Tuesday, October 16, 2007

IBD 100 and Hang Seng Correlation

Recently I have been hard at work at learning how to develop a systematic way of trading. During my backtesting experiments and thorough reading, I have learned that, besides money management, the most important thing to consider is what markets to trade. I don't have the capital to trade the commodity markets and I don't want learn the forex markets just yet.

Restricting one's market to stocks doesn't narrow the choices very much. It is imperative to restrict one's trading candidates to the stocks that are most likely to trend. Nothing fits the bill like the IBD 100. I will be going over the system that I have put together in the near future, but before I do, I wanted to point out an interesting discovery I made.

In order to get a feel for its overall performance, I compiled an equal weighted index chart for the IBD 100. When I was finished, I noticed that the shape of the chart looked very familiar. I compared it to several of the world markets and, as suspected, it matched up with the Hang Seng almost peak for peak. I think there is very little debate that the strongest free-trading market in the world right now is the Hong Kong index. I also think that there is little doubt that the party will come to an end some day. It will be interesting to see how long this correlation between the IBD 100 and the Hang Seng continues.

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