Technology

New Research from Online Trading Academy Provides a New Orientation to Market Timing

Who Says You Can’t Time the Markets?

Irvine, CA

Hindsight is a wonderful thing.  Looking backwards, it is easy to think wishfully, “if only” … if we had only been able to time the market by picking the peaks and troughs.  Of course, that’s why there is a prevailing perception that you can’t time the markets, backed up by commonly cited research from financial planning organizations and others.  But new research data from Online Trading Academy, a world-leading educator of retail traders and investors, suggests otherwise and provides a new orientation to market timing.

“There is a lot of research and narrative asserting that you can’t time the markets by hoping to time-pick missing the worst days and catching the best days in the financial markets.  We agree, because as the saying goes, ‘hope is not a strategy’ and if you are guessing you are gambling,” said Mike Richardson, President of Online Trading Academy.  He went on to say, “but, at Online Trading Academy, when we talk about “Market Timing” that isn’t what we mean.  Instead, we mean something very different, educating students about a very different orientation to market timing which is new to most people.  Our students love our education, rating their satisfaction at 94.4% from more than 200,000 post-class exit surveys.”

Online Trading Academy’s approach to market timing is based upon supply and demand analysis of price charts, to follow the footsteps of where institutions are likely to be buying and selling.  A different approach we call “mechanical analysis”, which is vastly different from “Fundamental Analysis” and “Technical Analysis”, which we believe are outdated and ineffective for retail investors. Plus expanding their horizons of ‘the market’ across a range of asset classes, not just the Stock Market, but also Exchange Traded Funds, Futures, Foreign Exchange and most recently, we just launched our brand new Cryptocurrency asset class curriculum.  For individual stocks, ETFs, currency pairs, or futures contracts, OTA teaches students how to find trading opportunities by identifying zones of supply and demand imbalance where price is likely to turn.  Then waiting patiently to see if trends and volatility bring price to those entry points and only then executing on a trade or investment.  Very contrarian and not following the herd with simple buy, hold and hope strategies.  Our trading methodology is based upon a rigorous approach to disciplined trade-planning and responsible risk management, which is embedded in OTA’s first-of-a-kind, integrated education, analysis and trading platform called CliK, recognized as award-winning and revolutionary Fintech.”

Each year Online Trading Academy amasses a substantial research database that validates this orientation to market timing.

  • OTA’s Mastermind Supply & Demand Grid identified and published 16,493 zones in the last 12 months from July 2020 to June 2021, for short, intermediate and long-term time horizons, with each being tracked as a hypothetical trade opportunity using real chart data to track potential outcomes.  The Grid of zones is embedded in CliK. 
  • 4,176 of those zones hit, equaling about a 25% hit rate.  The methodology targets a range of 20-35% for hit-rate, not too high and not too low, intentionally identifying zones some distance from current price as the first essential step in its patient, rigorous and disciplined approach to market timing.  The next release of CliK includes visual alerts to show those zones for which price is approaching.
  • For 74% of those zones which hit, price turned as it was expected to do, at least to some degree, representing our “Zone Identification Accuracy”.  The magnitude of price turns ranged from minimal to various levels of risk-to-reward ratio, depending on the strength of the zone, which OTA teaches its students to score.  The scoring criteria are embedded in CliK.
  • The average reward-to-risk ratios with which price turned, measured to its maximum reached level, was 3.6:1.  Compared to the average risk investment represented by the parameters of the zone, defined by a stop loss which would be placed to manage risk, an average reward of 3.6 times that.
  • This creates an industry standard “Expectancy Factor” for maximum reached averaging 2.4, calculated as {(Win % X Average Reward)-(Loss % X Average Risk)}: (0.74 X 3.6)-(0.26 X 1) = 2.4, compared to a breakeven expectancy factor of zero.
  • When graphed month by month, this maximum reached expectancy factor shows a positive correlation with the VIX, the volatility index of the S&P 500 quantifying market volatility and investor sentiment.  We teach our students a market timing orientation to take advantage of volatility.

