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Detailed description of the Market Direction Predictor.


How does the Market Direction Predictor work?
Who can benefit from the  Market Direction Predictor?
Where do I need to start? How can I learn to use the predictor?
What is the potential profit, and Win / Loss ratio using the  Market Direction Predictor?
Risk  that you need to be aware of, when using the predictor information.
Market Direction Prediction VS Trading Signals.
The Market Direction Prediction Page,  and the interpretation of the data published.
How many predictions presented  during a specific period, and how  does the predictions scheduled?
Predictor Power.
The evaluation of a specific prediction.
Market days  currently Not  trading with overnight positions, or trading with limited exposure.
Trading, using the predictor information for opening  overnight position.
Some other techniques to increase our success rate even more  using the predictor.
Predictor Statistics.
The importance of a specific predictor time frame for your trading or investing decision.
Preparing for the trading day.
The description of the way, we use the predictor for trading.
Prediction classification (grading levels) used to  bracket  every prediction into any of the following  five  states.
Building  strategies based on the predictor information.
Predictor playing strategy example.

 

How does the Market Direction Predictor work?

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For sure any  institution which have  very complex computer systems   to get ahead of the competition in the markets  keep those  strategies as top secret for ever.

Before started the design of  our system, we studied  many books and other sources about the stock markets, but we have to say that it was  our trading experience and our dedicated research  for many years that led us to the creation of the predictor.

The  predictor  strictly speaking is the professional implementation of  a technology  created and implemented  by  traders and programmers.
It is especially useful to support trading  decisions on multiple time frames.
The designed  technology is also expected  to be valid for very long time for the markets and serious considerations were taken during the design and implementation  in this respect.

The technology is based upon a complex set of rules  that  the designers considered  very important  for trading and  could be considered as axioms.

To find a complex set of rules that could be applied generally to the market is a huge project and  necessitates many years of extensive dedicated research.
The  difficulties lie in the dynamics of the market, as the  importance / weight of rules often changes dynamically.

The best to envision the predictor is  like a strategic game program,  similar to Chess programs.
Actually the  inventor of the core predictor technology played  chess in his early years.
He was not even  14 years old, when he managed to beat the third place adult European Champion in the game.
The predictor  design draws upon the design and implementation of  chess programs.

Even after thousands of predictions, the  designers are not able to tell in advance just by  looking at conventional market – related information, what the predictor will  suggest,  even though after  a couple of month we can have some kind of feeling about  the coming prediction about 30 - 40% of the cases.

The key focus is to  interpret the predictor data the best way possible.
The  predictionwizard.com  help us gauging the general market for the next Day, Week and  Month.

On the other side the predictor generates more than 100 data every day for the daily prediction of six US indices, that is interpreted and analyzed  automatically by the system and  a grading process applied to come up with the final predictions.

Some  of the additional conclusions / interpretations  will be delivered to the users of the predictions as comments  in addition to the  predictor information for each  of the six US  indices. These additional comments are not automatically generated.


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Who can benefit from the  Market Direction Predictor?

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Originally the developers used the predictor to support Day-trading,  overnight trading and swing trading activity.
In the current form the predictor supports a variety of trading, including, but not limited to:

- Investments  in Index-related asset classes.
- Swing-trading  in Index-related asset classes.
- Day-trading  in Index-related asset classes.
- Only Overnight trading.
- Overnight trading  Mixed with   investments or long-term trading.
- Overnight trading Mixed with Swing trading
- Overnight trading Mixed with Day – Trading.
- Overnight trading Mixed with Scalping
- Other combinations of the above.


The objective was during the developments of the predictor to increase our  yearly profit by  allowing  our trading capital to work for us 24 hours a day every day of the week and every week of the year.
As we mentioned all kind of trader can benefit from the predictor, but the achievable profit potential (And with it the loss potential too.)  increases, as the intensity of trading increases.

We enjoy the  benefit of Mixing the overnight  trading  with active Day-Trading.
But we should note here that overnight trading alone  present a possible profit potential, which is considerably bigger than the investment potential on a yearly basis.

Users can come from  those traders,  who are doing  trading in index – related asset classes (Stocks, Options, futures…)  or  stock trading  which have  high correlation with  indices on a given business day.

We would like to highlight  here that any given time during a trading day about  40 to 100 % of stocks are highly correlated  with the indices, and  the more pronounced the movement  in the index, (The bigger the movement in a shorter time period.) the  bigger the  correlation of  most  stock movement  with the index.

We  also  note that this  predictor  information is best  for experienced  and professional traders, who  already have  trading experience.  We are not saying that beginner traders can’t benefit from the information.  Of course  the predictor could turn many  less experienced traders into  winners, but since the  information is not a  Buy or Sell signal,  only those, who can make the proper decision on a timely fashion  will benefit the most.
Without  additional analysis, strict risk control, position management  the gains could be considerable  less, than  the maximum potential.

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Where do I need to start? How can I learn to use the predictor?

There might not be a general solution for this for everybody.
But  the first starting point should be to study the learning material, presented on the site.

Than you will have  a much better understanding about the predictor.
With that in your baggage, you can create you own development plan and you can proceed  with your own pace.
Nobody learned playing chess overnight. It will take time. Time that very well spent.
Viewing the predictor performing  is definitely important.
You need to get accustomed to the different  direction information for different time frames, and the dynamics of  those playing out.

It is very important to check a lot of charts.
Since the predictor information is mostly correct, it might be better to reverse the course and check all charts when the predictor information did not play out  to be a winner.

Deeply analyzing  those occasions  on intraday basis and within the context of a higher  and lower timeframe could give valuable information  during the learning process.
You need to have a feeling after a certain period that a certain prediction is correct or not and  reach that conclusion sooner  in order to maximize the potential and if necessary  flip positions quickly and early in the trading session.

The more you would like to benefit from it and the more you plan to rely on it the more time needed with analysis. If you plan to take it as a second or third confirmation, than you might not have much time to discover all the details.

We would suggest not to rush into a quick trading mode or strategy creation mode until a very good feeling for the predictor performance reached.
It will probably  happen after 1 - 6 month, depending on previous experience and time allocated to the discovery process.
Success does not come without knowledge. Real knowledge means confidence. Real confidence will not come overnight, so you need to be patient a bit and flexible to handle all possible situations on the market properly.

The predictor  is only a tool to extend the capabilities of the trader or investor. That does not mean everything becomes certain and  not governed by probabilities.
Have a good luck and enjoy your journey.

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What is the potential profit, and Win / Loss ratio using the  Market Direction Predictor?

The good news is:
Potential profit using the Market Direction Predictor is  higher  than any  competitive service or signal we know of, in the area of   index–related trading.

The fact is:

It is not a  pure  Buy / Sell trading signal, and  also need  a bit more knowledge,  learning to be really successful with it.
The market direction predictor  does not generate  signal to open or to close  the positions, it must be completed by the  trader or investor after a series of considerations.

Since  based on the predictor information  still  unlimited number of  strategies could be  applied and the  experience of the  trader is  also  very important,  it is  impossible to  define profit targets in advance, without  the knowledge of applied trading strategy, the trading asset class, the accepted risk, position management   and many  other parameters.

But to help traders  in this  learning and Market Direction Predictor evaluation process, we  prepared a  few   examples about  the Maximum possible Win/Loss ratio, that could be achieved  with  a lot of trading experience and  market knowledge, once the  trader opened a  Long / Short position   in  the index-related asset, before the close of the business day.
Another strategy, when the position is NOT opened  before the close of the markets, so that overnight risk  is not applied, could also be implemented, but  according to our experience,  a little bit better profit potentials could  be achieved,  holding the  index-related asset overnight, since some of the biggest moves in the  markets usually happens  overnight  but that might be achieved only by accepting the higher overnight risk  with our position.

To illustrate the differences between potential profit targets, we show three examples.

1. If the  trader is fairly conservative, allows a small  stop and trades the  NASDAQ100  index – related  ETF shares (QQQQ) than  about   0.4 - 0.6%  average profit on a trade might be acceptable and good results depending on market volatility. Similar ETF for the S&P500 index  is the SPY with considerable liquidity. Many similar index following ETF-s  available for all kind of indices to play.

2. If another trader, who is willing to take a bit higher risk and  play the other NASDAQ  - related  asset, like the  QLD, Ultra Long proshares or QID,  ultrashort proshares,  which have  a much higher intraday trading range in terms of percentages   than the QQQQ,  (About the double of the QQQQ risk.)  average daily profit of  about  0.8 - 1.2%    might be a nice gain. Not to mention that even  bigger profit is possible sometime.

3. If all this is not enough, than the trader might want to play for example the more risky Options  or the index futures, or other derivative asset class like CFD-s (Contract for difference).  But  we definitely would not recommend this for the beginner.    Only  the most experienced  players  might  accept such a risk and stay  consistently successful, and even those  only with a   limited  portion  of  the available  trading capital.
Trading options, futures or other  leveraged instruments carries much higher risk than trading  simple ETF-s  only.  It is not impossible to see above 10% gains or losses a day sometimes trading those risky  instruments.

The Win / Loss ratio achievable using the predictor will be different  for  all three predicted time frames, and it will be a little bit different for all indices.
We present the potential Win probability for each prediction.
It means optimal Win probability.  That Win probability could only be exceeded only if the player learn to identify  false / incorrect predictions very early  in the prediction period correctly and reverse positions accordingly. We  give some support in this area for the predictor users.
The actual achieved Win probability will be a little bit different  for predictor players, even if playing the same index and same  time-frame, as it will be dependent on trading experience and predictor experience.

Assuming that  we  present  Daily Index predictions with 75% average optimal win probability, it is  acceptable to have actual results from a beginner to novice trader in the range of 60 – 65% win ratio, actually playing those predictions.
A more  experienced player will be able to play the same predictor  information with a 65 – 70% win probability, and a  top pro will be able to make 70 – 80% win probability  or even more  from the same predictor information, by reversing positions  after early identification of incorrect predictions.

These numbers are for the players who plays the Daily predictions on intraday  basis or overnight  basis.
Players of longer time frames potentially might be able to achieve much better win probabilities on average, as the Weekly predictor optimal win probability is better than the Daily predictor win probability.

All time frames  are different. The shorter the time frame, the higher the stress that comes with the trading and position managements and the more experience required to be consistently profitable.
It is generally  easier to make consistent profit on the swing trading  time-frame, than it is for Day trading time frame, especially for  beginner traders.
The  optimal win probability  statistics  will be detailed in the  predictor statistics  section.

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Risk  that you need to be aware of, when using the predictor information.

