- a particular Trade-Ideas alert window set-up wherein each alert is considered as an entry to a trade
- specific exit instructions wherein the trader reports in advance whether s/he is long or short, the length of time they remain in the trade (up to the following day's open), and whether or not they set a trailing stop and if so, by what dollar amount, percentage, or volatility factor.
The Odds Maker extends the market scanning capabilities of Trade-Ideas' already advanced Idea Generation Technology because it looks for positive correlations in recent historical patterns between alert configurations and the overall market to find a trading edge. In other words it asks the question, "Which alert set-ups are the most in-tune with the market?"
As we prepare the Odds Maker (not its final name by the way - got a better suggestion? Leave a comment please!) for its beta release, I've turned its critical eye on our list of Samples included on our website and in Trade-Ideas Pro. What got me to organize the results for this post was something Dr. Brett Steenbarger said on Monday.
Brett discussed 4 explanations why trading sometimes doesn't work out. Phenomenon #2 describes the condition the Odds Maker is built to remedy:
"Problems of changing markets - When traders have had consistent success, but suddenly lose money with consistency, a reasonable hypothesis is that markets have changed and what once was an edge no longer is profitable. This happened to many momentum traders after the late 1990s bull market, and it also has been the case for many scalpers after volatility came out of the stock indices. Here the challenge is to remake one's trading, either by retaining the core strategy and seeking other markets with opportunity or by finding new strategies for one's market. The answer to these problems is to reduce your trading size and re-enter a learning curve to become acquainted with new markets and methods. Figuring out how you learned the markets initially will help you identify steps you need to take to relearn new patterns."
The table below (click to enlarge) shows about half of the sample strategies that appear in Trade-Ideas. These are the green-shaded or upward indicating (Bullish) set-ups we offer as starting points for further modification. The two columns of percentages tell us what the probabilities are for winning trades using these strategies when a trader decides to go long with every alert OR decides to fade and go short with every alert - all under the following conditions:
- Each alert generated by the strategy is an entry
- Each position in the 'Long' column is exited 60 minutes after the entry (trades entered during the last hour are not considered)
- Each position in the 'Short' column is exited 30 minutes after the entry. This was done to see if better results than simply 1-Long could be achieved. That's why each row does not add up to 100%.
- No trailing stops are used in this example
The list is sorted by the side of the trade that produced the highest probability of a winning trade, in this case that's the short side. In other words given our current market conditions, the Odds Maker suggests that "Bullish Stocks Under $20" aka "Under $20, Moving Up Fast" is a good strategy to fade - producing a 68% chance of a winning trade when the position is entered and exited after 30 minutes. Note that percentages above 60% (or below 40 in which we would simply reverse the exit strategy) are what we look for - results around 50% indicate that the strategy does not fit the current market conditions.
Remember these results do not guarantee a trader's success even if you could enter and exit with the precision with which we base our results. It's a guide to help determine which approach to the market currently produces a greater chance of success. We'll look at the downward indicating (Bearish) category of samples a bit later. Now if only the Odds Maker could generate probabilities for Blue-ray or HD DVD ...