EminiForecaster Blog and Update History

Accurate Stock Market Forecasts for the Emini SP and other Futures

Archive for August, 2008

Let’s look at the last 12 months and pick the best forecast results. But before we do that let’s first talk about the statistics of what we do so we can better under understand the implications of it all in the grand scheme of things.

We use 15 minute bars for our charts. There are about 130 bars in a week, so if you nail the direction for the week and the pivot/turn point to the bar (a perfect forecast for one pivot point) then the math comes out to be  (2*1/135)  a 1 in 270 chance from random (by the way, the 2 is for the direction of the forecast).  Therefore, picking at random, you’d expect to guess this correctly about 3.7 times in about 2 years time, or just under twice a year.

As this is achieved progressively with any accuracy, the odds against achieving this become staggering.  For example, if you were to pick two consecutive weekly market turning points with perfect accuracy, the probability of achieving this would be 2* 1/270 * 1/269, or 1 in 36,315.  That is one time in 36,315, 2 week periods or, once in many lifetimes!  Beyond this, the computations become increasingly complex, but as you can see, the odds against achieving consecutive accurate forecasts defies any reasonable measure very quickly.

Yes you can possibly get dumb (or smart) luck or pick up a tip or just use your experience/intuition but most people do not have those skills yet. I wouldn’t rely on indicators/oscillators for this task either, read Rob’s post where he takes apart this long-living myth.

This is where G-Lines come in. Keeping the 1 in 270 chance in mind let’s look at our Top 5 forecasts in the last 12 months. We will start in descending order -

#5. May 2008. Monday – a holiday, projected low on Tuesday comes in as projected missing by a couple of bars – market takes off for 40 points. Thursday afternoon market makes a projected high to the minute! While reversing on a dime we pick up another 5 points by Friday close for a total of 45 points or $2,250 per contract -

#4. October 2007. Monday low comes in to the bar, Friday high comes in to the bar. Market tried to deviate from the G-Line but it snapped back right to it just as fast. Total for the week – 50 points or $2,500 per contract -

#3. August 2008. Monday high comes in within several bars though going up a bit more than expected, in terms of the forecast it was nearly perfect. Market declines into both of the projected lows of Wednesday and Thursday giving us a nice 35 point drop. market starts taking off a bit early but still within projected lows. In fact if you look closely Friday and Thursday switched around – that happens sometimes. Further, market goes up into projected Friday high for another 25 points. The reason why this forecast is at number 3 spot is because we nailed 3 pivots in 1 week (I won’t even tell you the odds on that one!). Profit total – 60 points or $3,000 per contract -

#2. October 2007. High comes in on Monday open as forecasted and low comes in on Friday close to the bar! Simply put – perfect forecast. Profit total – 60+ points or $3,000 -

#1.

Monday looks pretty good – total match. Up from there into Wednesday high area for a nice 15 point pop. Then here is where all the fun begins. While “trend followers” are jumping head over heals on this market at the end of Wednesday, we know what is coming – instant death! Market plunges over 60 points by Friday projected low completing our forecast. Total profit – 75+ points or $3,750 per contract -

We do our best to have these type of forecasts as often as possible, but we cannot control the market ;-) . We just show what the market SHOULD do, it is up to it to follow our forecasts. When you think in terms of statistics and probabilities you will start to grasp the task at hand, however, we have proven in this post that predicting market perfectly is absolutely possible.

For more of our recent history go here http://eminiforecaster.com/history.html

Much of the work we do is based around analyzing cycles in the market.  There are various ways to do this.  Fourier transforms, trigonometric regression, Hurst channels and pivot projections  to name a few.  Cycles in the stock market can also come under different names, such as “seasonal”, or “seasonal trading”.  A seasonal is just another form of a cycle, but seasonal are date dependent functions and cycles are often date independent.

There are cycles on all different time frames.  For example, if I make a composite of the market over any different unit of time, it may reveal to me various seasonal tendencies during that interval that have occurred in the past.  Many of the most successful traders in the world use this kind of method.

To make a composite on an annual basis for example, we would start on Jan 1st (or the first trading day of the year) and, in the simplest scheme, sum all the various years together into one value for each calendar day of the year.  For the last 20 years, it would look something like a low of the year at or around October 17th and a high of the year at or around Jun 17th.  This seasonal tendency can actually be detected (plus or minus) going back as far as we have data on the stock market.

Armed with this information, one could buy October 17th and sell (or sell short) June 17th each year. Historically, this would have been very profitable.

Some years this seasonal does better than others.  I have developed some amazing trading systems off this one basic principle.  For many people though, trading off this cycle is just too long term.  In the years you are wrong, it can hurt.  Some form of risk management is required to make it more palatable.  One way to do this is to trade off a weekly time frame in order to manage risk a bit better.  That gives us approximately 52 segments in a year in which we manage our risk.

