reports, but it may simply concur the keys to unlock many of our electrical flow dilemmas.
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PS - I would honey to cite the thirteen banks if only to admit their first-class performance, but I likewise demand to laurels the proprietary data from the 2 ratings services. Note that Bauer's stars tin live downloaded costless of accuse via the link above; Veribanc charges a minor fee for their ratings of diverse states as well as regions.

Info!! To A Greater Extent Than Insight Into How To Lose At Trading

In my August post service on how to lose at trading the stock market, I examined what happened if a trader bought forcefulness inwards a technical indicator too sold weakness. The number was consistent losing. Doing what seems obvious inwards the stock market, to paraphrase Joseph Granville, is apparently wrong.

Let's accept a dissimilar approach to the issue. Suppose I desire to brand certain that a rising marketplace is genuinely inwards an uptrend too non merely making a random bounce. Similarly, I desire to ensure that a downtrend is pregnant before I bound on board. So I build an indicator that volition country me when a deed is pregnant vs. random.

Specifically, I accept a 20-day moving average of the S&P 500 Index (SPY) too calculate Bollinger Bands (a volatility envelope) higher upwardly too below the average. The bands are laid for 2 touchstone deviations of cost movement. Thus, if the marketplace closes higher upwardly the upper band, that agency that it has made a statistically pregnant deed higher upwardly its average. If it closes below the band, that agency that the marketplace has moved significantly below its average.

The strategy is to non assume a tendency is inwards house until the marketplace has moved significantly--not merely randomly--in a directional fashion.

So how does such a strategy fare? Let's update a post service from concluding May.

Over the concluding 3 years, buying closes higher upwardly the 20-day bands too selling closes below the bands has given us fourteen winning trades too 29 losers inwards SPY for a cyberspace loss of twenty points (the equivalent of 200 S&P cash or futures points). The average attain for winning trades was .48 indicate inwards SPY. The average size of losers was .31 point. The setup captures larger winners than losers on average, but cannot brand coin because in that location are too then many to a greater extent than losing trades than winners.

Of the 43 trades, 25 were long too xviii were short. Among the long trades, in that location were eleven winners too fourteen losers. Of the xviii curt trades, alone 3 were winners too xv were losers.

The superior functioning on long trades suggests that, when this setup works, it captures the longer-term tendency inwards the market. Interestingly inwards this regard, all 3 winning curt trades receive got occurred since July of 2007, which is when the electrical flow comport marketplace began. When the setup trades against the market's longer-term trend, the results are abysmal.

So what does this country us? If nosotros expect for a tendency to teach "significant" too obvious, it is also late. There is no systematic border chasing a deed that has already shut exterior a volatility envelope. Indeed, to repeat a decision from my before post, pursuing a countertrend deed exterior the envelope has such a piteous rail tape that it is promising.

The best way to lose at trading is to conk amongst the obvious. I've argued inwards the yesteryear that the marketplace is rigged against human nature: it is easy to lose coin buying inwards an uptrend, too it is easy to lose coin buying forcefulness too selling weakness. Success comes to traders alone when they overcome normal human biases.
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Info!! Novel Views For Launching The Novel Marketplace Week

*  As you lot tin laissez passer on the sack run across from the nautical chart above, Fri saw a huge expansion of stocks closing below their lower Bollinger Bands (raw information from Stock Charts).  Since early on May of 2014, when I starting fourth dimension began collecting these data, those large expansions convey to a greater extent than oftentimes than non led to farther toll weakness inwards the close term.  Specifically, at that spot convey been 22 occasions inwards which we've had 200 or to a greater extent than NYSE stocks closing below their bands.  Over the adjacent iii trading sessions, SPY has averaged a loss of -.95% (6 up, sixteen down).  That is notable weakness, considering the full general menstruum has seen ascent prices.  Indeed, all 22 occasions posted a lower daily unopen inwards SPY over the adjacent iii trading sessions.

*  Perhaps my nearly of import shipping service since returning to blogging.  I've constitute this to survive the best predictor of sustained trading success--also a huge predictor of life success.

*  Red flags for investment strategies too other transcend reads from Abnormal Returns.

*  From Alpha Architect:  purchase inexpensive stocks--and here's the best agency to define cheap. 

*  A large calendar week ahead inwards markets too a await dorsum from SeeItMarket.

*  More on the fine art of learning from WindoTrader.

*  Dividend capture strategy too options screens from Options Samurai.

Have a bully begin to the week!

Brett
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