Every kind of trade carries a  certain risk.
It is generally  true, that  a professional trader, who  is willing to take bigger risk, will be rewarded with bigger profit.
A scalper may  not even accept a  0.2 [%] risk  on a trade, doing the trade with a big  position  size.
The larger the time period, the  trader is willing to hold the asset, the greater the risk that need to  be accepted  to be a successful trader.
Sure  the overnight risk can’t be controlled  100%,  since  unexpected external events  could have  meaningful impact  on the markets.
Just to  think about the worst possible scenario,  terrorist attack  could  hit  the economy,  bombs could fall  from the  sky suddenly somewhere in the world or mother nature could cause  unexpected damages overnight.
The potential impact  of these  catastrophic events  might be that  US indices open  4  - 6 or even 10%  down the next business day.
But  the probability, that such an event occurs  is extremely low, and  it doesn’t happen  every month, maybe once in  10 - 50 years.
If the indices drop  a certain  percentage during a business day, than  the trading  halted  temporarily  to  give some breath to  the market participants to reconsider their position.
Even if the worst happens, a 5 -  10% loss could be recouped  by trading in the following 1 – 3 month, or even sooner,  depending on the aggressiveness of the trader.

During  2007 for example   the predictor direction was in line with the biggest gaps of  the year, as 12 out of the biggest 14 gaps occurred in the direction of the predictions.
During the time period between April 2008  and Jun. 2009 (A total of 15 month period) the predictor direction was in line with the overnight gaps about 52% of the cases.
Overall it could be stated that the predictor is  not predicting the overnight gaps, it is predicting the movements during regular hours.

We note here that some of the biggest GAPs occurred on Mondays.  If we hold positions during  the weekend that carries added risk. Some asset classes  might be better in this respect, those that are traded during the weekends, so we might be able to  limit our losses during  unexpected situations.

Because of this  the strategy designed around the predictor must be a bit different if positions held overnight.
In this calculation we did not consider predictions for other indices, or weekly prediction or monthly prediction or other market dynamics, like short-term, medium term and long term trends of the market.

By taking all those into account the surprise gaps against our overnight positions could decrease meaningfully, but never could be eliminated.

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Market Direction Prediction VS Trading Signals.

We stated  that the predictor is NOT a trading system  itself as it does Not specify what kind of asset  to trade, what  size of position to take, and specifically when to enter / exit those positions.
Any specific trading system could have a relatively high win rate, as it strives to catch only the highest probability entry / exit points for profitable trades.

But we know that the market have different periods, when  it is trending and when it is not trending, when it is volatile and when it is not volatile, when it is  doing only internal sector rotations, when  its move could be better predicted and when its direction  could be predicted will less probability.

It is much more difficult to create a general solution which works for every type of market, every cycle and every time period  fairly well.
During the design  and implementation of the technology we use  we tried to build the system on rock solid foundations.
Those foundations were the axioms, that  proved true for the markets during the past 30 years.
Warning:
There are beliefs.  We do not built our system on common beliefs.
There are a lot of common beliefs, that  are simply not true, and especially not  valid on a longer term, basis.
We built our system on thoroughly tested axioms that proved to be true  on very long term basis.
For this reason we did not implemented special tuning within the system to make it more reliable during any specific period, be that any kind of market.
The very long term stability was a higher priority during the implementation of the system.
For this reason it is wise to make the special kind of tuning within the strategy, that we build around the predictor, knowing its strength and weaknesses.

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The Market Direction Prediction Page,  and the interpretation of the data published.

The registered users will have access to the Market Direction Prediction Page.
This will contain the prediction information for the  major US indices, namely:
- The NASDAQ index. ($COMPQ)
- The SP500 Index   (Large-Cap, $SPX)
- The NASDAQ100 Index (Huge-Cap, $NDX)
- The SP100 Index (Huge-Cap, $OEX)
- The SP400 Index (Mid-Cap, $MID)
- The SP600 Index (Small-Cap, $SML)

Each index direction predicted on three different time frames, Daily, Weekly and  Monthly timeframe.
At any specific time,  when the predictor information is refreshed  on the web site, it is refreshed for one specific timeframe, and refreshed for all six  indices at the same  time.

For any specific index the prediction  on a time frame contains a color code, and the potential win probability for that index.
The color code is actually used to make it possible to quickly   get the overall picture for the indices.
We  defined Six different states for the color codes in the following way:

- Very Bullish -  Dark Green
- Bullish -  Green
- Neutral, but still leaning to the Bull side a little bit -  Yellow, with a (+) sign added
- Neutral, but still  leaning to the Bear side a little bit -  Yellow, with a (-) sign  added
- Bearish - Red
- Very Bearish - Dark Red

In our historical data (Which can be downloaded from the web site)  we coded these color codes as  3 (Very Bullish),  2 (Bullish)  +1 Neutral (Still leaning to the Bull side.)  -1 Neutral (Still leaning to the Bear side.) -2 Bearish, -3 Very bearish.

We also present the potential Win probability for each prediction. This can be used  to support us further in our decision making process.
The win probability is calculated  using a rolling three year period, (The last three years.) and comparing the predictor data to similar internal prediction data in the past.

A higher win probability does not mean, that the potential market move is bigger. It only means, that the win probability is  better for the predicted period.

For  every Day we have more than a hundred calculated Daily prediction data available for the US indices, but we do not intend to make life complicated, so we created  these simplified presentation to the registered users.

The interpretation of the predictor data is fully automatic, no human interaction is used to present the predictor data in  the prediction table.

The color coding of the prediction is completed  the following way:
Out of 100 Daily predictions we will have the top 15% (One out of six) as  Very Bullish or Very Bearish (As Bullish or Bearish extreme.) 
Similarly  about 15% of the predictions will fall into the Neutral category. (One out of six.)
The remaining predictions will be either Bullish or Bearish. (4 out of six.)
But be careful, as those cutoff levels vary index by index.
To be in the top 15% category, the potential win probability must be much higher for the NASDAQ prediction than for the SP600 index for example.
The average win probability is different for  each index, but it is the highest for the NASDAQ and for the SP500 indices.

It is very important to read the  comments, that  we publish for the predictions.
It is  Not automatic, as it is the interpretation of the operator, but  might contain very important additional information, that  might not be noticed otherwise.
It is based on the interpretation of the full predictor datasets and other market analysis.
Occasionally we get conflicting  data, so-called internal divergences,  but we still need to present the prediction  as one of the above described six state.
Sometimes the additional data suggest stronger or weaker next market open and potential turns during the next day. We also comment in situations like that.

On the page you will find additional information about the Date and Time of the predictions.
It is  important to know, how old is a specific prediction.
All date and Time presented is expressed  as the New York time (ET)

Important:
If a registered user logged into the system, and viewing the predictor page and in the meantime the content of the predictor page changed, than the page of the viewer automatically refreshed with the new predictor data, and if the user selected that option, than a sound signal will accompany the automatic refreshing
. The sound signal can be changed or deselected using the "Modify"  link next to the username after login.

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How many predictions presented  during a specific period, and how  does the predictions scheduled?


It will be dependent on the time period, but a rough estimate is the following:
Assuming that we have a month with 22  market  Days.
That is a bit more than 4 weeks period.
During this  period  we will present approximately 22 * 6 * 2 = 264 Daily predictions.
One Daily prediction before the market close and one Daily prediction after the market close for each of the six US indices for every Day.
On some days we might even present two sets of daily predictions before the market close,  If the first set of predictions calculated early  in the afternoon, say 3.00 – 3.15 PM, and the  predictions change  considerably before the market close, by 3.45 PM.
We might  run the  predictor calculations earlier if we see little probability of a complete change, even if the market changes direction and reverse course a bit late afternoon.

The Daily prediction for the next day might be different before the close and after the close,  even though most of the time it will be the same or similar.
Market action after running the predictor calculations  might  change the whole picture, if  big change occurs from the first prediction till the market close.
We saw aggressive buy or sell programs kicking  in full speed after 3.35 PM ET or later, that changed the whole daily picture, but that does not happen many times a year. The more we wait  to run the predictor, the better our  next day prediction might be, but  might also lose out  the  possibility of a good entry for a potential swing trade or overnight trade.  So there might be a good compromise between these opposing requirements.

The most probably Daily prediction schedule will be between 3.30 – 3.45 PM ET.
We completed exhaustive research for the last hour of the market day to help us identify  the optimal   timing of predictor calculations depending on market action.
In a six month period after opening overnight position, the position was in the red only about 15 % of the cases  by 4.00 PM ET, but  had to get out of the position before the market close only twice during that period  due to complete changes in the predictions by the close. The market moves in the predicted direction by the market close much more than 50% of the cases.

In addition to the Daily prediction  we present 6 * 5 * 2= 60 Weekly predictions, as the period contains four and a half weeks, so we present 5 *2 weekly predictions  at least for every US index.
Similarly to the Daily predictions we run the weekly predictor calculations before the end of the current week first. That is usually on Fridays, before the close.  After the market close on Friday (Assuming that Friday  is the last trading day of the week.) we run the calculations again  either on Friday or Saturday  to get the final weekly predictions for the next week.

And finally we present 6*2 monthly predictions during this time period. Using similar logic, we run the monthly predictor calculations before the end of the month  first, (Usually the last trading day of the month.) and  we run the monthly calculations again after the market close of the last Day of the month to get  our  final monthly predictions for the next month.

So the  total predictions during  a 22 Day month will be about 264 + 60 + 12 = 336 predictions.
To make this happen we strive to do everything possible but we also know at the same time that  many systems need to work flawlessly  to present  all these predictions  without any interrupts during longer periods of time.

We also note that we run the predictor calculations some  other times  during the day and week and month , but those results  are for internal use and  we  might use those only to  add comments to our Daily, Weekly and  Monthly predictions and as  early warnings if weekly  or monthly predictions change during the prediction period.

As  we are moving ahead and complete  additional developments, we try to  present  additional  information to our  subscribers.
The timing of the predictor calculations vary day by day a bit,  as it  is dependent on market action.
If the market is currently moving dynamically, than we  usually wait a bit longer, and if the market  is in  a slow mode, than we usually run the predictor calculations a bit   earlier.
The first Daily predictor calculation and the forthcoming  updates on our portal will be between 3.00 -3.55 PM ET.  Unless we experience technical issues with any of our systems, we  will not  run the calculations later than that.
Just to speed up the information flow of the predictor calculations,  we might not comment those Daily predictions immediately, or might add some quick comments after  the  automatic portal update, which is initiated by the administrators.

In addition to that, we might add more comments to a set of Daily predictions  later, but before the  start  of the next business day, after completing our  “classical” technical analysis and  looking deeper into the details of the predictor numbers.  (As we mentioned we have more than 100 predictor related  information for every day as the output of the predictor, that we are analyzing after the calculations to get  more insights.)

After  the market close  we will run the Daily predictor calculations again, usually within 10-30 minutes, but if for some reason  it is not updated, it will be updated  before 7.00 AM ET on the next day.

