Since there again is nothing all that exciting bias-wise for Friday, Iââ,¬â"¢ll take the opportunity to further pontificate about my methodology.

Some of you wondered yesterday why I was not bullish the indexes, since the Russell had its highest possible either-or rating, plus 6.  The either-ors are only a part of what I post.  There were also cap tops in all three indexes within the less-frequent trading box.  Furthermore, the calendar indicators had turned negative.  This is an especially decline-prone time of year for the stock indexes as Iââ,¬â"¢m sure youââ,¬â"¢ve all heard on CNBC.  Sometimes the conventional wisdom happens to be correct as it is in this case.  I wouldnââ,¬â"¢t venture this, if I hadnââ,¬â"¢t personally back-tested it.

Each component can stand on its own, and if someone were inclined to pay attention only to the either-or indicators, they would not have been incorrect to have bought on Thursday.  The actual outcome is irrelevant -- single trials mean nothing as Iââ,¬â"¢ve said many times, and this is all part of a giant win-lose numbers game.  You can use the first box to decide whether youââ,¬â"¢re going downstream or against the wind in given markets or you can zero in on either of the other two boxes or combine all three.  If youââ,¬â"¢re striving to act in a mechanical fashion (as I do), there is only one important factor; namely that you follow your selected program consistently and thoroughly.  You wonââ,¬â"¢t get into trouble if you donââ,¬â"¢t jump back and forth between methodologies.

What Iââ,¬â"¢ve previously stated regarding my own analysis is that for these particular programs, a +6 really doesnââ,¬â"¢t carry more weight than a +1.  The only important thing is whether itââ,¬â"¢s plus or minus, which is why I wasnââ,¬â"¢t overly-excited about yesterdayââ,¬â"¢s Russell reading.  I actually would have tended to be more bearish than bullish on the Russell because two out of the three major signal groups netted out negative readings.

The ideal situation is to act when you get unanimous confirmation in all markets within your targeted sector.  Itââ,¬â"¢s rare youââ,¬â"¢ll see 9 out of 9 plus numbers, but if the worst you get in any of the boxes is zero and the other numbers are positive, I consider that a buy signal.

I hope this isnââ,¬â"¢t confusing.  Keep in mind that Iââ,¬â"¢ve never presented these numbers as complete stand-alone mechanical systems.  I use them in my own methodologies, but I have to confess there is more to what I look at than just these biases.  Iââ,¬â"¢m not at liberty to disclose everything I do, and youââ,¬â"¢d be misguided to expect anyone to do so.  Successful trading is an art and a science as well as a long trek for each individual.  The biases are valid as Iââ,¬â"¢ve demonstrated in postings of my historical findings.  You will have to add some input, however, to have a total mechanical system.

Either-Or Biases

The first set of biases includes six biases that individually signal either long or short on a daily basis, except for the rare tie.  Each bias has a +1 value for long bias, and a -1 for short.  The bottom line is the sum total, which can range from -6 to 6.  Positive totals are bullish; negative are bearish.  For bullish signals (opposite is bearish):

1. The 2-day average is below the 5-day average.
2. The close is above the 40-day average.
3. The highest close of the last 50 days occurs before the lowest close of the last 50 days.
4. The day's trading range is smaller than the 10-day average range and the day's close is higher than the 10-day average close OR the day's range is larger than the 10-day average range and the close is lower than the 10-day average close.
5. The close is above the midpoint of the average 15-day range.  (The 15-day high average plus the 15-day low average divided by 2.)
6. Fade the majority direction of the last three open-to-closes.

Infrequent Biases

The five infrequent biases are listed below.  For bullish signals (opposite is bearish):

1. Four successively higher closes were followed by yesterday's down close.  Today's action was irrelevant.  
2. Five successively lower closes were followed by today's up close.
3. CUP trade.  For the last three trading days, the middle day had both the lowest low and the lowest close.  In addition, the low on the middle day must also be lower than the lows from the previous three trading days before the middle day.  (CAP is the reverse and bearish.)
4. The highest low minus the lowest low of the last three days is less than or equal to 20% of the highest high minus the lowest low of the last three days.
5. For the previous two days, the market closed lower than it opened.

Calendar Biases

The calendar biases in the indexes are listed below.  For a more in-depth explanation of these, click here.

Click here for the TradeStation summaries of all 14 futures biases.

DISCLAIMER: It should not be assumed that the methods, techniques, or indicators presented in this column will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented in this column are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The author, Tiger Shark Publishing LLC, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

Art Collins is the author of Market Beaters, a collection of interviews with renowned mechanical traders. Much of Art's TigerSharkTrading.com material will be expanded upon in his upcoming book that is scheduled to be released later this year.  E-mail him at artcollins@ameritech.net.