Thanks! So in your example you are assessing the relative frequencies at which certain events play out (in this case, the relative frequencies of N successive higher (or N lower) closes). If the sample is big enough (how are you deciding that?) you can take the relative frequencies as probabilities of each outcome occurring. I think that makes good sense; you are assessing the strength of the "signal" independently of "backtest noise" from trade entries and exits, so the risk of curvefitting is reduced to some degree. I wouldn't claim the idea is original, though ...
Now, lets calculate out some quick odds on the S&P bigger picture so you guys understand why the pro's are so complacent... Lets assume that the market behavior since 2004 is the norm. What are the statistical odds of a reversal provided the market locks in a double engulfing reversal? If we lock in this double engulfing reversal that we currently have into the end of this month... The odds of us having a full reversal next month are 0%. By October our odds of a reversal start to increase rapidly. Judging from past markets moving at this trend speed... Our odds of reversal increase to above 90% after seven months after the initial engulfing reversal.
Did I claim the idea was original? No. I just realized that the difference between me and others was I was using technicals for analyzing odds of events occurring... I have never bought/sold off stupid technical signals like crossovers ever. I only buy/sell places that are high odds tops/bottoms in trend.
I changed my signals to dots because the way I have always been using them is as probabilities... Like during this high speed uptrend into this year... The larger the dot during the uptrend the higher the probability of a forward dip. Enough pros have the probabilities calculated out so a lot of the time they are almost self-fulfilling certainties. This is the problem I am convinced most traders have... They have a mental block in trading off of probabilities... They are searching for certainties when there are only probabilities!
So, let me re-word my SPX daily analysis down to pure probabilities lingo. "The probability that the S&P 500 dips below the highs of today toward late week is very high, however the probability of a sufficiently profitable dip is so low that the trade isn't worthwhile. Then there is also a 80%+ probability that the market moves higher next cycle. The only thing that can shift these probabilities is a large unexpected news catalyst like a Iran war or Greece bankruptcy." It's much better to trade when the market is moving with a large range and high momentum in my opinion because it reduces the effect of unexpected news events shifting probabilities.