Our Trend Following Charts and Analysis

Our #TheSTRAT Charts and Analysis

How we use stock charts to identify future market behavior before the fact.

We’re all familiar with weather forecasts. Let's talk about the weather, because comparing weather forecast to stock market forecast may give you an idea, on how we come up with the idea of identifying chart events and their future outlook.

A Brief History of Weather Forecasting

Weather forecasting has existed for thousands of years. For much of human existence, weather forecasting was believed to be the province of the gods.

Astrologers were among the first weather forecasting professionals, predicting the weather − along with war, plague, pestilence, and other major events.

Almanacs contained the first published weather forecasts, dating back as far as 3,000 B.C. in ancient Egypt, and have remained popular ever since.

For the last 30 years, we’re using the most sophisticated technology and an extensive network of weather stations, satellites, balloons, radar ships, and buoys.

How accurate are the short term forecasts i.e., what's it going to be like tomorrow?

It depends on the forecast.

There are essentially TWO types of forecasts. It’s EXTREMELY important to have a comprehensive understanding of the difference between them.

The Naive Forecast

Example of a naive weather forecast:

Question: What will tomorrow's weather be like? 
Answer: The same as today's

As a matter of fact, meteorologists use two types of naive forecasts to gage forecasting skill:

• Persistence − The prediction that tomorrow's weather will be the same as today's.
• Climatology − The prediction that tomorrow's weather will be the same as seasonal averages.

In fact, persistence and climatology forecasts are right most of the time. That's why you don't have to be too bright to be a "pretty good" weather forecaster.

Meteorologists define skill as a measure of improvement over persistence and climatology.

Here at Lucid Trend following system we define individual stock outlook by how price action plays out and apply the persistence rule.

We also use the similar method to climatology, to work out the probability of what could happen next.

The Skillful Forecast

So, the BIG question is:

Exactly how much value does a skillful meteorologist add to the random guesses of a naive weather forecaster? 

Before 1988, the answer was, "Not much value at all."

Now using modern technology, you can forecast general weather conditions within a twelve hour period with considerable skill, but wild deviations from weather forecasts can and do occur when atmospheric conditions are chaotic.

If conditions are chaotic, then lead times rapidly diminish

Tornadoes are generally predicted with about 10 MINUTES of lead time, but only 64% of the warnings result in tornadoes.

Severe thunderstorms are generally predicted with 18 MINUTES of lead time.

Flash floods are generally predicted with 21 MINUTES of lead time, but 58% of flash floods were complete surprises. No lead time was given.

Here are the bottom lines:

The data show that the National Weather Service is indeed able to make two or three-day predictions with a reasonable degree of accuracy UNLESS chaotic events occur.

The data also show that it is not easy for a skillful weather forecaster to add value to the forecast of a native forecaster.

When we apply the same principle this is the place where all hardcore technical stock traders spend time in “timing the market” and predicting the next move.

Conclusion

We at the lucid trend following system. we talk about acting according to a condition, not the so-called signal, that you feel like you have missed the opportunity if you did not act on the next trading bar.

At lucid-trend, we talk about pulling the trigger as long as the short term signal matches the long-term condition or medium term condition and stay out of the trade or hold and do nothing if it is projecting sideways move.