This entry was posted on Thursday, October 11th, 2007 at 9:36 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
The QQQQ had a high volume reversal today. After gapping up, it climbed to a > 0.5% gain from yesterday before sharply reversing and closing down over 1% on high volume. I was curious how often a pattern like this had occurred before and what usually happened next.
I scanned the QQQQ’s for all cases where they opened higher, had a high greater than 0.5% above the previous day’s close and then closed down over 0.5% on volume at least 50% greater than the day before. The system would buy on the next open after this occurred and exit after 20 days (approximately one month).
Going back to 1990 this has occurred only 23 times and has an average 20 day loss of 0.77%. What’s most amazing about this pattern is that it is almost impossible to find any entry that will generate a loss on the QQQQ’s on a time based exit over this time period as the QQQQ’s have increased over 10x since 1990.
Now why this means that there may be trouble ahead for the market, that does not mean that our long only swing system on collective won’t be buying tomorrow. Remember, each system has it’s own time frame and money management strategy so it is very possible to have long systems being profitable at the same time a short system is also active.
- John
October 12th, 2007 at 12:32 pm
Actually, I don’t understand the title of this post. You explained all the bullish history of this trade (can’t find losing exit, etc) yet you mention stormy seas ahead for the market due to yesterday’s pattern. I don’t get it
October 12th, 2007 at 1:32 pm
BH,
The history of this trade is not bullish. It’s bearish. From the post:
“Going back to 1990 this has occurred only 23 times and has an average 20 day loss of 0.77%. What’s most amazing about this pattern is that it is almost impossible to find any entry that will generate a loss on the QQQQ’s on a time based exit over this time period as the QQQQ’s have increased over 10x since 1990.”
What I was saying is that it’s very, very rare to find any long only system on the QQQQ’s that is a loser over the time period. This system is with an average loss of 0.77%, far, far below the average 20 day move in the QQQQs.
Does that help?
- John
October 12th, 2007 at 2:36 pm
Yes, John, thank you for clarifying.
I mis-read the original post as saying average 20 day *profit* of .77%. I was further confused thinking you entered a long trade on the open this morning using the stats as impetus for trade.
Regardless, impressive snap back rally for QQQQ today.
November 7th, 2007 at 10:54 pm
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