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Inside Trading features Murray Ruggiero this week, who discusses a concept called predictive correlation.
Lee Gettess provides the next segment with his regular video newsletter explaining his market expectations for the coming week.
Jon Najarian supplies the following segment analyzing how to play the downside.
Last, Norman Hallett discusses having the right trading mindset.
Enjoy!
Adrienne LaVigne
TradeWins Publishing
A correlation between two markets does not always mean that the current movement in one market can be used to predict the movement in the other. To address this issue, I have developed a concept called predictive correlation. The idea behind predictive correlation requires taking a correlation between an indicator N periods ago and a change in a given market over the last N periods. For example, on daily data, we can take a correlation between T-Bonds[5]–T-Bonds[10] and the S&P500-S&P500[5]. This correlation will tell us how predictive a simple momentum of T-Bonds has been over the length of the correlation. The predictive correlation curve is much different from the curve generated by standard correlation, but it does seem that they both trend in the same direction. The power of predictive correlation is that we can correlate an indicator or inter-market market relationship to future price movements in the market we are trying to trade. This allows us to use relationships and indicators in rules, and to trade these rules only when these indicators are currently predictive. Let’s now add predictive correlation to our modified S&P500 pattern.
We use Close[1] of T-Bonds-Open[1] of T-Bonds as our independent variable, and Close-Open of the S&P500 as our dependent variable. We go long on Mondays when a 35-day predictive correlation is above 0. The amazing results, from 4/21/82 to 7/26/96, are shown in Table 8.6.
This system produced over $600.00 per trade, after deducting $50.00 for slippage and commissions. We won 66 percent of our trades and had a profit factor of 3.75. These numbers are much better than any of the variations that did not use predictive correlation, and they should prove the power of predictive correlation.
Predictive Correlation
Lee Gettess' Market Sense
Lee Gettess is a top trader who is excited to bring you his video newsletter. Each week, Lee will share his predictions on what he anticipates from the bond and S&P markets.
Click the above image to view the video
The following is an excerpt from Jon Najarian's How I Trade Options
One of the clearest examples of why it’s better to use options instead of dealing with shares directly is playing the “short side”. Admittedly, there are many professional traders and “vulture funds” that make money by shorting stocks that they believe are going to decline in value. When you short a stock, in effect, you’re agreeing to sell shares at a certain price – say $10 a share – even though you don’t really own the stock, because you believe the price is going to decline and you’ll be able to deliver those shares later at a lower cost – say $8 a share.
Many retail customers think it is “un-American” to short a stock. They want share prices to go up; that’s why they buy a stock. They don’t want to think about stocks that might decline in value. But day-traders – particularly professional ones – know differently. They play the stock market from the short- and the long-side. But to do that, you have to literally borrow the shares of a stock that you want to short until the time that you can deliver the securities for which you’re obligated.
Many retail customers think it is “un-American” to short a stock. They want share prices to go up; that’s why they buy a stock. They don’t want to think about stocks that might decline in value. But day-traders – particularly professional ones – know differently.
Playing the Downside
Are You Hiding a "Lack" Trading Attitude?
This week Norman discusses the question, "How much money do I need to start trading?" He mentions that it's a loaded question and he talks about what the question usually means to new traders and why if you're asking that question, your mindset may not be right.
Watch Video
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Murray Ruggiero develops marketing timing systems using advanced technologies. Previously, he was a vice president with Promised Land Technologies, Inc., and the inventor of a patented method for embedding a neural network into a spreadsheet. He has been researching advanced technologies since 1988 and was featured in Business Week as one of the leading experts using neural networks in finance and investing. Mr. Ruggiero has been a contributing editor of Futures magazine since June 1994 and has a monthly column, "Trading and Technology".
Murray Ruggiero's
Cybernetic Trading Strategies
Simulated Test Trading Results Are Astonishing...
Amazing Book Reveals Powerful "Insider" Methods Worth Over $2.2 Million!
Renowned Analyst Murray Ruggiero Stuns Investment World By Releasing Details On Dozens Of Tested Methods Anyone Can Use To Strive For 5- And 6-Figure Trading Profits Every Year:
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Intermarket divergence method makes $513,325 in S&P futures!
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Seasonal corn futures strategy yields 20
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0% annual profits!
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Correlation method makes $88,200 in T-Bonds!
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Plus dozens more!
BOOST YOUR PROFITS!
I read and review hundreds of books as part of my job. Only a dozen or so are good enough to make it to my personal library. I just added one more: "Cybernetic Trading Strategies" by Murray Ruggiero.
Forget the scary title; this book is about how you can use the newest, latest technical analysis and money management techniques designed to rocket your profits to new, all-time highs. I'm not kidding; if you use the methods in this book, you could make a lot of money trading.
Using technical analysis to increase your profits
Cybernetic Trading Strategies
Andy Chambers
Chuck Hughes
Chris Verhaegh
Connors & Hayward
Dale Brethauer
Darrell Jobman
Dave Caplan
Ken W. Chow
Peter McKenna
Ray Frazier
Tom DeMark
Tony Catalfamo
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PLEASE READ. Past results are not necessarily indicative of future results. There is a substantial risk of loss trading commodities, stocks, bonds and options with or without this or any other advertised product, service or system. Also hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
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