Assuming that the current day is the last day of the week, than we  plan to run the weekly predictor calculations  just before the Daily predictor calculations, that means sometime between 2.30 - 3.15 PM ET.
Again, we might not comment the weekly predictor results immediately as our priority is the time, to get the objective  calculation output  to the portal  as soon as possible.

If we think that the weekly prediction  calculation probably will not change considerable  during the Friday afternoon, than we might  run the predictor calculations and present  to our subscribers as early as 14.00 PM ET, leaving more time to prepare and react to the developments. If the weekly predictions changes however before the market close on Friday, than we  present those again before the market close.

After the close of the week, we run those weekly calculations again,  either Friday afternoon, or Saturday  and present the final weekly predictions for the next week. (The most Probably final update will be Friday afternoon  before  5.00 PM ET.)

Similarly the schedule of the monthly predictor calculations first  on the last business day of the current month. 
If it is also the last day of the week, than we run  just prior to the weekly predictor calculations, which means sometime between 2.00 -2.45. PM ET.
If the last day of the month is not the last day of the week, than we run the monthly predictor calculations sometime between 2.30-3.15 PM ET, just before the Daily predictor calculations.

Normally  a round of predictor calculation and portal update will be completed within 10 minutes.
The portal update after the predictor calculations completely  automated, but the process must be initiated by the portal administrators.

Important:
If a registered user logged into the system, and viewing the predictor page and in the meantime the content of the predictor page changed, than the page of the viewer automatically refreshed with the new predictor data, and if the user selected that option, than a sound signal will accompany the automatic refreshing. The sound signal can be changed or deselected using the "Modify"  link next to the username  after login.


These predictor calculation schedules designed to help our clients to get  a better edge and get it  ahead of the competition.

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Predictor Power.

When we try to solve the puzzle, that the  stock market presents to us we need to put al the pieces of information together.
It is extremely difficult to recognize a 100 pieces puzzle picture just having one piece in our hand.
But having at least a bigger chunk of those pieces put together even a less experienced player might be able to recognize the true content.
Having the predictions for six major  US indices on three time frames all together gives us a bigger portion of the puzzle to make us potentially more successful recognizing the market puzzle.

In order to better weight all the  data in our decision making process wee need to introduce the notion of the “Predictor Power”
The predictor power is not a number itself,  but a Function, that dependent on time.
The predictor power, which is closely related to the effectiveness of a specific prediction is the highest at the time of the prediction, and that power decreases over time.

The starting value is one, the maximum at the time of the prediction.
Then we have the highest probability, that the market will go in the direction of the prediction.
As the time passes, we have decreasing predictor power, which means, that  the probability, that the market will go in the direction of the prediction is less and less as we approach the end of the prediction time period.

The decrease is not linear, it is decreasing more quickly than the linear function.
This means for example, that having a Daily prediction for a specific Index  we expect the move to happen with the highest probability  during the beginning of the market day, especially during the first 30 – 60 minutes.
If for whatever reason the market does not show any  willingness to follow the predicted path relatively quickly after open, that also a valuable information, and might mean that  considerable  impact  reached the  market  after  the prediction date / time or before the market open on the next day, or immediately after the open.

A predictor power – time function could be  demonstrated with the following chart:

predictor power
So for a Daily prediction the predictor power is 1 at the market open, and it is below 0.5  at half time,  after 390 / 2 = 195 minutes of  regular market time for the US markets.

Similarly the highest probability, that the market will follow the Weekly prediction is the market open  on the first day of next week (Which is usually Monday.)
If the market does not follow the  weekly prediction path  during the first 1 – 3 days of the week, we have decreased probability, that the market will go  in the predicted direction during the rest of the week on Thursday  or Friday.

For the monthly predictions the same could be stated.
The weight of the monthly prediction should be higher in our decision right after the prediction published, and early in the month, and  decreased weight in our decision during the second half of the month.
The best  point  of time in this respect, when all predictions are fresh is the first weekday in a new month, when both the daily, the weekly and the monthly prediction are fresh.

The  time presented on the  horizontal axe on the chart is a relative time, 50 being  the maximum of the prediction time frame.

It is common to see predictions on one time frame point to different directions than predictions on other time frame.
We need to weight those  according to the time frame we are intend to use. It is very interesting to see the market to resolve those conflicting predictions on the different time frames.

Short term market turns best could be detected by  using the Daily market direction  information.

Having the predictor power notion in our hand before each business day we can make a estimate  about  the weight of the available predictions, based on how old a specific prediction.
One example:
Having the first Monday of the month ahead of us  we   come up with the following  weights as Day-traders:
Daily prediction :   45%
Weekly prediction : 30 %
Monthly prediction: 25%

On the other side, when we would like to  estimate those weights  at the end of the month  before the market day for the last Friday of the month, we come up with a different weight  structure as Day-traders:
Daily prediction weight:     65%
Weekly prediction weight:     20%
Monthly prediction weight:     15%

We decreased  the weekly prediction weight considerably as we are just ahead of the last trading day of the week, and also decreased the monthly prediction weight as we are approaching the end of the month, so the monthly prediction is not really new.

To summarize:
It is wise to  consider not only the prediction data available, but also the date / time of the predictions and making adjustments  based on how old a specific prediction is relative to the prediction period.

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The evaluation of a specific prediction.

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After the end of a specific prediction period we  evaluate every specific prediction and make our conclusion.
Any prediction can be either Correct or Incorrect (False) prediction.
To help you understand  our evaluation better we introduce the notion of profit zone and loss zone.

A specific prediction is in the profit zone,  if we could make a profit by closing  our  position at that time, for example  a Long position is in the profit zone, if the  Index  we are playing  is Up relative to the level the index was at a time we  run the predictor calculations.

For the sake of simplicity  these reference levels are the Daily closing levels for the Daily prediction,  it is the Friday’s closing level for the  weekly predictions (Or the  closing level on the last trading day of the week.) and it is the closing level of the last trading day of the month  in case of the monthly predictions.

We do not require for a specific index to reach a specific profit level  by a pre-specified time  within the prediction period.
So we do not require for example for the Daily predictions to reach the 0.8% profit zone  within 5 hours in order to conclude that  the prediction is Correct  or Incorrect (False) prediction.
During our evaluation process we  do the following:
We examine the charts,  the index movements during the prediction period.
We require for the index to stay  in the profit zone during the prediction period for a minimum of time.
That minimum of time can be as small as 5 – 15 minutes during a Day,  if it is in the early period of the prediction.
Having a professional level of trading  knowledge  and  predictor  knowledge and experience  the player  should be able to get a profit during the prediction period having optimal execution in order to  specify as Correct.

The profit zone  that is required from a specific prediction will depend on the prediction itself.
If the trading range for a specific  prediction period is extremely small, than  we just require the index to stay in that profit zone for a minimum of 20-30% of the time of the prediction period.

If the trading range is not that small for the specified prediction period, than we  require for the index  to make a  minimum   move into the profit zone, depending on the time-frame we predict.
It is definitely depend on the Volatility of the indices, but during average volatility in 2009 year we used the following levels for the US indices for example.
For  the Daily predictions we required a minimum of 0.3 – 0.5%  moves into the profit zone in order to consider the prediction correct.
For  the Weekly predictions we required a minimum of 0.7 –  1%  moves into the profit zone in order to consider the prediction correct.
For  the Monthly predictions we required a minimum of 1.5 –  2%  moves into the profit zone in order to consider the prediction correct.
Over time these levels might need to be adjusted according to market volatility. (It might be fine, when the VIX is between 22 – 35 levels.
We need to think with the head of the intuitive trader playing the Daily predictor information.
If on a given day the index  moves into the profit zone, reach the 0.5% level there, but  stays there only  for 5 minutes at the end of the market day (Like  spikes, induced by  big program trades) than we will consider  that prediction a failure, as the individual trader probably might not be able to profit  from the move.
On the other side, if the index reach  the 0.5% profit zone at the beginning of the day, and stay there for 10 – 15 minutes, that should be enough for a good, experienced trader to  get out of the trade with a profit, and do not let that become a loss for the day, in case the index makes a sudden reversal  and moves the position into the loss zone.

It is a bit subjective evaluation.
To get a better feeling  about  correct and Incorrect (False)  predictions we strongly advise to study the  prediction charts that we present for the   predictions for  each indices predicted. Those can be reached from the Download section of the predictionwizard.com site.

We marked the Incorrect predictions on our prediction charts with “F” letter (False).
Those chars also useful to get the feeling about  success rate for the predictions and  we could also see the lover probability predictions and the higher probability predictions  and their places, relative to  index levels and movements on those charts.

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Market days  currently Not  trading with overnight positions, or trading with limited exposure.


Two things are equally important:
1 Knowing When to open position.
2 Knowing when NOT To Open position.

We collected some info about  potential impacts on the market before  the open, that could derail  it from the original course considerably. Some of these are the following.

- FOMC rate decision days, and  days, following the rate decision. The most  risky is the day after the rate decision. The second day  after the FOMC announcement might be played with less risk if the predictions are strong and the FOMC decision is in synch with the market expectations,  and not deviating from that.

- GDP data arriving to the market, before the open. Especially when “Final” GDP data coming to the market.

- CPI data arriving to the market before the open (Might be played with small size.) Our statistics show that the market participants probably has a better model to predict the CPI data, than the PPI   data and play the  market accordingly.  (From the CPI, PPI pair of economic  data the PPI carries a bit bigger risk for the predictor users using overnight positions.)

- PPI data arriving to the market before the open.

-Other economic data arriving to the market, that supposedly  key to the evaluation of real value or deemed crucial for various reason, and  coming to the market.

- Beginning of the Profit reporting periods. Not suggested to trade the first 2 – 3 weeks of the profit reporting periods with overnight positions. These days can carry greatly increased risk, especially  for predictions against the current  direction of the prevailing trend. (Assuming that the market is trending). From all four quarters of profit reporting  usually the most important  from predictor’s perspective is the first quarter. Companies express their outlook for the whole year during the  conference calls after the reporting and that  might be catalyst to considerable  re-pricing of equities. Some companies might have bigger impacts than others. We watch especially  the biggest 6 – 15 companies from the NASDAQ100 and SP100 and when they report, we  are not playing  overnight positions for the specific index.

- The importance of different economic data vary greatly  in different periods.  During the Sub-prime mortgage  debacle the housing – related data was viewed as more important to the market than it was  before the difficulties  in the  industry. (As the economy moves forward, there are time, when the employment data is crucial, other times the trading balance, or the manufacturing performance  or something else get into center stage.  During normal economic activity, when we see  stable growth from quarter to quarter, than these numbers has a bit less impact  on the market dynamics than in turbulent economic conditions from the predictor player’s perspective.)

