When traders look at long-term index performance charts, it’s tempting to assume they reflect the “true” experience of investors over time. But there’s a hidden distortion baked into indices like the S&P 500 and Russell 2000: survivorship bias. This bias occurs because failing companies are regularly removed and replaced by stronger firms, making historical index performance look healthier than what an actual buy-and-hold investor might have experienced.

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How Survivorship Bias Skews the S&P 500

The S&P 500 is marketed as a snapshot of the 500 largest U.S. companies, but the membership list is far from static. Every year, dozens of names are swapped in and out. Companies that go bankrupt or underperform are removed, while stronger or fast-growing companies are added.

The SP500 index with major stocks removed at the height of the financial crisis

Consider the S&P 500 in 2007. Back then, financial giants like Lehman Brothers, Bear Stearns, and Washington Mutual were all part of the index—until the financial crisis exposed their fragility. Those stocks went to zero, but the historical chart of the S&P 500 smooths over their collapse because new leaders like Amazon, Nvidia, and Tesla later replaced them. The result: the long-term S&P 500 chart looks like a steady upward march, when in reality, an investor in the 2007 version of the index would have faced far more volatility and permanent capital loss in certain holdings.

This explains why the index’s backward-looking return can feel disconnected from the lived experience of investors who actually held the stocks in those earlier lineups.

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The Russell 2000: Why It’s Barely Moved in 5 Years

The Russell 200 chart from late 2020 to current

The Russell 2000 highlights survivorship bias in another way. Unlike the S&P 500, which rotates in stronger companies, the Russell is composed of small-cap stocks, many of which don’t survive or struggle to grow consistently.

Over the past five years, the Russell 2000 has barely moved, stuck in a sideways range, even while the S&P 500 has marched higher. Why? Because many small caps in the Russell 2000 face structural challenges—thin margins, high debt, vulnerability to rising interest rates—that prevent them from compounding like large-cap tech stocks. Although the Russell swaps out some names, the sheer number of struggling companies means the index reflects more of the “grind” of small-cap reality. Survivorship bias here doesn’t create the same illusion of strength—it highlights stagnation instead.

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Why This Matters for Traders

Survivorship bias creates a dangerous blind spot: it makes past returns look better than what an investor might have achieved if they actually owned the index’s constituents at the time.

• For the S&P 500, it means that long-term performance charts hide the graveyard of failed companies. The winners dominate the narrative, but the losers were just as real for investors who held them.
• For the Russell 2000, it means traders need to be aware that many of its members are structurally weak, which can cap index-level returns despite occasional rallies.

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How Traders Can Navigate Survivorship Bias

1. Dig Into Index Components – Don’t just look at the headline number. Study which sectors and companies are driving the gains or stagnation.
2. Use Equal-Weight Alternatives – The S&P 500 Equal Weight Index provides a different perspective, diluting the effect of mega-cap leaders and better reflecting the average stock’s performance.
3. Blend With Sector/ETF Analysis – Instead of relying only on broad indices, drill down into sector ETFs or specific trading groups to uncover true leadership and laggards.
4. Keep Survivorship in Mind – When backtesting or studying history, remember the S&P 500 of 2007 is not the same as today’s. Adjust your expectations accordingly.

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Equal-Weighted vs Cap-Weighted Indices: Why the Difference Matters

Most traders are familiar with the standard S&P 500, but fewer realize it’s a market-cap weighted index. That means larger companies (like Apple, Microsoft, Nvidia, and Amazon) dominate its movements. A 5% swing in Apple carries far more weight than a 5% move in a mid-cap stock buried deep in the index. Over time, this weighting system concentrates returns in a handful of mega-cap leaders, amplifying the survivorship bias effect: the winners shape the chart, while the losers fade into irrelevance.

By contrast, the S&P 500 Equal Weight Index treats every company the same, regardless of size. Each stock counts for 0.2% of the index at rebalancing. This approach provides a more balanced view of how the average stock in the S&P is performing. During periods when mega-cap tech leads the market (like the last several years), the equal-weight index lags behind the cap-weighted S&P. But in broad-based rallies where many sectors participate, the equal-weight version often outperforms.

This chart compares the SPY ETF, a perfect surrogate for the SP500 index vs RSP, the Rydex SP500 Equal Weighted ETF. Total return for SPY from the end of 2021 was around 38%. For the RSP it was 15% for the same period.

