Stocks & Commodities V. 23:6 (10-15): Letters To S&C by Technical Analysis, Inc.
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FLAGS IN A BEAR MARKET?
I just finished Markos Katsanos’ recent S&C
article, “Measuring Flags And Pennants” (April 2005), and was thoroughly impressed. The accuracy of his revised price predictions are truly amazing for the small
sample size presented. I am wondering how this formula will perform for larger sample sizes and in bear versus bull markets. I am relatively new to the whole concept of backtesting, having just signed up for a TradeStation trial, and my higher math skills are very rusty. But I am eager to explore these tests at some
point in the future. I also eagerly await Katsanos’ next article on applying this newfound result. Thanks for the insightful analysis.
BRENT BREWER, CFA
Markos Katsanos replies:
Thank you for your interest in my article. The coefficient r2 suggests the simplified formula would explain only
about half of the cases. This was verified by my statistical research on 100 flags and pennants during the period of 11/13/2002–11/15/2004, which included
a bullish and a sideways market but not a bear market. This process revealed that 57% of the cases were
within +/-10% of the predicted price objective. Nevertheless, using the formula removes emotions from trading and prevents you from blaming yourself
for selling too soon or too late.