Cumulative Percent Winners
Cumulative percent winners are used to determine if prices have moved from the downside to the upside or from the upside to the downside.
For each sell date of a price series the cumulative percent winners are computed using the following procedure:
1. Compute the cumulative number of the winning (profitable) buy and sell combinations. All buy and sell combinations are stored in the CTM Trade Table.
2. Compute the cumulative number of all buy and sell combinations (winners plus losers).
3. Divide the cumulative number of winners by the cumulative number of buy and sell combinations.
This ratio is called the cumulative percent winners.
For example, suppose the first buy and sell combination is a loser. After one trade the cumulative number of winners is zero, the running total number of trades is one and the cumulative percent winners is 0%. Suppose trade 2 was a winner. After two trades the running total number of winners is one, the running total number of trades is two and the cumulative percent winners is 50%. Suppose after 20 trades the running total number of winners is five, the running total number of trades is 20 so the cumulative percent winners 25%.
Why Use the Cumulative Percent Winners Indicator?
Suppose you are watching a upside price series unfold in real time and then you see prices start to decrease. But you're not sure if the price drop signals a new downside or just a temporary drop on the upside. Therefore, you need a measure to confirm if the drop in prices is for real and a new downside is forming. The cumulative percent winners serves that purpose.
As prices move up, the cumulative percent winners move up because more and more trades are winners. Eventually prices peak and then turn down so more and more trades become losers. Therefore, the values of the cumulative percent winners peak and then begin to turn down thus confirming the down move in prices. The cumulative percent winners peak soon after prices peak.
Similarly, you use cumulative percent winners to detect when prices move from the downside to the upside. As prices bottom and begin to move to the upside, the cumulative percent winners bottom and move up. The cumulative percent winners bottom soon after the bottom in prices.
Example for An Upside to Downside Move
Kulicke & Soffa (KLIC), a semiconductor equipment maker whose prices follow a cyclical price pattern, serves to show how the cumulative percent winners behave. The first upside started on August 1, 1996 at $4.56 and peaked at $28.62 on September 11, 1997. The downside began on September 12 and ended on October 8, 1998 at a low of $5.19 and the next upside began.
The chart of cumulative percent winners for the upside to downside analysis of the Kulicke & Soffa price series shows the pattern of cumulative percent winners. The cumulative percent winners peaked at 91.34% on September 26, 1997 approximately two weeks after prices peaked.
For the first few months of the analysis the cumulative percent winners
fluctuate widely due to computational anomalies associated with few buy
and sell combinations. Because the cumulative number of buy and sell combinations
is the denominator of the cumulative percent winners computation, a small
number of buy and sell combinations causes exaggerated swings in the values
of the cumulative percent winners. As the cumulative number of buy and
sell combinations increases, the fluctuations dampen and the cumulative
percent winners curve enters a distinct uptrend, peaks and then declines.
As the upside price move progresses, more and more buy and sell combinations are winners because most of the buy and sell combinations for the buys at low prices make money when sold at progressively higher prices. The same is true for buys in the middle of the upside. Most sales are at higher prices are profitable. Typically the cumulative percentage of winning upside buy and sell combinations exceeds ninety percent by the end of the upside.
Eventually prices peak and then start a new downside pattern. Now buys at relative high prices on the downside lose money when sold at lower downside prices. Also many buy upside at high prices near the end of the upside and sell downside combinations are losers. Therefore, as prices continue to decline on the downside fewer and fewer buy and sell combinations are winners so the cumulative percent winners decline.