Thursday, August 19, 2010

Inside Days

Wednesday the market posted an inside day. I haven't discussed inside days in a while. For those unfamiliar an inside day is simply a day that makes a lower high and a higher low than the day before. Over the last decade, when the market has been trading below the 200ma, inside days have suggested negative short-term implications. Below is a table that demonstrates this.



Of course there are other nuances and filters that could be applied that could increase or decrease this edge. But generally there has been a poor track record following inside days. It's been fairly steady, too. This can be seen in the equity curve below which uses a 2-day holding period.

3 comments:

Yee said...

So actually you could have run this differently to produce an edge by going short instead of going long?

Rob Hanna said...

Yee,

I run all studies to "go long". Visually it makes it less confusing to see if there is an upside edge or a downside edge. Lots of green, positive numbers suggests an upside edge. Lots of red, negative numbers suggests a downside edge.

So yes, in this case if I ran it to "sell short" then it would have produced the same results but with positive returns.

Best,
Rob

kora said...

do it Fridays alone, you will get even a bigger edge to the short side ..