TRADING PROFITABLY

Trading -- How can short-term traders benefit from adaptive forecasting?

Trading profitably is usually easy for portfolio managers and most professional traders. The reason is that they follow three rules: (1) Subscribe to and rely on a forecasting system that is consistently accurate more than 60% of the time; (2) Take profits, and (3) avoid whipsaw trades. These three rules are explained below...

First, a trader should have access to a good advisory which forecasts the direction of each issue in the trader's portfolio. A good advisory service should meet an important criteria -- the FORECASTING ACCURACY should consistently be higher than 60%. Forecasting accuracy is defined as being = (#WINS)/(#WINS + #LOSERS + #SCRATCHES). For each issue in the portfolio, based on previous calls (Long, Short), an issue is either in the money (a WIN, since it has a positive paper profit), a LOSER (negative paper profit) or a SCRATCH (a zero paper profit). Advisory services which do not post their forecasting accuracy results should be discarded in favor of an advisory service that measures and posts its forecasting accuracy based on recent and current market conditions (the most meaningful measure of how well the advisory service's current recommendations are likely to result in profits).

Second, a trader should TAKE PROFITS! If an issue is developing a good paper profit (a paper profit above the average for the issues in the portfolio), then it should be considered a candidate for liquidation. Take the profit and enter a new position based on the advisory that is proving itself with a high forecasting accuracy.

Third, don't wait until the advisory shows a reversal in direction (when the forecast goes from Long to Short, or from Short to Long). Waiting too long will often result in the paper profit slipping away, or turning negative -- the classic WHIPSAW condition which traders should avoid. The price of a stock usually rises to an overvalued level, then falls to an undervalued level. These rise-and-fall cycles will often result in the paper profit slipping away and this can result in a whipsaw (a loss). Avoiding whipsaws is easy, if the second rule (taking profits) is followed on a regular basis.

A forecasting system is not a trading system

The advisories available on this WWW site are FORECASTING ADVISORIES, posted here for the purpose of demonstrating that FORECASTING ACCURACY can be consistently high.

To achieve a high FORECASTING ACCURACY, we use an ADAPTIVE forecasting system, which responds and ADAPTS to changing market conditions. This is necessary in rapidly-changing financial markets. We use forecasting theory developed for engineering applications to analyze trends, coupled with learn-and-optimize techniques from the field of artificial intelligence and a filtering method to separate the orderly price moves from the random price moves.

When the markets are choppy, the forecasting system will be short term (frequent reversals in position; L to S and S to L) because the forecasting system ADAPTS to the market conditions. When the markets are orderly and trending over the longer term, the forecasting system will be long term (positions will be held for a longer period of time, and the forecasts will have INFREQUENT reversals in position; L to S and S to L) because the forecasting system ADAPTS to the market conditions.

A forecasting system is used to create a trading system. A forecasting system is not a trading system. Most of what I do for my clients is interpret the forecasting advisories and customize a trading system for their particular type and style of trading.

FOR MORE INFORMATION --

I can not respond to all of the telephone and email inquiries being received by me from private investors, but interested investors can obtain a copy of a publication that is provided for only the cost of preparation, publishing and handling (a not-for-profit accommodation and service for web site visitors who plan to use this forecasting information for investing). Investors can send for a copy of my publication "PRICE FORECASTS -- HOW TO INTERPRET PRICE FORECASTS AND INVEST PROFITABLY." This information is not available on-line or via email because of the drawings and script used throughout the publication to explain the information.

To obtain a copy, send a check ($25.00) to:

	  PRICE FORECASTS
          4300 Castle Ridge Court
          Charlotte, NC 28269

Click here for more info about forecasts.

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Howard Phillips (hphillip@uncc.edu)