Why This Matters for Traders

• Cap-Weighted Bias – The standard S&P 500 often hides the struggles of most companies because the top 5–10 stocks drive the majority of returns.
• Equal-Weight Reality Check – Equal weighting exposes whether the rally is broad or narrow. If the equal-weight index is flat while the cap-weighted index surges, it’s a sign that leadership is very concentrated.
• Practical Application – Traders can compare the two versions (SPX vs RSP) to gauge market health. A wide gap between them signals that survivorship bias and concentration are distorting the headline numbers.

Final Thoughts

Market indices are invaluable tools, but they aren’t perfect mirrors of reality. Survivorship bias smooths over failures, amplifies winners, and sometimes hides the real risks of buy-and-hold investing. By understanding how indices evolve—and by analyzing beneath the surface—traders can avoid being lulled into a false sense of security and make smarter, more grounded trading decisions.

Unlock the clues that show when trends are about to continue or reverse.

Many traders chase obvious signals, only to miss the most profitable opportunities. Hidden divergences are subtle clues in price and indicators that can reveal trend continuation or early reversals before most traders even notice.

In this live session, you’ll learn how to spot these powerful signals using classic technical indicators and apply them in your trading with confidence.

What Is a Hidden Divergence?

A hidden divergence occurs when the indicator and price move in opposite ways, but unlike regular divergence, it signals a trend continuation rather than a reversal.

Types of hidden divergences:

Bullish Hidden Divergence: Price makes a higher low, but the indicator (e.g., RSI, MACD, Stochastic) makes a lower low → suggests the uptrend will continue.

Bearish Hidden Divergence: Price makes a lower high, but the indicator makes a higher high → suggests the downtrend will continue.

P.S. Divergences are only useful if you can see them. This 20-minute session will show you how.

How to Read, Confirm, and Trade the Signals

AIQ’s Market Timing Expert Ratings compress hundreds of technical conditions into a single, actionable score. Use 95+ up or down ratings as “of-notice” events, then confirm direction with the Price Phase indicator before acting. This simple two-step process keeps you aligned with the dominant swing while filtering many head fakes.

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What the Market Timing Expert Rating Really Is

Under the hood, the AIQ Expert System evaluates ~400+ indicator states through an inference engine (decision-tree style) and outputs a daily market rating—from neutral to powerful up/down signals. You’ll also see these ratings plotted directly on historical charts in TradingExpert Pro.

Why that matters: Instead of juggling dozens of internals, you get a unified, explainable read of market conditions that has been kept methodologically stable for years (no goal-post shifting or perpetual re-optimization). That stability helps make the historical behavior of the signals more comparable across cycles.

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AIQ Market Timing signals with confirmation by Phase Jan – May 2025

The Confirmation Key: AIQ’s Price Phase Indicator

AIQ explicitly recommends using the Price Phase Indicator (“Phase”) as the primary filter for Expert Ratings. When Phase direction agrees with a high Expert Rating signal, the signal is considered confirmed. In other words:

• Strong Up Rating (≥95) → look for Phase turning up or already rising to confirm.
• Strong Down Rating (≥95) → look for Phase turning down or already falling to confirm.

This is purposeful: Expert Ratings often fire early—giving you a heads-up—while Phase helps you avoid acting too soon. Think of Ratings as the alert and Phase as the green light.

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Interpreting the Score: When Does “High” Mean “Actionable”?

Per AIQ’s guidance, 95 or greater to the upside or downside is the zone “of notice.” That’s when you should lean in, check Phase, and consider entries/exits or hedges—not when readings are middling or neutral. Most days are neutral; the edge lives in waiting for 95+ and confirming with Phase.

AIQ Market Timing signals with confirmation by Phase May – Aug 2025

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Where to See It in TradingExpert Pro

• On your AIQ Main Menu, select Market Charts, and plot Price Phase in a lower pane. This combination is designed for side-by-side evaluation.
• If you prefer a visual “state” view, Heikin-Ashi-mode bars with Phase underneath are often used in AIQ’s examples to highlight trend persistence.

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How to Read the 2025 Chart (Step-by-Step Playbook)

1. Spot the Spike
   Scan for 95+ up/down ratings. Put a small flag on each to review.
2. Check Phase Direction
   • If the rating is Up (≥95), is Phase rising or just turned up?
   • If Down (≥95), is Phase falling or just turned down?
     Match = Confirmation. No match? Put it on watch—often the earliest ratings need a bar or two before Phase confirms.
3. Plan Entries/Exits
   • For confirmed Up: consider scaling into risk-defined long exposure, tightening shorts.
   • For confirmed Down: consider trimming longs, or tactical shorts—again, with risk clearly defined.
4. Manage the Hold
   Historical AIQ studies often show swing-length holds rather than ultra-short scalps (average holds are one week to several weeks), but your trade horizon should match your strategy.