- In addition to the above mentioned economic data we suggest   not to trade the Bear signals (At least not during in a Bull market)   that we are  getting  on   Friday, before the close or before  a longer Holiday. This is more valid for shorter-term positions, like positions held until the next Monday only. The reason is that some statistics suggest, that  market participants  might change their view on the markets in longer period, like a  weekend, and  not necessarily starting the new  week selling stocks like crazy.
So we would rather wait, and  play the predictor direction only  after the  next open, if see real-time confirmations of our predictions.
We also consider the  predictions on all time frames on Fridays.  If the Daily and the Weekly prediction points to different direction for the next Monday, than we  usually do not initiate overnight position on Friday. We also consider possible divergences between the different indices. If for example the NASDAQ prediction  points to  different direction than the S&P500 prediction than we definitely take a closer look into the numbers before  stepping in with any positions.
If the Daily and the Weekly prediction points to the same direction simultaneously for multiple indices, than we feel much more confident to take the risk even for  the weekends, till next week.

Assuming that there are about 255 trading days during a year we  are usually not trading
at all  70 – 80 days or about 30%  of all days using overnight trading positions. (But we might have longer term swing trading positions.) We usually play the market starting from the next open on those occasions.

Another  note to consider that the computer  need to differentiate between numbers to make the distinction between Bullish and Bearish calls,  Sometime the calculated numbers are  at the borderline between the Bullish and Bearish classification. In these cases we  usually  add special comments to the predictions to  help our subscribers in the decision making process.
Of course data arriving to the market after the close might also change the picture considerably, but as experience shows, that  does not happen as often, except profit reports after the market close

Though we might  not  be able to estimate precisely  the impact of all economic data in advance, the  above mentioned items could easily move the  indices 0.5 - 1% or  even much more within the first 30 minutes after  hitting the wires.
These are the occasions, events that has the potential to reverse the signal direction  immediately,  so we could call them  potential reversal events.
We also note here that  even if some days are not  played, we calculate our predictor statistics  in a way that all days included, no matter if we have  profit reporting, GDP, PPI, CPI or any other economic data scheduled  after the current daily market close or before the next day open.

On the other side so far at least the predictor   generated winning directional information even  for those GDP / PPI / CPI  periods well above 50% of the cases, probably because the biggest players who moves the markets, has really good predictive  methods for those  data, and that shows up on the market and the stock index predictor.

If  any central banker or the FED chairman present his view on the economy before congress or  anywhere else, the information, delivered could also have a meaningful impact on the markets, since monetary policy or insider view on economic conditions might  force the revaluation of stock positions held by  institutions. But those appearances usually occur during market hours.

During profit reporting season some of the biggest players of the market might also derail the indices quite a bit, if  they  report  results, that  is  quite different from the expectations.
Because of these  we are a bit more cautions  using the predictor signal  in the first 2 – 3 weeks of a profit – reporting season  and  apply some other rules like the following:

If playing the NASDAQ  index, or related assets we are Not  opening overnight position If  we get a Bearish prediction in a Bull market, and  any of the following  big NASDAQ companies report profit before the  open of the next day or after the close of the current day.
We can call them Big Six pack, but we need to stay cautious if any of the biggest 12 - 15 company from the NASDAQ100 index report quarterly results and we about to play the  NASDAQ or NASDAQ100 index related asset class.

- GOOG
- MSFT
- INTC
- AAPL
- ORCL
- CSCO

These are some of the biggest  NASDAQ companies  in terms of market capitalization and could be able to  impact the index movement significantly.

As one example,  we got noticeable Bearish signal  for Oct  26 / 2007  before the close of  the market.
We did not open  short position, because Microsoft (MSFT) reported  before the market open of the next day.   After blowing away all  expectation, the NASDAQ index opened up more than 2%.   We capitalized on our bearish prediction   by opening a short position  after the open on the next day.

Similarly If we are playing the S&P500 related assets, we are  not opening short position, if  we get a Bearish prediction in a Bull market for the following business day and  some of the biggest S&P500 companies report  their profits before the next day’s open or after the close of the  given day.   Even if we are opening a  Long position for a Bullish prediction, we limit  the size  of that position, if  big companies report.

Also note that because of the inherent relationship between  BIG Capitalization companies and the indices, some of the biggest S&P500 companies, which are Not NASDAQ companies could also  impact the NASDAQ meaningfully in case of a  big change in their valuation. But the effect of this cross-relationship (which could be quantified by calculating correlation for a given period.) is smaller.

After  a few month  you will get a good feel for the predictor information  and  in time  become more confident  and successful in determining the proper action  in different periods of markets.

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Trading, using the predictor information for opening  overnight position.

General considerations:
Having the  Market Direction Predictor (MDP)  results  we can make a  quick decision  to
take the information   and open position or not.
Believe us, we had times, especially at the beginning, when we  started to test the predictor,  to take  long positions, when  it was pretty expensive  or taking short positions, when it was  already cheap.  But over time, as we gained more confidence  we learned  the value of the information.
We know that the odds are on our side.

That doesn’t  mean we are not taking  into considerations  other factors.
Over the longer term the predictor  beat our  judgment consistently  and we are confident it  would beat  most of the  players (probably over 99%of them)  on the market who are  making individual decisions  about  the indices.
Probably one of the greatest   strength within the  predictor is that it has solid  objective opinion  about the markets  every time as opposed to  our  subjective  feelings, sometime  distorted sense of  market  dynamics. The predictor is  handling the big picture and the small picture  at the same time on a consistent basis.

So  assume 20  minutes before the market close we make the decision to  open a Long position in a  NASDAQ – index related asset.
(Checking the economic news calendar  we see no potential  distracting news or other blocking information ahead of the next open.  We use Bloomberg for this purpose. 
http://www.bloomberg.com/markets/ecalendar/index.html No critical profit report either.)

From that point on the objective is to  open  the Long  position at the lowest possible price. 
To take  the action immediately or wait depends on the current market action.
If  the trend in the previous 1 – 3 hours  is pretty strong upward, than  it is probably  wise to act quickly. (As we are about to open a position in the Long direction.)
If the trend  in the past 1 – 3 hours is a strong down trend, then we have more time to wait for lover prices for our long position, since we would not prefer to close the day being in the water.

In case of a swinging, range-bound market  we just estimate  the range based on the previous 20-60 minutes and  make a limit order  a   bit below the current price. If not filled before the last 7 – 10 minutes of the market day, than we still can lift the limit price, or even sooner, if market conditions dictate.

Note that we would NOT suggest to  wait until the last 2 – 5 minutes of the business day to open our position, especially when  having a strong signal. 
There are many  reasons  for this.

Probably large institutions,  which have big financial models running during market hours, might also  notice the strength or weakness in the market, that individual traders  could  not necessarily detect, and make   movements  in the market in the last 2 – 5 minutes.

We noticed several time, that after we opened  a Long position  as a response for a strong signal, the  index shot up  quickly in the last minutes.
Similarly found several times  that the market declined  in the last few minutes  while we were in a  short position.

But  also because of the confidence in the signal  we were  not distracted  when we saw  a bit bigger packets of shares  going  the other way, not in the same direction  as our position, though we  liked that  less than the supporters.

OK, now we are in position, ready to  make our profit on the next day, at least that is what we are shooting for.
Our Day come.
Before the open we  check various  pointers. Dollar, Oil, Gold, International markets…
After the open  we focus on the developments and  could see one of the following  nine scenario.

position

Suppose we have  opened a Long position the previous day.

The first question  is that we have  a GAP or not. (We consider it a GAP here if the OPEN is noticeably above or below the previous day’s close.)
If we have a GAP  in the open, the  second question is that the  GAP is on our side, supporting us or against us.
The opening GAP is  on our side at least 50-52% of the cases (Which is the stat for the GAPs), but if not, than  the management of   our  position will  need  even more focus  on the markets.

According to our  experience a 0.4 – 0.5%  GAP against the signal  usually not a big hurdle,  a strong signal  still  help us to make these situations profitable  in most of the cases.
If the GAP is like 1% or even more in the index against us having a strong Long signal, than the most  important to  find  some compelling reason  for the situation.
It does not happen that often,  but it could happen a few times a year.
Most of the time big surprises, unexpected economic developments, international market developments or even political  situations might  be the cause of such occurrences, sometime in addition to  the elevated volatility periods.

If there is seemingly no strong  reason for the  big change, than  our chance is better, that the market   will move upward (In the direction of the prediction) in the beginning of the day.
Whether  we could make it a profitable trade or not, depends on many  things,  but  we  held such positions   a few times  for   0.5 - 2  hours, when the markets  almost reached the  zero level going upward, before turning down again.
We still  saw the impact of the strong signal that the predictor  gave  us the previous day.

But do not  hesitate if  we  have  the  valid reason, why the market  has changed  compared to the direction of the signal, and  close the position if  we have negative impact, that will not go away during the day.
After closing the  loser position sometimes we even open   position in the other direction as soon as we detect, that the predicted direction  does not play out according to our expectations.

The experience  is that if the GAP is less   than 0.5% against us, than we still have  fair chance of making a profit.
It the GAP is greater than about 0.8 – 1%  against us, than   our chance to make  a winning trade is  relatively  small, even though it occurred a few  times in a year.
But  that will happen  less often than  moves on our side  in the opening hour.
If  we have  a 1% GAP  on our side,   also  stay very focused, as  sometimes  institutions want to make  a quick profit and pull the indices down first.

It is not unusual that the index  retraces  more than 50%  of the GAP Up, before turning upward again.
So  it might be wise to  take at least  partial profit  for example in case of  unexpectedly big GAP on our side, if  the first  meaningful swing of the market is against us.
In some cases when those huge GAPs occur on our side we close part of the position even before the opening bell with the view that it could be reopened from lover  levels later in  the day.

As we mentioned the impact of the Daily predictor  signal is more pronounced  and noticeable in the first hour of the business day.

Most of the time we close at least part of our overnight position during the first 15-90 minutes after the market open.

Considering the size of the GAPs  the most often seen situation is  when the index  opening level is  about the same as the previous day’s close, +/- 0.4%.
Then we are in very good  shape and  having great chance of making a  nice profit.
In this  case again the first 15 – 90 minutes will be crucial  for our position, so we must stay very focused.
General market parameters, like market breath, TICK,   strong / weak sector  analysis,  relative volume in the markets  and  other parameters could also  give us a clue about  the state of the market.

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Some other techniques to increase our success rate even more  using the predictor.

Obviously every successful trader has  some kind of strategies that he / she refined   over the years to make  it  more effective.
Diagnosing the market as the doctors diagnose the patients is a common routine from the trader, and  does that continuously  as  the day  proceeds.
Those market diagnosing  techniques could  be applied  in parallel with  using the predictor signal  in our trading to open a position.
But in addition to that  we would  mention  some  important   factors.