There are other amazing seasonals that occur in a shorter intervals that match this weekly time frame.  One such cycle is holiday seasonals.  We are approaching the Labor Day holiday this coming weekend.  Let’s take a look.

Here is a chart showing last year’s price action (the candle stick chart) with the current price action mapped on to it going into the holiday (green line).

This weekly analysis is mapping on to the historical past with remarkable accuracy.

This type of analysis is consistent with one of the many cycle analysis methods mentioned above and is also consistent with some of the techniques we use at EminiForecaster.com to generate our accurate weekly forecasts.

Just how accurate is it to pick a weekly low with such accuracy?  There are approximately 40, 10 minute bars in a day and just over 200, 10 minute bars in a week.  Picking a low within 200 minutes, or 20 bars then is an accuracy of about 90%.

When the seasonal is following as it was earlier in the week, it confirms the seasonal is in effect.  We can run various correlation studies to deal with this problem mathematically that feed the correlation back into the input of the computer model that successively approximates which seasonal (or cycle) we choose to trade.

After losing $70k trading new highs (Investor Business Daily style) with 7% stops, I learned my first lesson.  If you have 7% stops, how many times in a row can you be wrong and still be able to trade (financially and/or psychologically)??  The answer is 17 times to get to below $30k.  It seems like a lot, but unfortunately, I was using full leverage on the advice of my greedy broker, so that reduces to 8 consecutive losing trades to get to $30k.

What would it take to recover back to $100k from the $30k level?  333%!  How often does one make 333% on 100% of their portfolio?  Not very often ;-)

Lesson:  Leverage and large stops are killers.

Moral:  The tortoise beats the hare.

Now of course, I did not learn this lesson all at that time because, as I have indicated, I am about the most persistent and stubborn guy you could possibly meet. So it took me a decade.  That didn’t keep me from making good on my losses though.  In fact, I made that loss many many times over.  Another thing that makes it tough to learn.  So there is another lesson.

Lesson:  You cannot correct your behavior as a trader unless you agree you are doing something wrong.

It is impossible to distinguish between luck and skill in most cases.

So, if I can impart any wisdom to you at all that will keep you in the game, the above would be it!

Because, you cannot win, if you are not in the game! Here, I will say it again.  You cannot win if you are not in the game.

Having said that, here is another tidbit of crazy inside knowledge.  Since you cannot distinguish between luck and skill a good portion of the time, the real truth of the matter is you are not responsible for your winning at all.  The market is.  Here, I will prove it (cause I know you are probably shaking your head right now).  Go try to extract a bunch of gains out of the market right now.  So you will say well….. this and well…. that.  Fact is, depending on your method, the market will deliver the conditions you need to make a bunch at the exact time it does it.  Not before, not after.  And, you will have to be there at that exact time in order to benefit.

I said before, you have to manage your risk and then, at some point (and here is the blaspemous statement that will make most traders cringe), a good accident happens.  Accident you say??  Yes.  I use that word, because it is the only one that is strong enough to remind me there is nothing personal about trading. It is all management of risk.  It is a disipline.

How does all this impact your personality as a trader?  You have to bring yourself in line with some sense of truth.  We all like to think we are exempt from the physical forces of the universe.  We like to watch Hollywood movies that confirm our invincibility may be real.  But, nothing shows you quicker that you are wrong than trading.  It is instantaneous feedback.  So, try to be humble and the way will open your way to success.

Past my initial starting days (of losing) as a trader I shared earlier, I began to study the market and develop computer models using my background in statistics and experimental design.  In Part III, I will try to cover a bit about how I became a systems developer.

EMF Hitting New Equity Highs

After having a stellar run in late 2007 and early 2008, for whatever reason, the forecasts did struggle at taking out new equity highs from April through late August when we got back on track and produced some of our best forecasts ever.

EminiForecaster Equity Curve

The equity curve above is computed by following the forecasts long and short based on the date and time of the forecasted turns and exiting on Fridays.

EminiForecaster is a swing trading service based on market cycles that last around a week in length.  The cycles we trade attempt to identify weekly lows and highs in both time and price.  Most forecasting you will find out there is price based, focusing on only one of the two available axes.  Our method is time based.  Plus, we forecast prices in our weekly updates as a separate part of the service.  Therefore, it takes into consideration all dimensions of possible price action.

The service also gives daily updates each morning and as needed throughout the day so you have full support.  Support questions are typically answered by email in a short span of minutes.

Past performance is not necessarily indicative of future results.  There is risk of loss trading futures, stocks mutual funds and other financial instruments.

My mother passed in January of 1991 and left me about $100k.  She had
done well through the 80s investing in blue chip stocks and I knew of
her success.  Actually, noboby  in the family imagined she had amassed
a hidden fortune of about $650k even though we all knew she invested
in stocks while working at the phone company job she couldn’t stand to
be in.

