Stop me if you've heard this.

In days of old, a chef tries to impress a king with the greatest culinary delight ever, stone soup!  (A stone in a pot of boiling water.)  The king tastes it and goes “Feh!”  (Or something to that effect.)  “This is terrible!”

To which the chef replies, “Well Majesty, maybe if we added some salt and pepper and some turnips…”

The king again imbibes and concedes an improvement, but still, “Ehh, nothing special.”

“Well, Majesty, let's add some carrots and celery and mushrooms…”

You get the idea.  Eventually the chef was able to present his gourmet creation, but it had nothing to do with the original stone. 

Sometimes researchers find themselves in a similar boat. They chart some bias, move onto to other things that have a borderline return, goose it up with the old ideas �" maybe some old carrot and celery accoutrements if we may stretch the metaphor �" and they think they're knocking on new doors.  All too often some esoteric idea is improved by some timeworn momentum indicator, and then as it's further refined and weeded out, the trend component proves to be the real driver, while the exciting new discovery turns out to be near worthless.

I will go around in research circles sometimes.  I get so hooked on the game-puzzle (fun) aspect that I neglect more grunt work stuff like chronicling everything in a more orderly fashion.  

So I'll give you another slight variation on something I've already trumpeted twice.  (But on the other hand, a bias is a bias.)  By extending Monday's single open-to-close indicator to three days and fading the direction of the majority of them, you get positive results in all our targeted markets.  In other words, if at least two of the last three open-to-closes were negative, look to buy today and vice-verse.  The following chart shows the results using the recent five years of data.

We'll start looking at more integration of such ideas with other things we've uncovered �" hopefully in a less stone-soup way.

Art Collins is the author of Market Beaters, a collection of interviews with renowned mechanical traders. He is currently working on a second volume. E-mail Art at artcollins@ameritech.net.