1. Suppose we are trading the NASDAQ, and  we get a prediction  with 80% win probability,
which is  above  our  minimum required level to open a Long position.
Fine, it will have a great  chance to  come  out as a Winner.
But the probability  of winning that game could be increased, if  we look not only  at the
prediction value of the NASDAQ index, but also  the prediction value of the S&P500 index and all other indices.
If  the predictor gave  a strong  signal also for the S&P500 index, than we have  even better chance to profit from the trade.
As our  research shows,  if we have  some divergence between the NASDAQ and the S&P signal, than the winning  probability decreases.

2. The other  important  aspects  during the decision  process for  any positions is to  know the surrounding   support and resistance levels  within the index.   
Analyzing these  areas  can give us  another clue, whether to open a position  with a  given signal strength or not.
Suppose  we have a situation,  when the market pulled  down in  the past few days, and we reached a point, when  the first strong support level is about 0.3% below the current level and  the second, even much stronger   support level is  about 1.5% below  the current level Breaking  the second  support level would  result  in  the break of  a longtime market trend.
In this situation we get a strong Bearish signal with 80% win probability.
In this situation we would  not  necessarily rush to open the short position for overnight, but would be  ready  to jump in on the next day after the open,   if the  first support level is  easily broken and other  pointers would support   that decision.

On the other side we would have  much less  problem opening a Long position in a Bull market,  being close to the longtime  market  high  30 minutes before the market close if we are getting a strong Bullish signal.

3.Directional information could also be classified  the following  way:
Assume we had a  Big Down day Today.
Now  in this situation before  the market close the predictor can  give either a Bullish or a Bearish
prediction  for the next day.
If the prediction for the next day is Bearish, that  would mean for the index  a level  below the  current day candle body, so the signal point  outside  of the  current red candle body, and not upward.
If the index value  is outside of the previous day’s  range, than we might expect more decisive   movement, so we will probably need to  act  more quickly.
Conversely if  after a long Bear day the predictor gives a Bullish signal for the next day, the index will probably move  back into the previous day’s range.
Usually  in those situations we have more time  to make the decisions about our positions.


4. Having the advantage of the quantified Market Direction Signal we could develop and apply a  refined  position management strategy, that fits the winning probability of the prediction  and   the   given market conditions or market move that we experiencing.
After a few months  we might gain  a nice feeling about the  behavior of the predictor.
If the predicted direction is aligned with the direction of the  important market averages (Namely the MA10, MA20, AM34, MA50, MA200 of the daily charts.) than the odds of winning  is a bit even better.

The win probability calculation does not take into account all of the detailed results inside the predictor.
If we have  so called internal divergences or other uncommon situation, than we describe those in the comment section for the given predictions.
For example we might say that  internal data suggest a weaker / stronger open and  a stronger / weaker close for the next day, or  the internal data suggest  even more strength than it would be sensible from the win percentage, that presented on the site…

5. Stay flexible and sensitive to the market internals.
The themes of the market  is changing on a constant basis. So  we need to stay focused and flexible to adopt to the changing market conditions.
The predictor information will help in this  area.
Sometimes the  big player prefer the small CAP  stocks, other times they prefer the Mid Cap or the Large Cap  stocks.
Sometimes the  market  favors  companies  doing business mostly inside the US, other times 
favor  companies doing most of their business outside of the  US.
Similarly the  signal strength  constantly changing for the different indices.
There are periods, when the market favors the NASDAQ, other times the market prefers the S&P500  companies.
If  that “divergence” changes and the S&P500 becomes stronger for some period than  using  another trading vehicle,  which  mirrors the S&P500 performance  might be more beneficial.

If we stay focused  we might want to change the asset  type / category we are using as our trading vehicle.

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Predictor Statistics.

7

The objective evaluation of the predictor performance could be completed by the analysis of  the downloadable historical predictions.
The users can download historical  daily, weekly and monthly prediction data for the indices on the download section of the web-site.
Here we try to summarize some of the main aspects of the predictor.
The following table  compares the daily prediction performance for the NASDAQ and  for the SP500:
(The  data encompass the Date from Jan. 03 2007 till May. 28 2008)

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And with  the above detailed tables summarized:

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Some comments and  conclusions:

The data above  includes all Bullish predictions, all Bearish predictions and all  of the Neutral predictions, when we did not have internal divergences in the predictor numbers.
If we  got Neutral(+) than we added that to the Bullish prediction and if we had Neutral (-)  prediction data  we added that to the Bearish prediction.
Eliminating all the  Neutral data would lead to a bit better predictor performance statistics.

The classification of this Upleg / Downleg / Range market for the above calculation results was subjective, doing it manually by taking into account some averages, namely the  SMA10 and WMA10 and their relative positions, and their directions.

The general rule is  that Bullish prediction performance (Win probability) is a bit better in an Upleg than the Bearish prediction capability and vice versa, the Bearish prediction performance (Win probability) is a bit  better in a downleg than the Bullish prediction performance.
That is why it is useful to classify correctly the current environment.  But there are some exceptions, when we had generally  good performance in the other prediction direction, or sometime even better performance.

For example between the  20070821 - 20071108 period, which was an Upleg, the Bearish prediction performance was a bit even better than the Bullish prediction performance.

In the total periods examined there were several  periods  (basically more than 50% of the period) when we had above 80%  potential win performance in the direction of  the current environment.(Bullish prediction Win probability  in an Upleg and Bearish prediction Win probability in a downleg.)

As we could see the Bearish prediction overall for the total time period, examined, has a bit better Win probability for the current data, but that is probably because the total periods,  examined contains more Bearish period,  than Bullish period.
But for the less aggressive trader this might  suggest to  play with   Long positions in an Uptrend If the prediction is Bullish, or open Short positions  in a Downtrend only If the prediction is Bearish.

The worst performance period of the predictor performance  during the 29 month examined above was the  20080324 - 20080606 period (roughly 2.5 month), an Upleg, a few month before the  start of the recession in 2007 Nov.  This was the only time period, when both the Bullish and Bearish prediction potential win probability remained below 70% for the NASDAQ and  was at 70% for the S$P500.

For some reason, the Win probability  was  about 2-3% better for the NASDAQ than  for the S&P500. It is slightly above the margin of error for the whole dataset.  (Note that the technology used to predict the NASDAQ index direction is the same that is used for the direction prediction of all other indices.)

Interesting that during  Range market the  number of Bullish and Bearish predictions are roughly even, during uplegs we got more Bearish predictions than Bullish predictions, and during downlegs we got more Bullish predictions than Bearish predictions.
It is because  the predictor is more sensitive for  the beginning of the day, and the market  could close the day in the opposite direction relative to the  prediction direction even on those days, when the prediction is a winner, using  refined strategies.
The other reason could be that in an upleg the up move concentrated in some limited up days, many times the market open down  after an up day and the predictor is more sensitive to the opening period. During downlegs the situation is the inverse, after big down days the market often open up the following day at the opening period.

We could make the conclusion, that the predictor performance is statistically similar during  Uplegs and Downlegs. The same could  be stated for general Bull markets and Bear markets. It is the individual trading strategy, that built around the  predictor, which might  bring different trading result in Bull market and Bear market, the predictor  performance is the same.

In case of a "Downleg", the difference between Bullish prediction Win probability and Bearish prediction Win probability is  the biggest, 12% for the NASDAQ index and 18% for the S&P500 index.

These  are really  meaningful differences and  suggest  to play the Bullish predictions in case of "Downlegs" with caution,  using smaller position size for example for overnight positions and  get  confirmation from other analysis.

During the days of the week we might be curious if the daily predictions  has any meaningful relation to the day of week information. To see that we created the following table.

(The table  data is for the period Jan. 3 2007 – Oct 31 2009)

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Some of the conclusions from the  data in the table above:
Generally the NASDAQ Daily  Prediction is a little bit More reliable than  the S&P500  Daily prediction.
So when we make our decision we might  add more weight to the NASDAQ prediction, especially if the NASDAQ is the leading index from the two.
On both indices the Prediction on Wednesday  is the most reliable for the next business day.
Monday, Tuesday, Friday predictions have about the same  average  win probability.
The  least reliable  occurs on Thursday for the business day of Friday, on both Indices.

Though the Friday - Monday is  not the highest reliability predictions, it might still worth to play on a consistent basis, but not worth to play on limited occasions, having a bigger risk for GAPs against the predictor signal because of the longer period till the next business day.

Actually the predictor is only able to predict market direction during regular trading hours.
The predictor is Not able to predict the direction of the GAP (If any)  for the next day. The prediction capability of the direction of the biggest GAPs was about 50 -52% during the Jan 2006 – Aug 2009  period which is basically no  edge in the  GAP direction prediction.

Some of the biggest GAPs occurred on Mondays at the open.
Those who desire to be in position during the weekends might better off playing  futures as those are traded during weekend hours, so  in case of  extreme events against the position,  those might be able to react  earlier.
Detailed statistics could be calculated only after we create our strategy on top of the predictor and calculate the performance  of the trades having the detailed entry and exit conditions, position management  setting  defined.

The weekly predictions have even better performance.
For example If  we would like to know  what is the Win probability, that a certain  NASDAQ index – related position will be a winner (Opening at the Friday close level)   we sell the position, when it  reach the 0.5% profit level on the next week, If not sold during the week, than we sell it at the end of next week, than  the Win probability would be about 84%. But we might  not  accept  the risk caused by 16% of those positions, without a stop loss defined in advance. (This statistics created from data between April 3  2006 – Aug 17 2009)

The overall  potential winning probability of the weekly predictions  presented in the following table:

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These  results are  noticeable better than the prediction win probabilities for the daily predictions.
It is also true for the weekly predictions that during Bull markets or Uplegs the  Bullish predictions have a little bit even higher win probability than the Bearish predictions and vice versa, the Bearish predictions have a higher win probabilities during Bear markets or Downlegs.
The highest  potential win probability ever reached by our predictor models were reached for the NASDAQ weekly predictions, when in certain situations it produced a 96.42%   potential win probability  (27 out of 28 weekly predictions were correct.) 
But for the NASADAQ index the Bullish weekly prediction performance between Jan 20 2009 and Sept 25 2009  is a whopping, extremely  good  100%! That is  all Bullish weekly predictions were correct, and only bearish weekly predictions failed  4 times during that  Bullish  period.

For the S&P500 index the  Bullish prediction performance was also excellent,  with only one failed Bullish weekly predictions during the same period.
To play all predictions with the highest potential win probability  you need to focus on those occasions, when the predictions are not in the direction of the general trend on the given time-frame.
In those cases you need to be more careful with your analysis and potentially  give a bit higher then normal  weight to other confirmations (classical technical analysis, Indicators, tools, services…) before  making the decisions.

All of these Daily and Weekly statistics includes all predictions during the calculation period, even those, not suggested to play for specific reasons, and  those predictions having a Neutral bias and graded as level +1 or  -1  with the given lower win probability.

