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New Ideas to Forecast Stock Market Trends

My interest has mostly been in trading QQQQ and other major indexes, hoping to build a small portfolio of contrarian (negatively correlated) indexes. I am interested in two types of strategies:

1. A strategy where some cash is dormant on a trading account for most of the time, yielding a return of less than 4% a year when in "dormant mode". Once in a while (it could be every two or three years, sometimes every six months), when large movements occur on the stock market, I step in as a day trader, doing multiple trades over the course of a couple of days up to one month.

2. A strategy where some cash is used to take advantages of medium-term trends, based on insider information about the economy, that allows me to predict what major indexes are going to do within the next 3 weeks.

What kind of "insider" information can I use, in order to comply with all stock trading regulations?

First, as I said, I am trading indexes, not individual stocks.

While living in the Bay Area, I have found that looking at the volume of traffic (commuters) on highways I-580 and I-880, and particularly the variations in the traffic volume, was a pretty good predictor of what was about to happen in the stock market within the next two to three weeks.

Today, looking at the volume of job ads, and particularly the volume of resumes received on a bi-monthly basis (job ads volume is more subject to variations not related with the state of the economy), I am able to predict what the next job market report will look like, and take advantage of this information. Time permitting, I will create an index measuring "job ad volume" or "job trend", updated monthly or bi-monthly, and publish it here or on DataShaping. This index will provide an insight about where the US economy is heading to, in the short-term.

Note:

In the past, I've tried to see if I could get an advantage by looking at all the junk fax and junk email that I received, touting various penny stocks (either by following the recommendations or doing the opposite). I could not find any correlations worth exploiting. Then the junk fax stopped coming in, as if the phone companies had implemented an algorithm to detect and stop junk fax.

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Tags: economy, forecasting, market forecast, price forecast, qqqq, stock market

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Comment by David G. Young on March 28, 2008 at 4:27am
An idea for investigation. I don't work in the area of predicting stock market changes although I've read books on the subject from time to time. I've found it somewhat surprising that variation is so often taken as a measure of risk. The idea is obviously to connect the possibility of gains/losses to a risk premium. Variation, however, doesn't measure risk in the sense of a chance for a loss. If I had an investment that always gave me a low positive return and a second investement that varied between a low return and a medium return, the variation measure would say that the low-medium return is riskier than the always low return. That's just nonsensical, but I've read of the standard deviation of returns being a guideline for what the risk premium should be so many times, that many people must actually do just that. This would appear to be an area that could be exploited or at least be worthy of a look.
Comment by David G. Young on March 28, 2008 at 4:14am
The first step, I'd take is to not make any further references to 'insider' information at all. The legal definition appears to be quite gray and is based on whether the information is 'public'. However, there is a huge gap between 'public' and 'easily accessible'. Using your datashaping site you have good access to the number of job applicants in the market, but anyone can see it so it is public. In truth, I think it would be quite rare for trading in stock indexes to be the subject of an insider information investigation because an index is so broad based. Everyone has some information unknown to others and everyone is not subject to investigation. I think it would be very difficult and unlikley that you would be found to be more of an 'insider' than the next guy in terms of the economy as a whole.

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