I developed my market model in order to generate high probability BUY and SELL signals on S&P500. These signals guide me in the marketplace and inform my long-short relative positioning.
The model is using 2 sets of indicators: breadth and technical. The buy / sell signals are provided when the breadth indicators are pointing up / down and the technical indicators are in a buy / sell mode. When my model provides a buy signal and is in the accumulation mode, most of my day and swing trades are bullish. Conversely, when it provides a sell signal and is in the distribution mode, I am primarily trading on the short side.
Before adding an indicator to the model, I back-tested it and made sure that its buy and sell signals produced positive returns over time. It is important to note that not every buy and / or sell signal will result in a winning trade. All of these indicators individually generate a lot of ‘false positives’. However, when all of them AGREE on a new signal, the probability of a positive return increases dramatically.
Market Model Performance in 2018
The market model provided 3 sell signals in 2019. Two of those were followed by substantial sell offs.
Market Model Performance in 2019
The market model flipped to BUY on Christmas Eve of 2018 and led to a monstrous rally from December lows. The model has also accurately ‘predicted’ several corrections in 2019 as well as the new buying opportunities.
I update my market model daily after each trading session. I also provide additional insights, market analysis, tape reading and other relevant observations, which help me in my positioning, decision-making, sizing and trading.
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