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The importance of a specific predictor time frame for your trading or investing decision.

4

Since we have extensive trading experience in different time frames  we try to estimate  the importance  of the different predictor time frames for your decision.
There are no specific rules here.
Every market player have different experience, trading or investing style, available resources and tools that  might impact the importance of  a predictor time frame.
However some general guidelines might be useful to help your focus to turn to specific areas.

To do that we created the following table that  classify the importance of a specific predictor time frame for your trading decision:

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-    High importance.  Even if you are not relying exclusively on the predictor information,  neglecting this predictor  information might cost  above your risk tolerance level on a long term basis. So we suggest to take special  consideration for this prediction, especially during the first 20 – 50% time  of the given prediction period.

-    Medium importance.  Probably you will not make your trading or investing decision based solely  on this specific predictor  time frame, but still  might be very important supporting information, especially during the first 20 – 50% time  of the given prediction period.
It is always comforting to know  for example that  on a given time frame, which is longer than  your specific trading time frame, the odds are with you or against you, having a specific position.

-    Low importance. The impact of this time frame for your yearly results might be small, be still not negligible.
By better timing a specific position or  taking it in line with longer term direction, the overall trading results could improve, even if  it does only on a small scale for the average market player.

If the predictions are different on the different time frames, that alone might be signal for caution and to stay alert during market action.

To highlight  the meaningful differences, we created three distinct group  of Day traders or overnight traders
All three  doing Day trading, but the  opportunities they try to catch might  differ meaningfully.
The first group  is the Group #3 doing  5 – 10 trades a day.
This group of traders  probably use the lover  time frames, like the 1, 2 3 minutes time frames as their focus area of movements and  accept to take profits  on smaller moves, and take smaller risks at the same time, than those, trading less during the day. This might be profitable playing the market with bigger positions at a time.

These traders are usually focusing less on the market structure.
considering the number of swings at least 25 – 30 minutes long that are  probably tradable following the  market on the 5 minutes time frame on average  we got 3.6 swings  during a  5 month period between Jun. 2009 and Oct 2009.

So  if someone trading much more than the average daily swing count or trading much less might mean, that the trader is not trying to take advantage of major  swings, but  betting more on trending, which is rarely the actual daily structure, not even  during strong general market trending periods.
(Even though it is a matter of intraday trending quantification, we found that during the  a strong Bullish up-trending market between April 2009 - Oct  2009  less than 10% of the days qualified as extremely strong trending days,  which would  be easy to recognize early on even by less experienced traders.

That is just to illustrate, that strong trending intraday behavior is not the rule but the exception. Less than 3 times occur during a month on average. But the importance of it is high, especially if a great percentage of our monthly  profit  comes from intraday trend following.)

We might have the best  Day-trading results  if we use the predictor information, trying to stay in synch with the market all the time, and also use other tools and resources to  make our participation even more successful.

Day-traders or overnight traders  doing 0 – 1 trades a day might bet too much on one horse, and probably  have to accept lower overall yearly performance. Yes the monitor time  could be reduced this way, so does the  stress level  that need to be handled  somehow.
Is there any difference between the opportunities, available to us by opening the position before the close Today and close that position Tomorrow or opening the position only Tomorrow, after the open  and close later in the day?
There are meaningful differences between these cases, and the way how to play the Daily predictor information.
But the overall performance results might not differ that much.
Just some statistics to highlight for you in this  respect:

If we  look at the NASDAQ100  ETF, the QQQQ during the  past 18 month or  so (Till Oct 2009) we  get the following:
Assume that we open a position at the market open, and close that position on the same Day at the market close, and we  reach the ideal  performance, so that we  are 100% right on the  direction of the market between the open and the close.
That would mean  for us, that about 1/3 of  days would have generated  less than 0.5%  profit   for us.
Roughly another  1/ 3-rd of the Days would have  generated  profit between 0.5% and 1.5%
And again  1 / 3 rd of the days would  have generated more than 1.5% profit

Now how would this change if we take our position just before the market close Today, stay nimble 100% of the time as we manage to  be correct in the market direction from Today’s close till Tomorrows close.
Overall the results would be very similar during the past 18 month for the NASDAQ100.
Roughly  1/ 3 rd of the Days would have generated profit of less than 0.5% (Actually a little bit less than 1/3 –rd)
Roughly  1 / 3 rd of the Days would have generated  profit between 0.5% and 1.5% (Actually a bit less than 1/3 –rd)
Finally about  1 / 3 rd of the Days  would  have generated more than 1.5% profit (Actually this might be a little bit more  than 1 / 3 rd)

If we compare the two trading scenario, we see that the results are about the same, might be only marginally better if we are holding our positions overnight, but the risk is considerably higher  for overnight traders.
Not to mention, that most of the time predicting the direction of the overnight GAP  is extremely difficult, even though sometimes it might be  much easier than other times.

The weekly and monthly predictor information  help us a lot  by giving the edge into our hands, so that  the actual overnight risk  might be smaller than  otherwise, especially if we are about to hold positions more than one night.

Even with this edge in our hand for some Day- traders  we suggest  special caution when considering any overnight position:

- Day-traders having no or limited trading experience.

- Day-traders who do not want to or can’t play the overnight movement on a consistent basis, having a big
GAP  against the trade by the next open, being so much negative impact, that could hardly be dealt with.
Trading the overnight market 20 times a year does not qualify as consistent play, but playing overnight
movement at least 70 – 80 times a year might qualify as consistent play.

- Day-traders with limited capital  need not take the overnight risk to enjoy similar opportunity  during Daily
market   hours. Remember, that predictor is not able to predict the overnight movements with a meaningful
edge. According to statistics, the market opens the next day about 52% of the time in the direction of our
Daily prediction, including  all movements above zero.
It is also true, that after opening a position late afternoon, around 3.30 PM ET, the market will move  in the
predicted direction much more than 50% of the cases till the market close at 4.00 PM ET.

Some trading frequency offer  more opportunity for traders than others. Some  much more competitive than others.
To be consistently successful  as a scalper  the focus  needs to be  more on the execution, on the trading platform that the trader uses,  and less focus  will be allocated to predicted market direction.

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Preparing for the trading day.

Trading professionals spend considerable time preparing for the trading day.
That preparation might  depend on the type of strategy used for trading, the frequency of trading and many other  circumstances.

News writers and  blog writers writing  millions of pages on different things.  All of them could be useful. But  it takes considerable amount of time to read and to digest that and  make  proper conclusions. 

Most  analysis starts with the indices, like the DOW,  NASDAQ, or the S&P500 did this and that  in the past.
During the trading preparation try to focus collecting objective information, that is important for your strategy.
The predictor also helps in this area.
In contrast  of reading  hundreds of pages,  market commentators, who comment on the indices  how they  behaved in the past, we  are not  spending  that much  precious time.
We just  read the predictor numbers, which takes  seconds of our time and  for us  that is  simply the most valuable information to start the day with.
So  we could  allocate more time to  other market research and  software development.

Everything the market as a total  think and does is compressed into our predictor information.

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The description of the way, we use the predictor for trading.

 

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1. Predictor information evaluation:
This information has the highest weight on our  decision making process, but the daily,  weekly and monthly prediction data for the indices not treated in isolation.
They are considered in the context of the general market conditions.
We need to know if the market is trending up/down  midterm and longer term, or moving in a range. It is above or below the  major averages, it is high or low  volatility environment and how oversold / overbought the market  currently.
As a proximate  information we  like to  see where are we  on the different charts relative to the major averages and the  Bollinger bands (MA20, Std2).
We emphasize that the predictor  information need to show its effectiveness  relatively early.
If  we do not see the market tendency to move in the predicted direction  in the first 30 -90 minutes (In case of the daily prediction.)  sometimes much earlier, than  it is a red flag, and  might make us to revise the  expectations  and reverse positions quickly.
We might state that  many  times  the success level of the trader, using the daily prediction  information  will be highly dependent on how quickly  he / she will reverse / flip  the position.
If  for example we have a Bullish prediction and the market opens against us with a big gap (Above 0.8%) than it is a warning sign alone, and if the market continue downward in the first  5-30 minutes, suggesting a downward trending day, than  we might not only close the long position, but consider opening a  bigger  short position.

Before the market open we need to evaluate how old are the presented  weekly and monthly predictions and taking that into account. Some of the biggest percentage  movements occur when we actually  have neutral prediction. So be alert, that the prediction information is not  about the size of the move, it is about the probability of the direction.
Most of the  market  days are not trending days. Many of the days have two or more swings  during the day.
The predictor  information usually predicts  the first   major direction correctly, but of course  the daily prediction is still valid till the end  of  the day.
But having a bigger than 1% gap against our position at the open  makes it relatively unlikely, that the position will be a winner during the day, even though that occurs a few times a year.
We  will touch the importance of  position management  using the predictor information  at point #6, (Trading decision.)
Do not expect to be a  pro predictor user overnight. It takes a few  month to get a really good feel for the predictor information, but after that you will probably experience much less big surprises from the market.

2. Trading preparation before market open.
Without preparation we might feel like  we started the 100 yard race having 10 yard handicap. Our confidence
level might  not reach the level  needed for optimum performance  during trading hours. We might   still  be
profitable but  probably not  even close to our potential.
It is very important  to have  market vision from a few different perspectives. We would not  rely on the
predictor  information exclusively, no matter how good it actually be. We also  need to consider the  other side of the market to get prepared against  surprises.
So we encourage to have the predictor as one additional tool to support your trading decision process, and stay open to other  methodologies to evaluate market action and behavior.

We, the predictor developers  have a lot of time before market open, as the US market opens  at 3.30 PM  in Europe and closes at 10.00 PM, so  we have the luxury  to spend  hours with market preparation.
The predictor system is only  part of a bigger system, that we started developing more than 10 years ago.

In addition to the predictor  the system  calculates hundreds of indicators and other aggregate information for thousands of individual stocks and  index components.
This data also  support our preparation before the market open.
Without  detailing  just to mention the most important steps:

- Checking the behavior of the international  markets  in Asia and Europe
- Checking the economic news, scheduled and not scheduled news information.
- Checking the most important currency exchanges
- Checking the commodity prices
- Checking the gold / silver price
- Checking the “classical technical analysis” data that we mentioned above, along with important market 
data like   the VIX, the Put / Call option related indicators, McClellan oscillators…
- Checking  other information, like company profit reporting schedule, profit reports, upgrades,
downgrades,  warnings…
-Checking our other proprietary indicators.
- View the charts of the most important indices, ETF/s  on multiple time frames.

Before the market open we would like to get a good feeling about  the potential market behavior, especially in the first 15 – 90 minutes, which is usually the most dynamic period of the trading day.
We try to build our expectation regarding:
- The possible direction of the  indices after the open, in the morning session and in the afternoon
session.
- The expected market behavior (range or  trending market)
- The expected trading range  of the market day
- The potential support and resistance levels, that might play important role during the day.
- Other dynamics, that our analysis and detailed predictor data might reveal.

