The "Deaner Indicator"
Being able to predict extreme actions in the market is not an impossible task as long as the predictor doesn't try to overdue it. What I am about to describe is an attempt to do just that.
When the Prudent Trader first began using technical analysis to trade , I manually charted the OEX for three years. It was my intention to trade strategic moments in the market because day trading was not an option because of my lifestyle of slavery. I did not have the benefit of a computer so my technical tools were "created" and watched over time. One of my goals was to become attuned to the gyrations of my TA tools during certain market conditions. This led me to the discovery of my namesake, the "Deaner Indicator".
Briefly, the Deaner Indicator is when a series of events occurr which include actual market action "and" the alignment of certain technical tools. It is not my intent to disclose the precise technical tools because that would be giving away the candy store. The Prudent Trader, being a supersticious wart, feels this could diminish the effectiveness of the indicator over time due to the effects of mass psychology on the market. However, just knowing what the consequences of the Deaner Indicator are and when it occurrs is worth sticking around for the rest of this page!
In fact, the Deaner Indicator is the bearish traders best friend. When it is triggered, the S&P 100 index (OEX) almost always begins a rapid descent from wherever it happens to be to at least the 50 day moving average usually within 12 trading days. As traders know, this is not a regular occurrence. But being plugged into such an event will reward the positioned trader with a performance in trading options which can rival that of a day trader, who finds himself constantly (and unnecessarily) in play.
Prior to 1995, the Deaner Indicator was uncanny. It once pedicted the move to the 50 day MA 7 consecutive times! However, I must warn traders that since 1995, it's success rate has faltered to about the 75% to 80% range. Also, trying to anticipate the indicator before all of its components have triggered can be dangerous because the full trigger to the downside often comes at a pivitol point in the market where a wrong move can hurt one's pocket book severely. So it is still imperative that the trader who "banks" on the accuracy of this indicator must still employ that ever valuable stop loss discipline just in case things don't unfold as you would hope.
Also, it should be noted that the Prudent Trader does not recommend being short from top to bottom when the Deaner Indicator is in play. There are bumps and bounces along the way and occassionally the OEX doesn't make it all the way to the 50 day moving average. Similarly, there are occassions when the OEX descends well below the 50 day MA, so bottom picking is not recommended when the average is initially hit. There are other methods for doing that, although the 50 day MA is a traditional launching pad for many sustained rallies.
These days it isn't often that the OEX Trader has enough conviction to play the downside all the way to the 50 day MA. Knowing the Deaner Indicator is on the prowl can increase the likelihood that such a play will be a profitable endeavor. I invite you to follow the Prudent Trader as this page tracts it's occurrence which unfortunately tends to trigger only 3 or 4 times each year.
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