Bested by Rats and Pigeons!

I am a staunch advocate of systematic or rule-based strategies and humans excel at pattern recognition, which would seem to give us an advantage in developing these types of strategies. Unfortunately, we might be a little too proficient. We tend to see patters that are not really there.  Psychologists have a name for this affliction; they call it pareidolia.  It turns out that rats and pigeons do not suffer from pareidolia, which allowed them to beat us handily in a recent decision-making study. This flaw has significant implications for trading.

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Posted in Strategy Development | Tagged , , , | 3 Comments

Recession Model Forecast 09-01-2014

The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through August 2014. Please note that two new explanatory variables were added to the Trader Edge Recession Models in July and one explanatory variable was replaced in August. The swapped variables measured similar economic data, but the new series had more predictive power and was more forward-looking. For more information on the two new variables, please see “Two New Improvements to Trader Edge Recession Models.”

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Posted in Economic Indicators, Fundamental Analysis, Market Timing, Recession Forecasting Model | Tagged , , , , , , , , | Leave a comment

Non-Farm Payroll (NFP) Model Forecast – August 2014

This article presents the Trader Edge aggregate neural network model forecast for the August 2014 non-farm payroll data, which is scheduled to be released tomorrow morning at 8:30 AM EDT.

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Posted in Economic Indicators, Fundamental Analysis, Market Timing, NFP Forecasting Model | Tagged , , , , , , | Leave a comment

08-29-2014 AAR Strategy Update Posted

The August 29, 2014 AAR Strategy update is now available on the AAR Subscribers page.  If you are not currently a subscriber and would like to learn more about the strategy, there is a detailed description on the AAR Strategy page.

The AAR strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes: large-cap U.S. stocks, developed country stocks in Europe and Asia, emerging market stocks, U.S. Treasury Notes, and commodities. The strategy was inspired by the Ivy League portfolio and uses trend and technical filters to reduce downside risk.

If none of the five candidates pass their respective trade filters, the AAR strategy remains in cash for the month.   Stop-loss orders are used on every trade to control losses and to facilitate position sizing and risk management.

Brian Johnson

Copyright 2014 – Trading Insights, LLC – All Rights Reserved.

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Posted in Asset Allocation Rotational (AAR) Strategy, Market Timing, Relative Strength, Risk Management, Technical Analysis | Tagged , , , , , , | Leave a comment

Attention Derivative Professors and Students

The fall semester is just getting started and I would like to hear from any derivative professors or students who are using my new book Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy in their graduate or undergraduate level derivatives courses.

I developed and taught courses in financial derivatives for both undergraduate and graduate business programs, which provided the inspiration for the book.  The interactive tools are particularly applicable to option trading simulations and I would be very interested in your feedback about the book as a learning tool in your courses.

Please contact me via email at BJohnson@TraderEdge.Net.

I look forward to hearing from you.

Brian Johnson

Copyright 2014 – Trading Insights, LLC – All Rights Reserved.

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Equity Market Snapshot 08-21-2014

There has been a lot of confusion lately regarding the direction of the market and the risk of a major correction.  The following article applies several different technical indicators to the Russell 2000 Index (RUT) in both the daily and weekly time frame.

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Posted in Equity Market Snapshot, Market Breadth, Market Commentary, Market Timing, Technical Analysis | Tagged , , , , , | Leave a comment

Option Strategy Risk / Return Ratios Featured in Stocks & Commodities Magazine

My new book Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy is featured in the Books for Traders section of the current (September 2014) issue of Technical Analysis of Stocks & Commodities Magazine.

Brian Johnson

Copyright 2014 – Trading Insights, LLC – All Rights Reserved.

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Overcome the Odds

I heard something remarkable this morning that reminded me just how ill-suited the human brain is for making investment decisions. The inherent decision-making deficiencies that we all share are well documented in decades of behavioral economics and behavioral finance studies, but we have reached a new low.

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Posted in Market Commentary, Market Timing, Recession Forecasting Model, Risk Management, Strategy Development, Uncategorized | Tagged , , | Leave a comment