3. What If chart creation before the market open.
Actually this is a very important and useful part of the daily routine that we complete.
The predictor information and the  data, collected during the preparation period  supports this process, along with extensive market experience.
We complete this just before the market open between 9.00 AM – 9.30 AM so most often the economic news and the behavior of the other markets already available for consideration.
We start with the levels of the previous 1 -5 days, that  the market visited,  and with the pre-market levels as the  starting points. We also  draw the important support and resistance levels.
Since the most probably direction of the market is  available from the predictor data, that serves as a guidance to draw the  charts  and make potential  What / If  clauses at key levels.
With this chart, created before the open, we  envision the trades of the day, at least during the first 30-90 minutes of the market day before the market opens.
The usefulness of this is really invaluable.

4. Actual market behavior before and after the market open.
Nothing cut in stone in advance.  After the market opens  we need to  evaluate its potentials as quickly as possible.
Can we make a good decision  in the question, that the current market day is a trending day after  one
minutes of trading?
Of course not.    But we must evaluate the probabilities extremely quickly, as every seconds counts.
Of course we need to operate  within the conflict of  time and probability. We need more time to get higher probability decision, but if we waste  too much time, we lose  potential opportunities.
Because of these importance and limited time available  the general rule is that the more automated your decision the  more  successful you can be  during  these period of market action.
We also developed a range of supporting  tools to  aid  this decision process after the market open.
In addition to that we  use  a range of publicly available  data, indicators  to  reinforce the market diagnosis process.

-    Absolute and relative volume and volume characteristics / volume profile.
-    Breath type indicators like the A/D line
-    TICK (For NYSE )  TICKQ (For NASDAQ)
-    TRINQ (Volume indicator)
-    MACD indicator  (Limited use only)
-    CCI Indicator  (We like the speed of it, but this indicator is  probably not for the beginners.)
-    Bollinger bands
-    Last but  the most important for us is our proprietary indicators.

We also  have the Real time charts for both the NASDAQ and for the SP indices or their following ETF-s.
To get a better model of  the real trading supply -demand  we follow the indices or the index-following  ETF-s on multiple time-frames at the same time.  We use five charts for the same equity to  see the developments on five different time-frames at  the same time, even if our primary focus is on the 5 Minutes timeframe.

You need to use the tools that you are comfortable with and  proved to be  good support information.
No matter how good any tool can be, the  consistently correct identification of the market behavior  can be attained  only with a lot of experience, and no one can  escape  that learning curve.
Those who get a lot of good structured education in this matter  might get to the  master level much sooner than  self  educated  entrepreneurs.

The previous  four points  might be a little bit different for longer time-frame traders or investors, who  might use different tools, chart patterns, fundamental analysis,  cyclical analysis, Elliot wave theory  or many other supporting  methodology to aid  them in their decision, and also their focus might  be more on the weekly and monthly predictor information and  considering  the daily predictor  only as a fine-tuning tool  in  their  decision.


5. Analysis of the available data.

This analysis is a short,  split second analysis during market hours.
It  is basically  comparing the levels of the market indices to the levels of our expectations, to the detailed
support and    resistance levels and the  direction of the indices   to the expected direction  that we
envisioned  when we created the    What-If chart before the market open.
Since we would like to have minimum risk and maximum reward  trades, we  enter the market at  specific
turning points.
After years of experience with the predictor  we got to a confidence level that many times we are not waiting for the   market  to confirm our  direction as it would be too late in the heat of the market open and would lose a big  part of the    predicted moves. At a time of neutral behavior we might  easily enter in the direction of the predictor information.
Other times, later in the day when the market is slower a bit, we wait for the market to confirm our hypothesis before we enter the market.
Later in the day, before the close of the market if we are about to open a position for the next day  in light of the predictor information, we just  try to get  into position  by taking the best possible price during the last 30 minutes or so.

6. Trading decision.
This decision partly completed  during the chart creation phase, what we complete just before the market open.
At that time we consider  specific price levels.
After market open those levels and the position size might need to be adjusted according   to the actual market  behavior.
One of the most important aspect of the trade is the position size, adjusted to  the  current market conditions.
For those, who  are holding position overnight one important aspect to consider is the closing of the position in multiple trades,  in two or even three portion.
This is because  most often the opening market minutes shows wild fluctuations and  it might be difficult psychologically to optimize the performance results.  Closing only portion of  the trade at a time might  lead to better results.
Our  analysis actually showed considerable differences  in the results if the overnight positions closed in two or even better if closed in three potion (obviously not always needed), letting the real  winners run more. In case of  a very small overnight position  it might not worth to split  into smaller  portions.

We note that  in some cases  it might be  good to initiate  trades before the market open or after the market close, assuming that  our analysis and the predictor information strongly support that idea.
Two  example situations:
-  If the  market  had a strong up / down move during the day, and the momentum carries over after the 
regular market closed but we have a strong predictor information which points to the other direction the next day, and have no prohibitive information ahead of us (Like crucial economic data before the next open or  important profit report from market leader companies…) than we might take a  position after the regular market close getting a better price.

- Other example is that we already have a long overnight position and the market opens with a  bigger
than average Gap  in our direction. In this case we might consider closing at least partially the long
position   before the market open.

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Prediction classification (grading levels) used to  bracket  every prediction into any of the following  five  states:


- Very Bullish
- Bullish
- Neutral
- Bearish
- Very Bearish

For every index  the individual Win probability, which will define, that the prediction belongs to the Bullish or the Very Bullish category  will be determined by  the overall win probability distribution of the specific index,  but arranged in a way that  roughly
15 % of all predictions for a specific index will be in  the “Very Bullish” or the “Very Bearish” category
15 %  of all predictions for a specific index will be in  the Neutral category.
70 % of  all predictions for a specific index will be in  the “Bullish” or “Bearish” category.

Because of the differences in the Win probability for the different indices it will be possible that  a certain prediction for the NASDAQ, with a Win probability of 75 % will be identified as “Bullish” but for  other index, like the S&P600 the same win probability might be identified as “Very Bullish”

The absolute measure is the Win probability percentage, that we present, but the grade of the prediction will be relative to overall win probability distribution.
Over time we might adjust  the grading levels a bit.
For example it is possible that we determine, that instead of 15%, we use  the lowest 20% of the Win probability for each index to identify / grade as “Neutral”
The grading, so called cut levels might change, but the win probability will be calculated automatically, as  we can’t touch that information.

Currently the “Cutoff” levels  for the Daily predictions of the individual US indices set to the following:

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Similarly  we have  grading levels or cutoff levels for the weekly predictions

These  “Cutoff” levels  for the weekly predictions of the individual US indices set to the following:

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If we compare the  win probability of the indices for daily and weekly predictions we se notable differences between those values for the same index.
Though we got very high win probability for our daily predictions the win probability for weekly predictions might be even 5 – 15 % higher for the  same index.
According to the information available for us currently our weekly predictor  is by far  the best system ever developed  to predict  the movement of these  indices  in that time-frame.
To  see the performance details  please download the  historical weekly predictions and  the prediction charts from the download section and analyze the details for your preferred indices.
It is just because of the performance, that we grade a 80-90 % win probability for the NASDAQ weekly prediction for example as “Bullish” or “Bearish” whereas a much smaller win probability  by other standards considered “Extremely  Bullish” or “Extremely Bearish”.
These  numbers suggest  that when we design our strategy and select our timeframe to use the predictor information the weekly predictions probably will  have a fairly high impact / weight on our decisions.

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Building  strategies based on the predictor information.

The first   part of this exercise  might be that you start evaluating  your  experience, market and trading knowledge, your time, that you plan to allocate to the markets, your risk tolerance, your  frequency  of trading,  your capital allocation strategy,  your portfolio management strategy, your preferred  asset class to express yourself and  your opinion on the market,  your profit objective,  your detailed entry and exit strategies.

Obviously the above mentioned  items are not  completely  independent  variables.
It is also important to  take into account what kind of other tools, services and  supporting information available for you to  build your trading strategy upon  the predictor information.
Based on this and the predictor  an unlimited number of successful strategies could be devised.

Regarding the  predictor information  you need to  answer a few questions, that will  be important  during  the strategy that you design.
Some of these questions  could be  as follows:

Q1:
Will you play every predictor information, no matter how strong   they are, or you will be selective?
Remember there might be  quite a few days during a year, when the risk to take overnight position might not worth to take it.
Some of those related to coming economic data, profit reporting and other news or  technical  analysis conclusions.
But out of more than 250 trading days a year, at least 55-60% of them  could  be considered lower risk plays for overnight positions.

Q2:
If you are selective, will the selection  be a complex decision algorithm, or a simple predefined decision mechanism or  a more  intuitive decision mechanism?

Q3:
Will you play every  potential opportunity with the same size or the selection of your  position size will be determined by  market  conditions, predictor  data  and / or other complex  mechanism?

Q4:
Will you plan to play  only the Long side, only the Short side or both sides of the market?  Remember, the predictor win probability  for Bullish / Long positions is  higher during up-trending markets while the predictor win probability  for Bearish predictions  is higher during Bear market periods or down-trading periods.
Considering the longer time span it never paid to  go against the market  for extended periods of time. For example  during the past 10 year period we had only  two occasions when the market had  longer down trending  periods from Sept. of 2000 and from  Aug of 2008. Excluding these periods the  average correction periods in the market was about 5 -6 weeks. Overall the market spent  only about 20% of the time with corrections and about 80% of the time with general up trends or range markets.
Overall the predictor considered equally good during  any market conditions, and the performance is similar  during Bull and Bear markets.

Q5:
Will you select your position size or allocation differently in Up-trending / Down-trending  / Range markets?
Actually we use only two distinct strategy  based on the predictor information. The first one is  used in case of  trending markets and the second one  applied during range markets. Because of these it is  important to make the distinction between these two as early as possible after  the market open.  During the preparation period for a specific day  we  collect  information regarding which type of market (Trending or Range)  has higher probability for the coming day to play out.

Q6:
Are you generally playing  all market environment?  Trending markets, Range markets,  Breakout markets, high and low volatility markets?

Q7:
What will be your main timeframe?  Will you plan to hold position(s) overnight?  Many trader try to play at least two-three different time-frames until  they resort to  a preferred time-frame, on which  they can focus the trading effort.

For beginner and novice traders we would not recommend playing multiple time frames and / or multiple asset classes at the same time, but  professional traders might  exploit  market opportunities this way  very successfully with more complex strategies.
Remember, that a Bullish daily prediction means, that prices expected to be Up during the next day, relative to close level of  the previous day. It does not necessarily mean , that prices expected  to move up relative to the opening level, especially during  big gapping days.
Similarly  for weekly and monthly predictions the reference price level is the price level  at the time of the prediction even though we use the Daily closing prices for the classification or correct / False Daily prediction.

