Know your share....

After reading some of Trader Vic's book last night, I decided to check some numbers on KGF, who have enjoyed a nice medium term uptrend.

I decided to count the number of continuous updays and continuous downdays in 3 medium length uptrends. Note.. UPTRENDS only

So I counted how many times the price moved up 1 day, or 2days, or 3 days etc. Likewise I counted down days.

Updays
1 day upmove 37% of moves were 1 day
2 day upmoves 23% ... 2 days
etc
etc

Using the figures, I can see 85% of moves last no more tha 3 days. Conversely, 75% of downmoves are 2 days or less.

So you can form an idea, if you have bought, how may probable days it will move up, or if you are trying to time a buy on a dip, the probable number of down days until it is likely to bottom.

Of course, this would work on whatever time scale you choose, minutes, hours, days, weeks.

spot on !just what we need to know.

Martin

You have a good point here. Knowing your share gives confidence in trading be it weeks/days or hours. I however have not yet been to able to find a systematic approach to capitalize on this issue. I just run an analysis on BLM using My net model to count the number of the days the stock moved up before profit takers moved in. I had a similar result as your own. I also run the same model on a small cap stock (EEN)the result was totally different.

Makes you wonder about Human's pattern of behaviour.!!!!

[This message has been edited by Dr Iraj (edited 13-01-2001).]

It was interesting to note most long runs (6/7/8 days)(and there were very few) occurred right at the top of the trends, confirming what is usually said.. the most dangerous parts of trends are the 1st and final 10%

Excellent observations all. I guess it all goes back to what Dr Iraj saying that stocks are like people. However, knowing which ones have some predictability makes life a hell of a lot easier!!
Mark

I have used similar considerations in my model. I knew that someone else may have fought about similar, but did not know who.
Personally, I found that this is a very good way to know your share. From a probability point of view, if a stock has gone up 4 dys on a row only 0.5% of the time, then it is very much likely it will fall, if it is currently entering its 5th day after 4 days up.
It is not too difficult to calculate this, particularly if you are a futures trader, and, therefore, stick to few selected securities.
What I am still working on, though, is whether we should take a very large time span, like 5 years, which would give us more samples, and, therefore, from a probability point of view, make our chances more accurate, or whether we should only stick to the last major trend.
See the Nasdaq. Do we want to go back 5 years to calculate the up and down periods, in which case you will find 3 days up is not so unlickely, or do we want to take only the current trend, initiated in March last year, in whihc case 3 days up is relatively unlikely?
Personally I am only taking the major trend.
However, I found that there is an interesting lesson/use of this indicator in SOME markets.
Would anyone guees which?

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The above does not represent financial advice.