“These data validate that this contrarian orientation, methodology, and strategy of market timing create the potential of trading and investing opportunities for those who have developed the skill, proficiency, and confidence.  This is the focus of our leading-edge innovation in education and technology for which we are a prolific award winner.  All very contrarian to the prevailing perception of market timing” added Mike Richardson.

The OTA Research Center helps curate research of retail traders and investors, in particular differentiating between those who are educated and those who are uneducated, a crucial difference which is often missed in the narrative. 

“What percentage of retail traders make money?  While that is a difficult question to answer, our research of our own students indicates very different insights from the prevailing research.  From our compilation of the 3rd party research which we can find, it is very hard to conclude that the percentage is anything but a small number.  Some say less than 24%, some say as low as 1% and some say that 80% quit within 2 years.  Of course, it is hard to differentiate between educated and uneducated retail traders and you will need to decide for yourself.”, said Ted Francisco, OTA’s VP of Insights.  He went on to say, “Our annual wave study in April 2021 surveyed over 1,000 of our students.  This provides very different insights which begin probing into this complex question for educated students, which we are dedicated to continuing in our research center.”

In the April 2021 survey, the responding students reported that:

  • 70% reported that they are trading live in the markets.  OTA teaches its students to be patient and practice in the CliK Simulator until they are ready.
  • Of those, nearly 2/3rds (64%) report that they are making money, to some degree.  51.5% said that they are making some money and 12.5% said they are making good money.  Students track their results in different ways which makes enquiring about their results complex, so this is just a simple beginning which further research will probe further, especially as our CliK database increases.  A further 12% said that they were breaking even and not losing money.
  • These data are consistent with the student learning journey that OTA facilitates.  Survey respondents range from new students, just beginning their journey, to students who are a number of years into it.   OTA teaches students that their first achievement should be to not lose money, as they start to trade live in the markets, by applying solid foundations of responsible risk management. Then progressively building from there, to making some money and then good money.
  • Indeed, when asked why students felt they were or were not achieving their objectives on the learning curve, the two most critical factors were “sticking to their rules” and “managing emotions.” 
  • Not surprisingly, the majority said that they wished they had started their OTA education sooner and that OTA has become an important part of their lives. 

“While this is just the beginnings of our enquiry into this complex question of results, we are delighted to see that this number has continued to increase by a significant amount as we continue to innovate, to 64% in our April 2021 survey from 56% in our prior survey in 2018.  Compared to our compilation of the prevailing 3rd party research, these are strong numbers and getting stronger, in particular when set in the context of the Dunning Kruger Effect model of the student learning curve which we help our students understand,” added Ted Francisco.  He continued, “It seems that a lot more of our educated students are progressing on their journey towards the ‘slope of enlightenment’ and the ‘plateau of sustainability.’  With more research to do, we see indications of correlations with where students are on this learning curve and the patience and disciplines we teach of risk management, trade planning, staying engaged with the education, learning the skills of dynamic trade management, sticking to the rules and managing emotions.  Patience is a virtue that we teach in all that we do and CliK is helping to revolutionize how we facilitate that process, integrating education, analysis, and trading into one revolutionary technology.  It is a first of its kind.  There is nothing else like it.”

About OTA:

Online Trading Academy (OTA) is a world leader in financial education for people looking to build skills, evolve proficiency and develop confidence for trading and investing in the financial markets. OTA’s proprietary and step-by-step Core Strategy methodology is designed to teach strategies to help traders and investors make smarter decisions aligned with their short-term and long-term financial goals. Students learn under the guidance of knowledgeable instructors, in an interactive classroom setting with extensive online education resources and a next-generation education, analysis, and trading platform called CliK. The courses are geared toward individual investors or traders, novice or experienced, who want to learn how to use similar tools and trading techniques as the professional traders on Wall Street. From a single location in Irvine, CA, Online Trading Academy is in its 24th year, has expanded to more than 35 worldwide education centers, has served over 85,000 students with access to lifelong education who have rated their satisfaction at 94.4% from more than 200,000 post-class exit surveys. It all starts with a free introductory class, which over 500,000 people have attended.

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