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Monday, June 18, 2012

Market change confirmed!

An interesting observation.

On June 8th, I posted a blog that I thought we might be at a market turning point.  This past Friday, June 15th, Investor's Business Daily ( announced we had in fact turned.

When I'm daytrading (as opposed to my longer term investments), sometimes I'm long (buying first, then selling later, with the expectation that the market is going up), and sometimes I'm short (selling first, then buying later, with the expectation that the market is going down). At any given point on any given day, I will be long or short. I will typically be long and short at some point during the same day.

My day-trading futures strategy makes money, until it doesn't. 

Recently, after consistently generating profits, it started consistently generated losses. 

Which begs the question: how can something be consistently making money, then consistently losing money, with no change to the strategy, unless something is different about the market? I became convinced that there was something different about how the market was trading that was causing my to move from success to failure.

I pulled my daytrading logs, and did a little research from trades over the past year. 

I found that I go through this same change when the market is making a change from one direction to another. If I was successful while it was going up, then when it hovered prior to switching to going down, during this transition I experienced failures. Likewise, if I was successful while it was going down, then when it hovered prior to switching to going up, during that transition I experienced failures.

This was a very big surprise to me - not only that a strategy could suddenly switch like this, but it was also capable of prediction. In other words, the fact that my trading strategy moved from success to failure meant that the market was going to change direction. Once it moved from failure to success, then the new direction had been shown.

From my logs, I had been successful at trading until the end of July 2011, when the market bottomed, then I wasn't again until October, when the market moved out of a sideways correction to an uptrend. I started experiencing failures again at the end of November, when the market turned, and started being successful again at the end of December, when the market turned. I started experiencing failures again in April, then success again in May, followed by problems at the first of June, followed by successes again last week. 

On June 8th, 10 days ago, I noted on my blog that, based on the shift of my trading strategy from success to failure, the market was at a turning point, changing from 'downtrend' to 'uptrend'. The market had been in a downtrend since the first part of April, 2012.

This past Friday, as noted by Investor's Business Daily (, the market has changed from 'Market in Correction' to 'Market in Confirmed Uptrend'.

So, in other words, my trading strategy's shift from loss to profit, led me to predict on June 8th, that the market had changed direction from downtrend to uptrend, and on Friday, June 15th, the Investor's Business Daily announced this change in market direction.

So - here's what I've learned:
1 - my strategy is successful when the market is moving in a direction, up or down.
2 - my strategy fails when the market is in a transition, moving sideways.
3 - my strategy predicts the turn from a direction to moving sideways.
4 - my strategy predicts the turn from moving sideways to a direction.
5 - I need to employ a different strategy while the market is moving sideways, and abandon my original trading strategy, when the market is in a transition. 

This has been pretty fascinating to me!

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