Well, still not sure on what basis you are buying or shorting. But swing trading generally lives or dies based on a minimum level of movement in the overall market. (Obviously, no movement, few trades. More movement, more trades.) I recently ran backtests on market indexes because I was curious as to (1) What kind of overall market movement would help to set up trades on my primary system, and (2) How often those conditions were present now, versus historically. For my trading - I buy pullbacks - I find that a deviation of 2% from a 10 period MA in the overall market averages begins to trigger trades. Since 1993 the S&P has made that move 120 times, or an average of once per month. (Nice the way that divides easily.) This past year, that same number has generally held true. About once per month. To your orignal question - the number of 2% moves in the past two years has been slightly more than those 97-98, but not by much. So if you are trying to get a sense the kind of volatility that would generate swing trades, I would say that overall it has remained fairly steady. So for someone doing basic pullback trades, the historic pattern is fairly even. But if you are looking for "serious" volatility, that is a different story. Historic levels generally do not match those that we've experienced since January 2000. You can do the same research on your system. Generally, market conditions will help to set up certain types of trades. Chart when your trades trigger most often, then compare to a chart of the S&P or Naz. Is there a pattern in the index that you can discern that accompanies many of your trades? If so, then determine the appropriate levels, and run a backtest on the index to see when those levels occur. For me, it was very enlightening, and encouraging, to see that my set ups were often triggered by a fairly regular movement in the indexes.
Thanks again lindq for the comments. In fact I am a discretionary trader and I am not actually backtesting a trading system but rather my own discretionary trading - I just go back to 1990 and start moving forward bar by bar, just as it happens every day with the real time trading. I can take any stock and follow it up to 1999. It's true that I know some of the history but if I don't look what's the date of the bar I am analyzing, I have absolutely no "memory" what is going to happen on the next day! It's no different from back-testing a mechanical system - you do know the history and your system will always be biased! We have no choice but to learn from the past, we don't have a memory for the future... It's interesting to mention that I "trade" the past price history of some stocks pretty good and some just drive me crazy The reason for my question was - if I learn how to trade the 1998 and 1999, which seem to me pretty similar to present day, should I apply the skills I acquire to 2003 History repeats itself but how is this repetition going to look like today?...
That there have only been 5 WEEKLY ranges greater than 4% since March, and 4 of those were in the 2nd quarter, only 1 since the end of June. The historic peak of volatility was 30 months from Jan. 2000 through March of 2003 when there were 5 each year in 2000-2003 and 2 of 3 occasions in the first quarter ( 43.6% ). There hasn't been one since March of 2003. April 8.99% May 6.76% June 5.36% July 5.48% Aug 5.08% Sept. 4.95% FYI: In the 24 years from 1976 thru 1999, the average was 1 per year ( and that was 8% ) with 4 in 1987 and 2 years with 3 ( 1982 & 1998 ). The 3 years 1973-1975 was 25%, and that was the only other period in the 53+ years period of any magnitude. 1970 also sticks out because there were 6 occurrences but only 1 other in the 6 years, 1967 thru 1972. The only important question is whether we are in the Eye of the Hurricane, or if the storm is totally over.
have to do with th question: How many months have we seen >10% moves in the S&P. The analysis indicates that since after the first quarter of this year, things have certainly died down, and as I stated in the last post, the only key question is whether we are in the Eye of the Hurricane and just taking a break, or has the Storm completely passed over and is down with and we are heading back to a more historical average of volatility.
With the DOW still under 10,000 and earnings looking very strong, I'm not sure the exuberance is all that irrational. I would love to see some weakness, but there are good reasons in place for this rally to continue for a while, with only some very minor pullbacks.
Once again Waggie, great work! Ned Davis's 4% model produced just 84 trades from 1966-1985, with a quarter of those trades coming in just two years 1970 and 1974. In 1979 the model produced just 2 trades! So much for the notion that the Carter years produced a lot of volatility, LOL. Hard to believe but once upon a time a 4% reversal triggered longer term adjusting.