Tuesday, July 14, 2009

Worries on the long term

Earlier post today were:
first-pullback-today-is-example

I was reading a book in which the author had given a chart of the Dow Jones Index. In 1997 July it was trading at 8333. Today, I checked up and the Dow is trading at 8325. In twelve years, the Dow has not moved at all. True, it has seen highs, and some lows, but t the end of a journey it is where it was! From 800 in 1982 to 8333 in 1997, the Dow increased 10 times in 15 years. But, what happened after that? The Index remains where it was, now going back to its average return (reversion to the mean!).

All above average movements will eventually come back to the average. If this principle is accepted, then the Indian markets may also be getting inside a long trading range. We moved up from 920 in 2003 April to 6300 in 2008 january - about 6 times in 4 and half years. That's a lot! The Indian Market may now remain in a range for many years trying to reach the mean.

3 comments:

Student Of Market said...

Speaking tongue in cheek, I am tempted to say, that is why we need to be traders as well!!

Meaning, to beat the mean or reversion to the mean, the only method left is to use probabilistic opportunities - trading in other words.

I want to add that trading does not have to be day trading. The trading referred to above is positional trading which you need to do 2-4 times a year to ensure that your portfolio and you both retain an edge.

Can technical analysis help me in doing this. I sure hope so - which is why I am so fond of 20 EMA waves!!!!

Best Regards,

StudentOfMarket

stockmarket-methods-in-madness.blogspot.com

sandeep said...

sir i am starting technical analysis kindly suggest me software - trade station or metastock.mainly want to develop and backtest intraday strategies. kindly if possible than through some light on your day vinayak product.

dilip said...

dear sukhani i impress with your conclusion of dow and our sensex but our market is developing echinomy while america is well developed echonomi it make no difference?