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As a follow-up, attached is a chart showing
the percentage of N-bar periods that closed in the same direction as
the preceding N-bar period (basis S&P 500 cash index, 1950-2004).
1: 56%
28-32: 50%
266-304: 50%
104-129: 61%
839-931: 80%
1745-2000: 80%-87%
So, we see that there's a decent 1-day trend probability of 56%, and
there's a tendency for the trend to wash out at 30 days (6 calendar weeks),
and again at 266-304 days (53-61 calendar weeks). The sweet spot for
longer term trading would be at the 104-129 (21 to 26 calendar week)
time period, at least by this measure.
From above, the best simple trend-following system would use about a
120-day
rate-of-change indicator as a directional indicator, with a similar 120-day
holding period, on average.
Attachment:
sp_trend.gif
Attachment:
Description: "Description: GIF image"
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