When my grandfather passed in the mid 70s, he left me 500 bucks, which
my mother helped me to invest.  A number of shares of AT&T that began
to grow on her advice. I thought she had taught me something over the
years, so I could not begin to imagine that, when I told her, on her
deathbed, that I would do well with my inheritance, I did not have a
clue what I was talking about ;-).

I proudly opened a brokerage account with my new found fortune and
prepared to make it big!  Trading on full margin, using the infallible
principles of William O’Neil and his recommended 7% stops, I quickly
took that $100k down to around $30k.  Needless to say, I was
demoralized and also felt I had betrayed my own mother in my failure
(all this happened over only a few months time).  I felt bamboozeled!

I had two choices. One, I could fold and go back to my miserable life
licking my wounds, or, I could grab my own bootstraps and figure out
what on earth had just happened to me.  I grabbed my bootstraps, yes,
but I could not have ever imagined the incredible road it would take
me on.  An unforgettable journey of unconventional living…..

The first step in realizing you need to fix something, is in the
realization that you are the problem….

In my next post I will cover some of my background and how different
trading approaches have different statistics that impact your
personality and your ability to trade.

EMF Tentatie Forecasts

The Thursday posting is a tentative forecast that will assist you to have a bit of a heads-up on the forecast for the week to come.  Then, on Sunday the official forecast is posted.  The official Sunday forecast may have some changes from the tentative one from Thursday.  We send you an email when each of these is posted (usually after 6PM Eastern time).  Inside the email there are other points that can be helpful to your trading. Key levels that can be used for profit taking of other protective measures.  Also inside the email updates, we will give you our best interpretation of the forecast.  This will usually give you a generalized time where the turns are anticipated.  Then, combined with the key levels, you get a complete time and price forecast.

Many members trade the forecasts in different ways that is unique to their own style. For example, some member’s day trade using the forecasts in other ways. Some use the platform to make price projections with the G-lines and use that in a sell high, buy low strategy.  The interactive platform and video gives some good tips on how you might do this.  Because we designed the service to be used in many different ways by different users with different styles, the service can be used hopefully in a way that works well for your personal style of trading.  Here is an example of a Thursday night tentative foreast

And here is a Sunday final forecast-

As you can see – not much difference the high and the low are still on Monday and Friday – respectively.

Most people think that our forecast come out on Sunday, which they do, but most of the time THURSDAY forecast do not change coming into Sunday.

My Trading Rules

Serious traders have rules they ‘follow”. I too have a set of rules… somewhere. Once you’ve made a few hundred mistakes and a few dollars you start to follow rules automaticaly. A good rule to have for trading rules is not to have too many rules because then it is hard to break them if you only have a few and you don’t beat yourself up (as bad).

Here is a list of my favorite rules-

- Don’t lose money

- Trade only in the direction of G-Lines

- Use stops (with discretion)

- Set weekly goal (10 points for me)

- Be patient (but dont miss a move!)

- Accept a loss and move on

What is your favorite set of rules? Leave us a comment below

8/15/08 G-Line Forecast Results!

What EminiForecaster.com Is All About

EminiForecaster was created by Vadim Guchinskiy in collaboration with Rob Mitchell.

Have you ever put on a trade and said to yourself – “I don’t feel too good about this trade”. If you have you are not alone! let’s just face the facts most traders lose money, if you think otherwise, take a look at your account equity in the last 2 years.

Why knowing where market is going is so important? Let’s just say it is, OK? When you have all the psychology stuff figured out and you follow your rules and you trade your market and your account size is big enough and the market conditions are favorable to your trading style… you put on a trade and you have no idea what your odds are about making money! Did you know most traders’ performance is under 40% profitable trades.

Yes, you’ve heard a saying – ‘you cant go broke taking profits”. YES YOU CAN! If you understand the math and realize that if you are trading at 50% accuracy and your losers are, not even larger than your winners, but lets say they are the same – you will still LOSE a boatload of money. Why? Because your broker is smiling all the way to the bank*.

*Disclaimer: we are not broke-rs.

On to the service. Here at EminiForecaster we assist traders from around the world with guidance on where the market is going on the weekly bases -

- Accurate weekly forecasts

- Forecasts (G-Lines) never change

- Interactive platform with quotes

- Forecasting SP500, Nasdaq and Dow FUTURES and more symbols coming soon

- Weekly and daily updates

- Intensive video training

- too many to name…

Here is an image of our interactive platform -

As you can see the yellow line is called the G-line – is our forecast for the following week, that line does not move or change – it stays the same.

Now here is what happened by the end of the week…

Not bad, ha? Does this happen every week? WE WISH! But if you look at our history when we are wrong the week is either flat or we lose not as much as when we hit it right on.

Speaking of good forecasting, you have to realize that what we are attempting at doing is almost impossible and is of course unique.

Please sign up for our blog updates, we will be posting plenty of useful information to help you trade.

- “I live to trade another day”