V. 21:5 (12-16): Letters To S&C by Technical Anaylsis, Inc.

V. 21:5 (12-16): Letters To S&C by Technical Anaylsis, Inc.
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Letters To S&C by Technical Anaylsis, Inc.



I found the article “Daytrading QQQ” in the March 2003 STOCKS & COMMODITIES to be quite misleading. In the latter part of the article, author Misha Sarkovich suggests taking advantage of the low probability of the QQQ falling outside a daily price range of +/- 2.5% from the open. For the +2.5% case, the probability is stated to be approximately 30%, which I confirmed with my own testing. However, the basis for the daily high technique is described in the false statement: “If the prices increase 2.5% from the open, there is a 70% probability this is the high for the day, and there is only a 30% probability that prices will continue to increase to higher levels.” After the price has moved up 2.5% from the open, the original probability is no longer applicable. The new sample group is now the subset of days where the intraday price has reached a price increase of 2.5% from the open. Of these days, the probability of closing above the 2.5% level is approximately 50%. So there would be no advantage to taking a long or short position at that point. My test results are included below: Symbol: AMEX:QQQ (QCharts data, Wealth-Lab Developer) Test period: 2000/01/02 to 2002/07/01 (2.5 years as per article) Total days = 625 Total (open) +2.5% = 191 (30.56%) Total of these closing above +2.5% = 96 (50.26%) Avg. price move from +2.5% to close = $-0.03

- STEVE DUNN, Vancouver, Canada

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