Despite relentless data-mining and arbitrage, there are still plenty of anomalies in the price series of liquid securities that traders can exploit. Yesterday, one such anomaly that is related to an interesting short signal was identified ex ante via data-mining.
The particular anomaly was identified by Price Action Lab software in the form of a price pattern that has 39 short trades in IWM since inception with win rate 74.39% for profit target and stop-loss both equal to 2%. Note that the exit levels are only used in the data-mining process and are not necessarily those used in trading.
Also note that since the data-mining takes place after the market close, it is more appropriate to determine the next day’s gain from the open price, rather than using the close of the previous day. Although the change from the previous close was -1.6%, from the open it was -0.9% but that is still a respectable gain for a short position.
This particular anomaly was interesting due to the divergence of IWM from SPY, with the latter falling only -0.16%, as compared to a -1.6% loss for the former. It was also an interesting anomaly because it was the only one that showed up in the results after data-mining daily price data for 30 liquid ETFs since inception.
Price anomalies still exist in price series but it takes time and effort to identify them and properly analyze their significance.
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