Q8:
Do you plan to open / close the  traded position  all in one or you try to scale in and even more importantly scale out of your  position   in multiple  installments?
Our statistics show  that  much better results could be achieved  by short-term traders  if the positions closed only partially at a time, even though in some cases it might be  optimal to close  the whole open position  in  one trade.
(For example in case of a big, bigger than 0.8-1%  overnight GAP against the position and a following  consistent move against the predicted direction  during the first 5-25 minutes after the open.)

Q9:
Do you plan to have the potential trades executed automatically, using an automated trading system or you plan to execute those trades  manually being an intuitive trader?
We would not suggest  to build the predictor information into automated systems  without spending at least 4 – 8 month with the system in addition to completing a slew of analysis  on the available data. 
Currently we did  not build direct  automation support into  the predictionwizard.com   WEB-portal.

Q10:
Do you plan to play the market reversal   opportunities?
To reach the maximum potential of  a strategy  built around the predictor it is  very important to learn those situations, when the predictor information proves to be incorrect, and react to those events  quickly and decisively.
Many times this decision could be made as early as in the first 10-30 minutes of the  market  day, and most of the cases  it is obvious  30-90 minutes after the market open.
Remember the predictor power will decrease over time, and  it will predict the moves during the first  10 -20% of the predicted period with the highest win probability.
This means roughly the first 30-90 minutes in case of a Daily prediction on the next day after the open.

To demonstrate the impact of  playing the market reversal  we present the following  example:
Imagine that  we have 100 trading days, and  the first player, who  do not plan to react to market reversals have the following trading results out of 100 trading days:

65    days winning and out of those winning days the distribution is:
10 Big winner days each days with  a size of three winning unit =>  30 win unit
40 Average size winning days with a size of one winning unit each => 40 win unit
10 Small size winning  days with size of  0.5 winning unit each => 5 win unit
Total win unit in this case 75

35 days losing  out of the 100 days, and the distribution of the losing days are:
10 big loser, due to big  Big initial gaps against the positions => 30 loss unit
15 Average loser with average loss of one unit each due to  market swings =>  15 loss unit
10 Small loser with average loss of 0.5 unit each => 5 loss unit
Total loss units 50
In total this average trader has 75 – 50 = 25 win units during these 100 trading days, assuming that  the win units are equal to the loss units, which  could be  normal assumption  in case of  overnight positions.

A   more experienced  trader  who  wishes to turn some of those loser days to winners by reversing positions after  the incorrect prediction information identified  by closing the losing positions and opening contra positions with even bigger size  can have the following results.  If turning 3 big losers to small winners and 5 average losers to 5 average winners.
With this:
Out of 100 days 73 days will be winners with the following distribution:
10 Big winner days each days with  a size of three winning unit =>  30 win unit
45 Average size winning days with a size of one winning unit each => 45 win unit
15 Small size winning  days with size of  0.5 winning unit each => 7.5 win unit
Total win unit in this case 82.5

27 days losing  out of the 100 days, and the distribution of the losing days are:
7 big loser, due to big   initial gaps against the positions => 21 loss unit
10 Average loser  due to  market swings =>  10 loss unit
10 Small loser  => 5 loss unit
Total loss units 36
In total this above average trader has 82.5 – 36 =  56.5 win units during these 100 trading days, assuming that  the win units are equal to the loss units, which  could be  normal assumption  in case of  overnight positions.

The difference between the results of these two traders  is really big, actually the more experienced trader produces more than two times the profit of the less experienced trader during the 100 day period just by turning  initial losses into profits in some cases.

None of these results are extraordinarily high results, these are presented  only to emphasize the importance of  playing the market reversals or the days, when the predictor information  proves to be incorrect.  Some of  those days still  could be profitable days  for the best players.

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Predictor playing strategy example.

12

We stated throughout the learning material, that the consistently successful use of the predictor  requires some trading experience. The more the better.
We can also  add that  much more trading experience required, if the predictor is used to support short-term trading, like intraday or Day trading activity.
In that case the constant diagnoses of market internals, market  pulse has much higher importance to stay in synch with the market while applying the edge, the predictor gives into our hands.

The question, how good is our edge  could be  detailed only if we create a detailed strategy using the predictor,  apply  that strategy on the market and verify  the results, and compare with the  actual index movements as reference levels during a specific test period.

To demonstrate the edge of the system  we present a very simple strategy, that uses the predictor  information,  a strategy, which  does not require to spend  3 – 6 month to understand the predictor mechanism and its professional application and still pretty effective.

Even though we have the highest win probability on the NASDAQ index predictions, in this example we use the  S&P500, and its  following ETF’s  as trading vehicles.
We  use the S&P500 following ETF, “SPY” for  our example and also  present the sample trades, using the S&P500 following Ultra ETF, the SSO, which on average moves  up 2% during a day, If the SPY moves Up 1%.
(For simplicity we do not use the S&P ultrashort, the SDS, as we present all trades with SSO.)

The simple strategy that we present:

-    Every week, on Friday at 3.45 PM  we check the  predicted direction for the  S&P500 index. We will check both the Weekly prediction, and the Daily prediction (Which is the prediction for the next business Day, which is usually next Monday.)
-    If The Weekly prediction, and the Daily prediction for the S&P500 points to the same direction (Both of them points Upward, or downward) then we open the position in the predicted direction on Friday at 3.45 PM, which is 15 minutes before market close.
-    If the Weekly predicted direction for the S&P500 is different than the Daily predicted direction, (That is the weekly prediction is Bullish or Neutral positive and the Daily prediction is Bearish or Neutral Negative OR the weekly prediction is Bearish or Neutral negative and the Daily prediction is Bullish or neutral  positive) than  we open the position in the Direction of the Weekly prediction, but only on the Next week, 1 Hour after market open, which is 10.30 AM ET.
-    We apply a 1.5% Stop level on the Index, on SPY, and 3% Stop level on the Ultra S&P fund, the SSO.
(Might need to be adjusted according to market volatility. This 1.5 [%] level of Stop might by fine during VIX$ levels of about 25)
-    We will close the opened position the following way:
If the  STOP activated, that will be our exit point.
The main  exit strategy will be the crossover of two Averages, the WMA10   and the SMA10 on the 60 minutes chart. If we have a Long position, and the WMA10 crosses the SMA10 from  above to below, than we exit the Full Long position. Similarly If we have a short position, and the WMA10 crosses the SMA100 from below to above, than again, we exit the Full short position.
For timing purposes, we check the WMA10 – SMA10 values at the last minute of the market hour, just before the Chart moves to the next bar / next candle. (10.30, 11. 30, 12. 30, 13. 30, 14. 30. 15. 30, 16.00)

-    If by the Next Friday,  we did Not exit the position, and the Weekly predictor point  again the same direction as our position, so the same direction it pointed the week before, when we opened our position, than we keep the position running, do not exit.
If on the Next Friday afternoon  we still have the position and the weekly predictor points to a different direction, than we close the position before the  end of the Day on Friday afternoon.  (And  open another  position on the same Friday in a different direction, If  the Weekly and the Daily predictors points into the same direction  on Friday, otherwise open the other position on the next week, Monday, 60 minutes after market open.)
The weekly periodic position opening  repeated as the weeks passes, and position opening schedule will
depend on  the Weekly and the Daily Prediction information, available on Fridays.

-    All weekly predictions will be played, no matter what kind of  market environment we have, what is the
actual market status and market levels, relative to the levels in the previous weeks or months, what kind of
economic or other news scheduled…

As we can see from this strategy  description  it is by no means optimized.  That makes it  very easy to 
execute.

To  evaluate the performance of this strategy we  use a constant 100 K Account size.
The  profit results will not be reinvested, so that all trades will be using the full 100K starting  position size.
Running  this strategy for  the time period between  (05. 29 2009 – 10.29  2009)  would result in the following
trades:
excel9

As we can see this very simple strategy  gave us a nice results of  31.83 [%] or 6.366 [%] on average during a month.
By reinvesting our profits,  the compounded annual performance of this strategy would be equal  to
1.06366  raised  to the exponent of 12, which  would  result  in  an account size of 209 071 $ after  12 month period, a 109.071 [%]  profit level.

During this strong Bullish period the  market, SPY moved up less than 15 [%].
Another information that during this 5 month period this sample system never stopped out.

Applying the same strategy  and using a little bit higher risk  vehicle, the results for the same period would look like the following:

excel10

Again, we used a 100K  trading size for all trades, without reinvestment.

This result  equal to a monthly average performance of  64.25 / 5 = 12.85 [%]
If we would reinvest the generated profit, than a monthly average performance  of 12.85 [%] would result in a trading  or account size of  426 597 $   after a 12 month period,  starting the   period with a 100 K size.
That  would probably be well above the yearly performance of 99% of market participants.

We know that past performance results are  not guarantee that futures results  will be similar.
But when we check the weekly and Daily predictor statistics for a longer period,  we will  realize a pretty good consistency. (To do that please download the weekly predictor information for the years 2006, 2007, 2008, 2009) and the Daily predictor data  for the year 2007, 2008 2009.)

This simple strategy could be improved  noticeably  by focusing on  the market during the trading day.
Especially on Monday’s the first 2 – 4 hours could be very important, as it impacts the total profit level the most.
It does not apply any refined position management  idea, that is otherwise supported by the available predictor information.
It also uses the Daily predictor information only for Mondays, but it could be a bit more refined, using more Daily predictions, at least those, that are in  the same direction as the market’s current direction, or the MA20 average direction on the 60 minutes chart.
This strategy does not use any support - resistance level analysis, which could  improve  the overall results.
Every time the strategy is not  yet  winner and the WMA / SMA crossover  appears, we might consider flipping / reversing the positions to increase the potential results even further. But that action might need real professional  analysis of market internals.

Overall it  might serve as  a good  starting point, and it could also be considered  by those, who have less than a 100 K available trading capital.
The number   of trades during this  5 month is very small, only 2 * 20 = 40, so the brokerage fee, associated with this strategy would be much less, than trading the Daily predictions and having 3 – 10 round of trades a Day, which would result in 600 – 2000 trades during the same market period, and much higher brokerage fee.

The  time, spent with trading might also be important for busy individuals.
To execute this strategy, someone  need to check the value of the shares  once every hour, at the end of each hour.
If  let’s  say it takes  30 seconds at a time, then to follow this strategy  would take 7*30 seconds,  or about 3.5 minutes of time every day or about 6 hours during this 5 month period.
That kind of time investment, compared to the  potential  return on the investment is a pretty good number, time well spent.
If we have more time to spend in front of the trading system, than  the potential profit improvement might be noticeable, especially  for more experienced traders.

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