Hank, I think you may misunderstand me. FA has no predictive value either. It is useful only for highlighting companies that are financially weak or strong. The reason is simple: no one knows how to properly value a stock!
I suspect that the reason you are making money in your trading accounts has nothing to do with T/A, but rather, you are taking advantage of the stochastic nature of the stock market. I use the same type of system in playing craps at Las Vegas, and I've yet to lose. But I certainly wouldn't attribute my winnings to studying the successive rolls of the dice. Here's how the system works. You always bet with the house. If the house loses, double your bet. Now, if you assume that the probability of the house losing is 50% on any roll, it's easy to calculate the probability of you winning given a certain number of rolls: it's 1-.5^n where n is the number of rolls. So, the probability of you winning given five rolls is 31/32!
Do you see the parallel? Your system seems to involve successively shorting the stock every time the price moves higher (i.e., you lose). It has nothing to do with T/A. Your candidate shorts are high flyers which immediately provides you with excellent leverage.
I think it may be well worth your time to systemize what you do (forget about the T/A part, concentrate instead on the mechanics of successive shorting and selling naked calls) and put it into a stochastic framework, and see if the kind of model I posited doesn't make more sense than T/A.
Regards,
Paul |
