Jim SogiJurists look for precedent or similarities in factual situations. Traders might use the same type of analysis rather than purely statistical numbers by looking at the context of the situations in which similar facts took place. Yesterday was the fifth consecutive gap down, today the sixth, and the third or fourth straight down day. This combo only occurred before in the bear market of 2000-20002. A year back I noticed that the facts seemed to fit the 2000 high volatility period. With this acceleration down and other recent days, I'm seeing patterns that happened in the big bear market of 2002. Last few days saw breaks to the downside from consolidation areas. I don't recall seeing this action for last few years either. Granted last week we had breaks to the upside. The number of this type of occurrences are too few to be robust in any manner statistically, but for context it is interesting to consider. Is trendfollowing in the equities going to make a come back?

A few weeks back I read C*vel's trend following book and wrote an as-yet-unposted critical review, but have reconsidered. I was critical of C*vel's uncritical use of only two simplistic examples of trendfollowing systems. I was critical of trendfollowing in general and of C*vel's insinuation that beginner traders might use it to make money. Trendfollowing must have had its cycles before, like maybe 20 years ago. It hasn't worked so well in the last 10 years or so. But I wonder if these cycles are coming back. How long has it been since you took a break out/down entry? We haven't seen a 20 day high or low for a while now, but it will be interesting which way it will go. Failure or trend? I kind of doubt trendfollowing (in equities anyway) will return in a big way, but its good to pose the question.

Kim Zussman notes:

The S&P close today was near the point last Friday before the 23 point Ambac skyrocket. Shortly thereafter a question was raised about over-anticipation and symmetry between up and down over-reactions.

This week's answer looks to have taken five trading days, with several surges on bad news thrown in to test the gut. I noted one headline: Wall Street dives on Ambac rescue doubts.

Gut, gut, That magical organ

The more you trade

The more a sore one

Vincent Andres notes:

Jim wrote that "jurists look for precedent or similarities in factual situations." As an algorithm, this way of reasoning is sometimes called "case-based reasoning," and has multiple applications.


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