Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
How to Trade NASDAQ with Historical Data
11/06/2009 12:01 am EST
The Nasdaq Index is over 30+ years old. Yet did you know that over those 30+ years, on the date July 9, the Nasdaq finishes the day up over 85% of the time. That’s right, since the early 1970’s when the Nasdaq began, it has been open 27 times on date July 9, and out of those 27 times, the Nasdaq has finished in the positive 23 times and down only four times (of course, July 9 sometimes falls on a Saturday/Sunday when the markets aren’t open, so that is why you only see 27 trades instead of 30+).
Pretty interesting stuff, isn’t it? I love stats myself. But before you write that off as some hokey thing, there are several other examples I will give you at the end of this article. Before I do though, I wanted to give you another stat.
Between the years of 2000 and 2003, the Nasdaq went from 4135 to start the year 2000 and closed the year 2002 at 1335. So in three years of Nasdaq trading, the Index lost a staggering 68% of its value!
That is a huge drop and has been talked about at great length, but I wanted to share with you a breakdown of the years 2000 through 2002:
The Nasdaq in the year 2000 had 122 up (positive) days and 130 down (negative) days
The Nasdaq in the year 2001 had 125 up (positive) days and 123 down (negative) days
The Nasdaq in the year 2002 had 117 up (positive) days and 135 down (negative) days
So in over 750 trading days where the Nasdaq lost 68% of its value, the Nasdaq still had 48% of its trading days end in the positive.
Now of course the down days were much bigger then the up days; I am not discounting that. However, there are opportunities to place long trades even in a major bear market. If you knew when the Nasdaq has a historical rate of closing the day up 70-80% of the time on a specific day, don’t you think that can be valuable information? I know I do.
If shopping for a mutual fund, do you look at the ones that historically have done well or the ones that haven’t? Of course, you pick the ones that historically produced well. It shows that management knows what it is doing with its investments. Does it mean they will continue to get those results in the future? No. But they use it in their ads: We have been up X% over the last five years, or we beat the S&P by X% over the last ten years.
When a sports franchise looks to hire a new coach, do they look for one with a losing record or one that has proven he has won in the past? Of course, they go with a coach who has proven he has won in the past. Does that guarantee future success for the franchise? Of course not, but the ownership feels it is giving itself the best opportunity to win.
Does past performance guarantee future results? Of course not. But we do use past information all the time in our lives. Well, now we can use it for trading the Nasdaq with historical stats of over 30+ years of trading. If you knew a trading day finished up historically 75% of the time, which direction would you want to put your money on? Up of course. Does that mean it is guaranteed to go up? No, but historically, three out of every four trades finished up. I like putting the odds in my favor. You can use that information in your stock trading as well to decide when the market has peaked.
Well, you can say “Well the Nasdaq started at like 100 and peaked over 5000, so of course there are going to be a lot more up days than down over the history of the Nasdaq.” And you know, you are probably right, but do you know what? There are historical stats that show certain days the Nasdaq finishes down on that day as well. On June 18, for example, the Nasdaq historically finishes down (negative) for that day 70% of the time!
Okay, hopefully in this short article, I have convinced you that historical stats can be a way to trade the markets. Here are some of the additional examples that I promised you:
November 24th historically finishes up (positive) 80% of the time.
November 25th historically finishes up (positive) 70% of the time.
By Steve Hoven of NasdaqTrader.comSteve Hoven is an experienced trader and has been trading various instruments for over 17 years. He can be found at NasdaqTrader.com
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