I recently updated the matrix that displays every trade for the QQQ's over the last two years. This represents over 5,400 trades since October 2009 using weekly data. Winning trades are represented by the green areas and losing trades are represented by the red areas. The numbers in the cells are unimportant. (The colored shading and the direction of the line in the lower chart are key to using this long term approach.) A more complete explanation can be found at the original post back in April of this year.
When losing trades start to accumulate, the corresponding line in the gray line chart starts to trend downward. When this happens, I am reluctant to buy and more inclined to sell, or go short since the percentage of winning trades is so low in these red areas and corresponding declining line chart.
This chart was created in an Excel spreadsheet and zoomed out to get a "birds-eye" view. Using this two-year perspective is not predictive in any way and cannot be used to pick tops and bottoms, but it does remind me where the market is at the moment. Long trades are usually kept on a short leash with tight stops until the weekly trend "goes green" and the line resumes its upward trend. Keep in mind that this is a lagging indicator, and without an extended trend this two-year weekly trade charting method will not be as useful.
Go to the related link below or Richard Howard's Buyside site for a more detailed explanation of this common sense approach to trading.
Related Post: Keeping Time Frame Perspective, Part Deux
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