Wednesday, October 6, 2010

Measuring the effectiveness of volume based analysis / Answer for Jag99

Q:  When did you start seeing the weakness in the April, June and August top. Did it happen before the actual top or in the beginning of the decline?  (2010)

Jag, thanks a lot for your question. In order to answer you I decided to make a backtest since 2008 fall.
Let's play: we have an average investor, pretty new in stocks and does dont like to play with daytrade, simply, likes to put my money into stocks, wait and see how investments are going.
Our investor is a risk hater as well. He only buys and holds.
He does not know economics too much, and he does not want to go to daily charts, does not use limits, refuses drawing charts, lanes etc.

He follows RUA, as this is the market itself with high volumes. He only rides the bull side and starts with 10k.
It's 2008, spring, everything seems fine.

Let's see his trades. He follows basic principles found on MV tutorial, and made some pre-training in volumes before investing his small, hardly earned money:














Please find all his trades and reasons why did he do the activity.
He trades in SPX points.














As you can see, he could successfully avoid the worst crisis in history and also the flash-crash, even he could manage to make 49% in this 2,5 years of period. Please observe, he did not ride all the squiggles, mostly missed the tops, sometimes he missed the bottoms to dip buy as well. He analyzed volume charts 30 mins per day, 1 chart with 1 setup.

There is no holy grail, Jag. I show here no miracle. So if you want to find a system will automatically show you the tops and bottoms, this is not that. Trade comes together with some loss as well.
Here we go to 1-day, 60 mins charts, check several indexes and try to find the best sector for our money.
Also we use ichimoku and try to be more efficient. We already made around 35% in 2 months, but I can not guarantee that we will not loose some of that.

In turn, we spend at least 1,5 hours per day. (I spend much more actually, but that's another story)

I hope my post answered your question.

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