Situational Trading by Anthony Trongone, PhD, CFP, CTA
How do you know the markets
are beginning to recover?
uring periods of downslides, many cautious investors remain on the sidelines until signs of recovery emerge. Fortunately, trading activity can spot the beginning of a recovery. Sometimes, however, it can be a challenge; in the past several years, a variety of trending landscapes have presented themselves, making that hunt something of a trial.
Sometimes we do ourselves a disservice by including all the different trading patterns that have popped up into the same study. The days not specific to a particular pattern will water down our results. For instance, take the average of six random trading days:
(2 + 2 + 2 + 11 + 14 + 17) = average 8
But 8 is not an accurate reflection of the integrity of these numbers. The average does not place sufficient emphasis on the extreme scores, nor does it consider the order of sequence. For this article, I will limit my analysis to those days that come together to form a V-shaped pattern. The orange circles in the price chart in Figure 1 identify several of these steep corrections with abrupt recoveries.