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Old 09-07-2009, 02:24 PM   #21
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Okey dokey, here is a chart of the 5066 VFINX daily closings since March 27, 1987 with markers for days when it changed by 3% or more. The green line is +1 for days when VFINX gained 3% or more (69 of them), -1 when it lost 3% or more (also 69), and zero elsewhere.
The long quiet spells are clear, as are the volatile periods around the 1987, 2001, and 2008 crashes. It is also clear that the market has been really volatile lately.

Lest you be tempted to use simple statistical analysis, here is the distribution of the percent daily change charted in 1/2 sigma bins along with a Gaussian distribution of the same mean and standard deviation.
VFINX dist 1.gif
Here they are on a log scale. The "fat tails" are clear.
VFINX dist.gif

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Old 09-07-2009, 02:37 PM   #22
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Originally Posted by LOL! View Post
That's an interesting observation. Does that mean that a 3% drop and subsequent gain portends an upcoming downtrend?
Nope. It just means that you are likely already in a bear market. Just the fact that you are getting +/-3% days at all was a characteristic of bear markets. I guess they are a bit twitchy.

Neat charts IP!

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Old 09-07-2009, 07:45 PM   #23
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OK, I downloaded data off of Yahoo for VFINX.

Say you bought shares on days when it dropped by 2.5%. You sold those shares within 5 trading days either (a) at first gain above 2%, (b) first loss more than 2%, or (c) 5 days later. I did not put in the no-buy-on-Friday criteria.

I started on Oct 22, 1987 to avoid the 20% drop from 10/16 to 10/19. Note that 10/15 to 10/16 was a drop of more than 2.5%, but the 16th was a Friday, so no buying on that day anyways. The first buy on 10/22 (Thurs) resulted in a loss of 8.3% when closed out on Monday.

There were 111 signal days of a drop of 2.5% or more.
55 of those trades were up 2% or more.
06 of those trades were up less than 2%
50 of those trades were losses.

If I multiply in sequence the trading gains and losses, starting from 1.0, the lowest downside was the first loss of more than 8%, so you had 0.917 of your capital and the high side was 1.77 times your starting capital. The ending value was 1.66 times your capital.

In essence, backtesting with these numbers, says: Why not do this to goose your returns a little bit?

I will test in a moment what the worst possible loss would be if one started on each day since Oct 22, 1987.

OK, if one started this around August 8, 2007 (the worst day to start) then you would be down 25% at some point with your capital and end today still down about 6%. If you had bought on August 9, 2007 (lower than 8/8/2007) and held to today, you would be down about 26.5%.

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