Another Good Day for Price Action Lab Alerts

The results of yesterday’s alert further corroborated the methodology used to validate the signals of Price Action Lab, which is based on gathering evidence against randomness. The signals for a long position in SPY at the open of yesterday and exit at the close each generated $1.3 profit per share before commissions. The four alerts published in December have generated $2.41 of closed profit ($1.60 in SPY, -$0.19 in IBM) so far and $0.35 open profit in SPY and +21.2 points open profit in the S&P/ASX 200.

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The two signals in yesterday’a alert (shown above) resulted from two patterns that showed good portfolio backtesting results for a portfolio of 12 ETFs as well as for a portfolio of Dow-30 stocks. That presented substantial evidence against the hypothesis that the patterns were random. Recall that TYPE I errors are possible and will always be there, meaning that there will be times that the null hypothesis is rejected (actually there is substantial evidence against it) but still the pattern is random. There will also be TYPE II errors and actually these are more common in my experience, i.e. cases when the null hypothesis that a pattern is random is not rejected but still the pattern is an artifact of data mining. Some of the false positives and false negatives will generate profits and some losses. It is usually the case that more will lose than gain but this also depends on the path of the market. Here is where luck plays a role. But contrary to what some pundits believe, trading is not a game of luck but the art and science of dealing with probabilities.

If the testing of the null hypothesis that the pattern(s) in the Price Action Lab scan report is done carefully, the chances of success will increase substantially.  

The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours.

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