Take the virtuous advice that trading success hinges on "following your process." Please. WTF does that mean? Here's a procedure for you: I potable Turkish java every forenoon together with and then examine the java grounds at the bottom of the cup. If the grounds by together with large settle at the overstep of the cup, it volition live on a bullish twenty-four hours inwards stocks together with I purchase at the opened upwards together with sell the close. If the grounds settle at the bottom of the cup, it volition live on a bearish twenty-four hours inwards the marketplace position together with I sell the opened upwards together with comprehend at the close. If the grounds settle at the left side of the cup, it volition live on a placidity twenty-four hours together with I'll sell volatility. If the grounds settle on the correct side of the cup, volatility volition expand together with I volition live on a vol buyer. And if the grounds are evenly settled at the bottom of the cup, there's no border for the twenty-four hours together with I'll potable a 2nd cup.
Now that *is* a process. But does my trading success hinge on fidelity to my process? Of class not! That's because, inwards the linguistic communication of psychometrics, the procedure is reliable exactly non valid. It is repeatable exactly random. Being procedure driven is necessary, exactly non sufficient. Before 1 waxes poetic nigh next a process, it helps to define a procedure worth following.
Or let's accept the cliché that 1 shouldn't seek to predict markets exactly instead should nous to markets together with follow their lead. I don't know what that means. Does it hateful that yous are supposed to naively extrapolate the terminal X bars on a nautical chart together with blindly assume that they volition expire on their pattern? Does it hateful that yous impose expectations of momentum together with tendency on every marketplace position regime? Does it hateful that yous utterly lack backtesting skills together with are bravely turning that into a horse-whispering virtue? Whatever.
So here's a corking experiment that anyone tin conduct. Define a trading organisation that takes the terminal X bars together with extrapolates from them to the side past times side X bars, buying the X+1 bar opened upwards when the extrapolation is positively skewed; selling the X+1 bar opened upwards when the extrapolation is negatively skewed; together with standing aside when the extrapolation displays no directional bias. That way you'll ever possess got a replicable procedure *and* you'll live on next what the marketplace position is telling you.
Just equally a lark, I tried the experiment amongst historical data, buying SPX when the percent of stocks inwards a higher identify their five-day moving average was inwards a higher identify 50% together with selling SPX when the percent of stocks inwards a higher identify their five-day moving average was below 50%. The information were for SPX stocks specifically, going dorsum to 2006, together with the belongings menses was for the side past times side v trading days. Buying describe gave an average five-day supply of -.07%--a pocket-size loss. Selling weakness gave an average five-day supply of -.44%, a considerable loss. The average five-day supply over this menses was a make of +.15%. In other words, having a robust procedure together with next the market's Pb has ensured losses inwards both rising together with falling marketplace position environments.
Interesting: the runway tape of the received wisdom is thence pitiable that it's promising.
Further Reading:
Three Market Idiots
The Near-Perfect Market Indicator
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