Market Barometer

What's the Financial Market Barometer?

The Barometer is an accurate and reliable tool, able to offer prompt indications about the trend of the international stock exchanges, efficiently supporting the investment decisions and avoiding the most dangerous error for a trader: trading against the market!

How to use the Market Barometer?

Just a glance at it to discover the Trend of the Financial Instruments price movements, in order to cut losses during negative phases, hence to over-perform the markets.

Accurate statistical tests, available through these pages, have clearly demonstrated that following the Barometer indications you would get huge over-performance if compared with the indices behavior and Buy&Hold strategies, therefore the Market Barometer can be used as a real Trading Systems, able to create medium/long term positions.

For traders that prefer short term strategies, it's possible to use the Barometer as a Filter, in order to open only accordingly with the underlying market trend, minimizing the occurrence of false signals and wrong investment decisions. Reducing the number of losing trades, automatically enhance the profitability of whatever strategy.

What's behind the Barometer?

ITtrading has always been involved in the research of scientific approaches, able to create a statistically proven advantage for the traders.

During such research, several Trend Follower strategies proved their efficiency constantly beating all the main stock indices, without any need to over-fit variables, that could undermine the reliability and stability of the returns. One of these approaches, emerged for its extremely simple formula, therefore it has been immediately elected to the strongest and the most reliable of all.

Statistical Relative Strength (SRS) is the name of the indicator at the basis. SRS can be applied to any stock index and historical series, assuming only two possible values: Bullish and Bearish. The Market Barometer is a tool that let you read the international market trend at a glance, computing it as mean value of the SRS indicator applied to each index composing the reference basket.

When all the indices show a rising price tendency, the Barometer reaches its highs, and clearly the opposite when all of them are dropping.

Why so many investors lose money?

Information coming from all the main brokers tells us that the vast majority of the private investors are systematically loser! A recent survey from a primary rating agency, showed that over several years many mutual funds produced gains, while the vast majority of the investors that from time to time bought those same funds has lost significant part of their capital.

This because people are really good at entering on the top to sell at the bottom, even if a simple Buy&Hold strategy would have been much more profitable. The explanation of such behavior relies on the tendency to buy a stock when this has already demonstrated its strength (hence is already high), and to sell only when the fall is no more mentally sustainable (hence the drop is huge).

To recap it using one word, the mean investor systematically misses the TIMING. People normally buy stocks after a rising phase, then soon they face a small drop. Since the loss is small it's also mentally sustainable, so the investor decides to wait a new strong rising phase that certainly will arrive. Then the stock drops more, but even if the loss is strong, the investor doesn't sell in order to avoid make that “paper loss” a “real loss”. At the end, when the stock lost almost its entire value, the investor has no more hopes for a recovery, therefore he finally sell !

Wouldn't have been better to sell at the beginning of the drop, at the first evidence of a trend change ? Well, this is what the Market Barometer promptly and reliably does.

What to do if you want to beat the markets?

Even without any tool to predict the markets, it would be enough to quickly accomplish the direction changes of the stock exchanges, in order to transform loosing mental attitudes into winning approaches, able to systematically over-perform the main world indices.

With a trend indicator, faster than us accepting the direction changes, is possible to quickly enter a long position as soon as the economy starts to recover, cutting the losses when a small retracement risk to become a new recession phase. The Market Barometer has exactly this function, since it gives an immediate picture of the underlying trend and, despite it doesn't eliminate some false signal during the lateral phases, it's certainly quicker than the mean investor taking the right direction.

Thanks to these qualities, the Market Barometer systematically over-performed all the main indices, in all the tests over the last 20 years of history.

Back Testing and indices performance

To give you a more detailed view about the Barometer indications, we published the list of index composing the reference basket, and the charts of performance and the equities for both the SRS and the Barometer strategies.

It's also possible to download the CSV file, containing the trade history and all the equity values.

What's the difference between SRS and Market Barometer strategy?

SRS is the tendency indicator at the basis of the Barometer computation. SRS signals are computed on each single index, and are index specific. The Barometer is computed as mean SRS value for the 15 indices composing the reference basket, therefore the signals are exactly the same for all the markets.

Considering a certain date, following the SRS indication we could have long signals for some market and short signals for others. Following the Barometer we have a single long or short indication that is valid for all the market at the same time. The statistical tests, highlighted also in these pages, demonstrated that Barometer performances exceed the SRS ones, as strong evidence of the huge correlation among all the world wide stock exchanges.

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