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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (40967)	4/6/2004 11:19:30 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 70769

Daily Trend Watch April 6, 2004 Two Steps Forward, One Step Back Ever feel like you're taking two steps forward and one step back with your investments? That's because you are, if you're going long and "riding" out bearish days. Obviously the market never moves up or down in a straight line for very long, but what type of pullbacks should we plan for on a day-to-day basis? I chose thirty random days and looked at how the Dow performed those days on a percentage basis. I also wanted to see how many of those days were "up" or "down" days compared to the previous day's closing level. The results favored "up" days by about a 2 to 1 margin. However, the "down" days were significantly bigger changes, for the worse. The average losing day gave up about 0.62%, while the average winning day returned about 0.55% (see chart at bottom). Trivial difference? Hardly, when you consider you're taking that loss nearly one third of the time. To put the real impact of those losing days in perspective, let's see what our results would be if we took them out of one year's worth of returns. Our only assumption is that we have 250 trading days per year (we actually have a few more, but this figure will illustrate the point). If we were only in the market on the winning 63% of those 250 days, and we get a 0.55% return each day, then our annual return would be approximately 86.3%. (250 x 0.67 x 0.55% = 86.3%) When we subtract the losing 37% of the 250 days, we lose approximately 57.7%. (250 x 0.37 x -0.62% = -57.7%). The net difference between the winning total and the losing total leaves you about a 28.5% mathematical return annually - far less than the 86.3% of just the winners. (This return overstates the actual geometric return you would get, but the lesson is still well illustrated) Clearly, it would be ideal to be in the market only those winning days, and out of the market on those losing days. And clearly, this is not feasible at all times. Nobody can accurately say what the market will do from one day to the next, nor would you want all that trading activity. But we do know that the losing days come in waves, just like the winning days. If you're seeing more losing days than one out of three, you may want to sit out of the market till things improve. If you're seeing gains more than two out of three days, you may want to be part of that bullish trend. Key Support and Resistance Levels ABOUT PRICE HEADLEY Price Headley is the founder and chief analyst of BigTrends.com, which provides daily stock and options recommendations and education. Timer Digest recognized Price and BigTrends.com among the Top 10 stock market timers for 2000. Price has been widely quoted by Barron's, CNBC, The Wall Street Journal and USA Today. Price is also the author of the new book, Big Trends in Trading: Strategies to Master Major Market Moves. If you want Price to answer any of your questions on future web site updates, send an email to askprice@bigtrends.com or call 1-800-BIGTRENDS (1-800-244-8736). DISCLAIMER: THIS COLUMN IS AN INFORMATIONAL AND EDUCATIONAL SERVICE ONLY. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. BigTrends.com, Price Headley and Hard Right Edge shall not be liable for any damages or costs of any type arising out of or in any way connected with the services of the company.