Brett Steenbarger, at Trader Feed, examined the recent choppy conditions of the market and found that short-term trend following has not been a winning strategy in markets across the globe since the beginning of 2007. His approach was different from Rob Hanna’s, but his findings similar.
Short-Term Reversal Patterns Among Global Equity Indexes
Excerpt: "A number of traders have commented to me on how choppy the market conditions have become. A strong movement seems under way, and then it just as strongly reverses.
As a way of looking simply at recent trading conditions, I went back to the start of 2007 and investigated three-day returns as a function of the prior three-day returns. Specifically, I looked at what happens when the market is up jointly on a one- and three-day basis (uptrending) and when it is down jointly on a one- and three-day basis (downtrending).
When the S&P 500 Index (SPY) has been up for the past one and three days, the next three days average a loss of -.30% (80 occasions up, 83 down). When SPY has been down for the past one and three days, the next three days average a gain of .22% (82 up, 51 down). If traders wait several days for a trend to assert itself and then jump on board, they are likely to start in the hole…"
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