![]() ![]() Remember there were no day traders, no retail traders, no small funds, no HFTs, no institutional traders as there are today. That means that 50% of all the activity in the market was the small lot investor and odd lot investor. There were no pension funds allowed in the market in the 1960’s and 70’s. Mutual Fund investing slowed, but the market participant groups remained intact as Charles Dow’s theory had stated. In the 1970’s the markets were stalled in a wide range bound pattern going nowhere. Mutual Funds were just beginning to be popular again, after the huge Mutual Fund debunking in the 1920’s when Mutual Funds were first invented and sold heavily. The informed investors which are the investment banks, wealthy individuals, and corporations controlled about 50% of all the market activity. ![]() In that decade, the Dow Theory of 3 market participants was still intact. If we go back in time 50 years from the year 2012, we are starting the test data around 1962. The question I am posing then is this, “Did the conditions of the stock market, the market participant groups, the number and type of groups, and how they bought and sold stocks remain constant for 40-50 years back in time from today?” A major change during the period of time, will cause the data to be skewed and the back test results inaccurate. ![]() Let’s examine the Back Testing Method first to determine if indeed the back testing supplied an accurate set of data on which to make this assumptive theory. If conditions alter during the data set used, then the testing method and theories will be skewed and inaccurate. What is immediately apparent to me as a cycle theorist, is a critical error in the original back testing data set.Īn absolute rule in science and cycles is that in order for an accurate test of any theory, the data and conditions must be relatively consistent and the same throughout the entire set of data. But there is an obvious flaw in the theory most traders are unaware of, due to a lack of understanding that has occurred regarding the market structure in recent years. The person asking was bewildered as he believes that back testing is irrefutable evidence. My answer to that question was no, not in the current market conditions with the current market structure. ![]() The theory was that since 52 week highs had higher volume, that this must be where institutions buy into stocks. Question posed: There is a study out that used “Back Testing” to derive a theory about where the institutions are buying the heaviest. I am going to answer those questions here in this forum so that everyone can read the answers. During my training session a couple of important questions were asked by the attendees that I did not have time to answer to my satisfaction. I was a speaker at the Las Vegas MetaStock Users Conference on October 13th. ![]()
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