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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Timothy Liu who wrote (23340)	8/18/1999 6:56:00 PM
From: Matthew L. Jones	Read Replies (3) \| Respond to of 99985

Dear MDA Thread: I have recently been looking at trading QQQ as opposed to Index futures as a way to play an extremely volatile market with a fair degree of consistency while maintaining a safe degree of diversification. Before doing that I put out a request for historical data on the $NDX (NASDAQ 100 Index) which is the index that the QQQ tracks. A couple of thread members responded and "LG" provided me with the market data I had requested while I agreed to pass along the results of the statistical analysis to the thread. I will pass along some highlights of the statistical analysis and then a link to my web site where you will find the statistical tables. 1. My objective in doing the analysis was to quantify statistical probabilities of intermediate trend continuation and trend reversal based on the index history both in terms of extent (percentage movement) and duration (number of trading days of the trend). By knowing historical probabilities one can calculate the odds of a specific trade which can be valuable in the decision making process. I personally would like to see odds well in my favor, and the upside potential at least 3 times the downside potential, prior to taking a position. With that in mind I have prepared a probability table for the NASDAQ 100 Index which investors in the QQQ might find helpful. 2. The scope of my study was 2185 trading days (since the inception of the index). This amounts to 107 months or 8.9 years (November 7, 1990 to present). My study included 282 "pivot points" (intermediate tops or bottoms) with 141 bull moves and 141 bear moves. The "typical" bull move lasted 9 days and moved up 7.66% while the "typical" bear move lasted 6 days and retraced -5.24%. In other words this market traded 3 steps forward and two steps back, statistically. 3. An interesting finding which was outside of the scope of this study is that QQQ (had it been available at the inception of the index) would have a gain of 1,202.8% assuming you bought at day one and held to present. However, if you were to trade (long and short) the index following intermediate trends over the same time period, you would have earned a return of 1,812.7% or 51% better than the classic "buy and hold" strategy would have yielded. This confirmed statistically, my long held theory that intermediate swing trading could perform half again as well as the market. 4. Since the QQQ also offers options (both calls and puts) with strike prices at $1 increments, and since "at the money", 30 day premium is around 4.5%, I am very interested in trading the options as well. With that in mind, I wanted to study "typical" absolute movement in the index on various time frames which would be useful in option cycles. I prepared a probability table containing absolute movement data for one week, two week, one month and one quarter time frames. This data should help in statistically determining optimum option strike prices in various simple and complex option strategies. 5. Below is the link to my web site. To navigate to the tables, take the "M.L. Jones & Associates, Ltd. site link, go to the "major indices" link (bottom of page), click either "symbol" or "data" for $NDX (NASDAQ 100 Index). Feel free to browse the site and give me critical feedback. URL: mljones.com I hope some of you find this helpful in your trading. BTW, based on the statistical data this morning I went long 20 contracts of QQQ SEP 110 Puts. At the time, the market was blasting upward but the odds of a down turn in the market were 17:1 and the target for the interim pullback is 111 1/2 (the QQQ was trading at 117 5/8 which was near the day's high and the $NDX had touched 2351 and stalled just 7 points under my resistance target). Almost immediately the market pulled back and then finally in the last half hour sold off sharply under "program trading". We ended at the low of the day. We'll see if this swing moves according to the statistical probabilities. Good trading, Matthew L. Jones