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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 659.03+1.0%Nov 21 4:00 PM EST
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To: James F. Hopkins who wrote (19099)7/1/1999 10:47:00 PM
From: Tai Jin  Read Replies (2) of 99985
 
That is not the right way to compute the probability. The probability of a trend extending an extra day is the ratio of higher to lower closes following the given trend. When computed properly, these are the probabilities for the DOW extending an up trend:

1->2 ..... 0.53
2->3 ..... 0.57
3->4 ..... 0.49
4->5 ..... 0.49
5->6 ..... 0.55
6->7 ..... 0.44
7->8 ..... 0.45
8->9 ..... 0.40

So we are more likely to have a lower close tomorrow. The probabilities for extending a down trend are:

1->2 ..... 0.47
2->3 ..... 0.49
3->4 ..... 0.50
4->5 ..... 0.26
5->6 ..... 0.28
6->7 ..... 0.00

Note that down trends have a much higher probability of ending after 4 days. At least from May 1990 (the start of my data) there has not been any down trend exceeding 6 days.

...tai
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