I can't see photobucket pictures at work, so I look forward to reading this at home.
Thanks for allowing us mortals have a taste of your secret recipe
A pattern consists of signals from the C, S and I-fund. And there are eight possible patterns to track each market day's result.
The S&P 500 has a winning percentage of 53% over the last 40 years, so a pattern is considered to be in an uptrend if it's ebbtally percentage goes over 53% (2012 CSI).
This is the up-to-date 5 yr. ebbtally compiled since 2007. Notice how patterns with 2 or more red signals (bearish sentiment) -- 5 (59%), 8 (58%), 3 (57%) and 6 (52%) -- have a higher win-loss percentage than patterns with 2 or more green signals (bullish sentiment) -- 1 (51%), 7 (51%), 4 (53%) 2 (54%). That's the contrarian trading strategy at work -- markets tend to go up when sentiment is bearish and down when sentiment is bullish. I didn't think the ebbtally total would result in 8 of 8 patterns hitting it right on target because the odds are against it. The chances of that happening are 1 in 256 (0.5 ^ 8), so it all boils down to having the right data collected (by the ebbtracker database) daily. Note: When following the long-term indicators (triple patterns), one should look at triple patterns 5 and 8 for entry and triple patterns 1 and 7 for exit. Triple-pattern signals show up once or twice a year, so two patterns with the highest or lowest win-loss percentage can be used successfully as entry or exit signals. Triple-pattern appearances: bearish pattern 1-1-1 (Apr. 16, 2007); bearish pattern 7-7-7 (Feb. 22, 2008 and Nov. 07, 2008); bullish pattern 5-5-5 (Apr. 20, 2009 and Jun. 29, 2010); bullish pattern 8-8-8 (Oct. 27, 2011). Triple patterns should be looked at as aberrations or anomalies that mark turning points in the market.
January is almost over, so I'll just use this month's ebbchart as a sample.
When developing a system of your own, one thing to strive for is to make it as mechanical as possible. Do that and you take away the destructive emotions that sabotage your trading. I believe I have accomplished this with the new mechanical calling system started back in May of 2011. To test it, I began following the exchange-traded fund, TNA with the system's buy and short signals. From May thru December, the system produced a gain of +154.64%. During the same period, TNA went from 94.73 to 44.84, a loss of -52.67%. Here's the latest update of TNA:
Let me point out what's inherent to the ebbchart -- quantifying chart patterns. We have eight patterns that track each day's market result. To date, each pattern has appeared on the ebbchart 155 times (on average). By the way, you'll have a hard time quantifying regular chart patterns because it's subjective when it comes to interpretation.
"Statisticians say you need a minimum of 30 cases before you can say anything valid about the probability of history repeating itself. Scientists who do really serious science, like missiles and moon shots, demand a minimum of 200 cases." -- Technical Analysis for Dummies.
That's some great numbers ebb. I may have to jump on board just for my non-TSP account. Do I understand correctly that you give you buy/short rec in 1-2 week blocks? if something changes, do you send out an update to modify the upcoming days?
I'm not sure about others, but I am going to need someone to explain all them numbers so I know what to do. Do you have a FAQ or primer so us dummies can figure it out?
Hmmm, 'ebbChart for dummies'
This is an incredible amount of work you've done here Ebb. Very impressive! I must admit, I'm just not sure I can comprehend how all this works. For a simpleton like me, what are your bottom line results compared to the S&P over the last few years? How many buy/sell signals does your system produce each month? Do those signals work well within the constraints of the current TSP trading limitations? Or would your system work best in our personal accounts?
Thanks for your hard work and for sharing your insights with us! I look forward to learning more from you. I'm always amazed at the amount of intelligence here on this board...
The second chart is the ebbchart patterns' 5 yr. ebbtally (2007-2012 CSI). This is where we get the system's mechanical calls -- buy/short signals. I don't like having a lot of "if" conditions, but I can live with a couple. The simpler the system, the better!
The third chart is the main ebbchart. The TA needed to generate the red and green signals for each pattern stays in the background, so we can concentrate on the patterns. You can also see the system's buy (C/S/I) and short (G/F) signals here.
The most powerful tool in the ebbchart (discovered about a year ago) is the triple patterns (long-term indicators). If you check its timeline (see text above second chart), you will see what I mean. Bearish triple patterns 1-1-1 and 7-7-7 "saw" the impending crash of 2008. And bullish pattern 5-5-5 showed up a month after the bear market bottom (March 09, 2009). Here's a chart using the triple patterns:
This could be refined to also include the minor/fringe patterns (green patterns 2 and 4; red patterns 3 and 6). After a bull run of epic proportions, and no other triple patterns in sight for about a year, bearish triple pattern 2-2-2 turned up on the ebbchart (June 10, 2011). The S&P 500 went down from 1289 to 1129.56 (Sep. 22, 2011), a loss of -12.37%. Then, a timely bullish quadruple pattern 3-3-3-3 (Sep. 23, 2011) showed up to save the year -- the S&P 500 has gained +16.53% (Jan. 27, 2012) since then.
S&P 500 (C fund) |
1d 5d 3m 6m 1y 2y
|Dow Completion (S fund) |
|EFA (I fund) |
1d 5d 3m 6m 1y 2y
|Bonds (F fund) |