ODDS Correlation Trader!

 

Investing is too important to leave to chance

A persistent dilemma in market analysis is that indicators don't always work as expected. Correlations break down. Here's a classic example:

In August 2008, USA Today ran a story headlined "Stocks turn higher on oil drop, technology rally". That pretty much says it all. The decline in oil was perceived as good news, as it lowered costs for businesses and consumers. That's the traditional--the expected--relationship that crude oil and the stock market have had for years.

But it doesn't always work that way. In June 2009, the headlines looked completely different, "Stock futures and oil jump". The reason for the change? In 2009, the economy was so weak that any pick up in commodity prices was perceived as an an improving economy, exemplified by an increase in industrial demand. Trucking, rail and shipping companies were buying fuel to move stuff.

In 2008, a crude oil price drop was considered good. In 2009, a crude oil price increase was considered good. The same thing has happened with interest rates. Where a drop in T-bill rates has almost always been considered good for the stock market, in October 2008, the lower rates were considered a sign that nothing was safe. Those low T-bill rates were a sign of how bad things were. In 1985 through 1987, the dollar was considered too strong, so a rising dollar was considered bad back then. And these are just a few examples!

Plus, it's not just economic and monetary indicators either. Technical and sentiment type indicators behave one way most of the time. But they behave differently at other key moments.

Like I said, it's a persistent dilemma: one day an indicator is interpreted one way, another day it's interpreted in the exact opposite manner. The question becomes, what to do?

The answer: ADAPT. What you need is a trading system that can adapt to changes in the markets. That's exactly what ODDS Correlation Trader does--it changes with the market.

The way it does this is through correlation analysis. We monitor an incredibly broad array of different market indicators, from technical, sentiment, monetary and fundamental indicators. We then measure how closely changes in the market follow changes in the different indicators. Finally, we select the hottest indicators out there--those indicators whose movements are most closely correlated with changes in the market.

It's through this adaptive process that we're able to adjust to major shifts in the markets. Just because rising crude oil is bad for the stock market in 2008 doesn't mean rising crude oil is going to be bad in 2009. Successful traders have to realize that a change has taken place, and then act. That's the dilemma that ODDS Correlation Trader is able to solve.

For more information on the Objective, Development History, and Trading Method, click here.

-- Don Fishback