So what has happened historically subsequently a province of affairs inwards which the departure betwixt stocks trading higher upward their three-day averages moves 50+% inwards a unmarried day? By definition, that captures a deed inwards which nosotros receive down amongst virtually stocks below their short-term moving averages too complete amongst virtually of them above.
Going dorsum to mid-2006, when I showtime began archiving these data, this has occurred 39 times inwards a VIX surroundings < 20. Over the adjacent v trading sessions, SPX has been upward 24 times, downwardly xv times for an average loss of -.26%. Winners convey been to a greater extent than mutual than losers, simply the average size of losers has exceeded that of winners handily.
No border inwards that item pattern.
Which tin displace endure information.
But suppose I *need* to uncovering an edge. I operate on running historical queries until something "significant" pops out. Perhaps I fifty-fifty autumn prey to confirmation bias too operate on running the studies until something supports my preexisting marketplace view. If nosotros run twenty studies, we've got a decent shot at finding the ane inwards twenty that meets a significance touchstone at the .05 level!
Confirmation bias is an understandable challenge inwards a plain where confidence is needed to seat on trades. Running studies until something looks good--or cherry picking the charts to await at--is an understandable bias when traders are seeking confidence.
Sometimes, however, the response is that at that spot is no meaningful directional border inwards a given market. It's similar drawing a pitiful mitt at the poker table. The pros know when to play too when to muck their hand. There is an of import departure betwixt the motivation to merchandise too the motivation to brand money.
Further Reading: Avoiding Confirmation Bias
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