MarketTrak Question/Comment Message


Posted By: john   Date: Tue Jun 30, 2009

Title: the models could all be wrong?

Message:
  maybe I did not notice before, but tonight you said that all the models could be wrong and make sure stops are set!.
 
  Is something feeling wrong? I am seeing it on some other advisors that have been short and that I follow - they all seem nervous about tomorrow and Wed even though all their charts, etc say down for a couple of weeks at least. Thanks.

Response:
  I don’t think there is anything special going on tomorrow. We will see more economic data but I don’t expect any surprises. I was referring to the statistical chance the three models that agree with each other could be wrong. The models are a 1-day, a 5-day, and a 15-day forecast.

 Let me give an example. Suppose the accuracy of each model is 70 percent. Suppose further that they are completely independent of each other and they look at datasets which are not correlated. Then the chance that all three could wrong is less than 3 percent. Of course, the models are derived from the same basic model and they see the same market data so the probability of error is much higher.

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