So is Characteristic A, that they are in the group of 29. Is Characteristic B, that they are profitable in the direction of the trend? If that is so, then Characteristic B does not seem to really be a selectable criteria for use in filtering trades. Perhaps you mean that the stock initially going down/up so that it can cross back through the open is one of your Characteristics?
29 STOCKS IS SIMPLY THE SAMPLE THAT I HAVE AT THE MOMENT. EACH DAY I MAY OR MAY NOT FIND ANOTHER THAT MATCHES MY CRITERIA. IF STOCK IS GREATER THAN THE OPENING PRICE AND MOVING UP AT THE OPEN, THE TRADE IS LONG. IF THE PRICE MOVES BELOW THE OPENING PRICE, THE TRADE IS SHORT. ONLY THE OPENING 2 TRADES ARE CONSIDERED. AFTER THAT, I'M OUT.
What you want is the joint distribution of your two characteristics (i.e. random processes). You don't give us enough information on the characteristics of these process for us to give a closed form solution for the joint distribution. Without making assumptions on the processes, you need to empirically compute the joint distribution with past data and hope that the distribution is stationary. If the distribution isn't stationary the problem becomes very difficult. Ninna
If I knew how to do all that, I wouldn't be asking any questions. I had a great short play this morning but my trade was rejected. God's laughing his ass off at me again.
I haven't been able to express when the Original Poster is missing, but at best, this situation is prone to the The Monte Hall Paradox. The problem is ill-posed, but I will try again. The 29 stocks are the sample universe. Stocks are in group A if it goes above the opening price. Knowing this, there is a 76% chance that a long trade entered at that point will eventually be profitable. Stocks are in group B if within the first few minutes, the price is below the open. Knowing this, there is a 75% chance that a separate short trade entered at that point will be profitable. I have probably misunderstood. If not, most of the 29 stocks will probably be in A and B, and without alot of missing detail how can both a long and a short trade initiated seconds apart both have a high rate of success? Trying to be helpful, but doubting that this is helping.
Easy Lets say the stock moves up from the open and a long trade is made that is profitable. Then later on, the stock moves below the opening price and a short trade is made and it is profitable. Of course this happens frequently. Now lets say that the probable percentage advantage is that it will make a short profitable trade. Since for this instance, the long trade is ignored and only the short trade is taken because it has a much higher probability of working. Does it make sense now.
http://www.washingtonpost.com/wp-dyn/content/article/2011/02/06/AR2011020602236.html Timely article. I have definitely noticed that correlations are very dynamic past few months in the equity baskets. What was for a long time no longer is. Lots of displacement - much of it very surprising in terms of fundamental drivers.
There's what's not advised, right there. Sure search for "joint probability distribution". However, to trade just 1 stock is far from ideal. I'm not sure what the real rule of thumb is, but personally I'd trade at least 16. Otherwise you're missing the real benefit of having statistical information.