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Best Practices (That Save You from Heartache)

• Don’t front-run Phase on big ratings. Early feels clever until it doesn’t. Let the filter do its job.
• Treat 95 as your attention alarm. Below that, conserve focus; above that, prepare plans.
• Neutral = No edge. Most days are noise; your edge is in selectivity.

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Common Questions

Q: Are the rules curve-fit over time?
A: AIQ deliberately keeps the rating calculation stable, avoiding constant re-tuning. That consistency is part of why the historical behavior is analyzable.

Q: Is Phase the only valid confirmation?
A: It’s AIQ’s primary confirmation tool for Expert Ratings and the one used in the official “confirmed” flagging. You can add your own overlays, but Phase remains the recommended filter.

Q: Do signals work on intraday charts?
A: The Market Timing ratings are generated daily. You can time entries intraday after a daily confirmation, but the signal itself is evaluated on the daily close framework.

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Final Word

AIQ’s Market Timing Expert Ratings give you clean, explainable signals—and the Price Phase indicator gives you the discipline to act only when odds tilt in your favor. Use the 95+ threshold to focus, Phase to confirm, and your risk plan to stay in the game when it counts.

In a recent Zoom meeting, Steve Hill, CEO of AIQ Systems, shared Bollinger Bands Setups, Variations & Trade Timing. In this article, we’ll expand on using %B and creating custom indicators to help identify trade setups using Bollinger Bands and %B.

When John Bollinger introduced Bollinger Bands in the 1980s, traders gained a powerful visual tool for understanding market volatility and potential turning points. But tucked away inside the Bollinger Band toolkit is a lesser-known gem: %B.

If Bollinger Bands are the map, %B is the GPS — it tells you exactly where price is, relative to the bands, at any given time. This extra precision can help you spot breakouts, reversals, and trend confirmations faster.

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What is %B?

%B measures the position of the last closing price within the Bollinger Band range.

• %B = 1.0 → Price is exactly at the upper Bollinger Band.
• %B = 0.0 → Price is exactly at the lower Bollinger Band.
• %B > 1.0 → Price is above the upper band (potential breakout or overbought).
• %B < 0.0 → Price is below the lower band (potential breakdown or oversold).

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Why Use %B Instead of Just the Bands?

While the bands themselves are great for visual trading, %B turns them into a precise numeric oscillator that’s perfect for:

1. Coding trading systems (like in AIQ’s Expert Design Studio).
2. Screening for setups in thousands of stocks.
3. Backtesting with exact entry/exit rules rather than “eyeballing” the chart.

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Five Ways to Use %B in Trading

1. Overbought/Oversold Mean Reversion

• Buy when %B < 0.05 (price hugging lower band) and momentum turns up.
• Sell when %B > 0.95 (price hugging upper band) and momentum turns down.

2. Trend Breakouts

• Buy when %B crosses above 1.0 (price breaks above upper band in an uptrend).
• Sell when %B crosses below 0.0 (price breaks below lower band in a downtrend).

3. Band “Walks”

In strong trends, price can “walk” the band.

• In an uptrend, %B will often stay above 0.8 for extended periods.
• In a downtrend, %B will often stay below 0.2.

For AIQ TradingExpert Pro, we’ll create an EDS strategy that looks for all these setups and generates two indicators.

%B as a histogram in Charts, and a Walk the BBands indicator, where we’ll create upper and lower thresholds, where we can see %B stays above or below these thresholds for several days.

Example Setups from the EDS scan 8-1-2025

Buy when %B < 0.05 (price hugging lower band) and momentum turns up. Ticker RSG %B histogram is 0.05 8-1-25, prices moved moderately up.

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Sell when %B > 0.95 (price hugging upper band) and momentum turns down. Ticker PI %B histogram is 1.16, prices turned down.

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Walk the band up. In an uptrend, %B will often stay above 0.8 for extended periods. Ticker INCY shows above our 80 line in the Walk the BBands indicator and continues to do so.

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Walk the band down. In a downtrend, %B will often stay below 0.2. Ticker XRAY shows below our 20 line in the Walk the BBands indicator and continues to do so.

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Click here to download this zipped EDS file. Locate the Bollinger%25B.zip file usually in your downloads folder and extract the Bollinger%25B.EDS file to your /wintes32/EDS strategies folder.

The code is below

EDS code

! — How to Use the %B Indicator for Smarter Trading

! — When John Bollinger introduced Bollinger Bands in the 1980s, traders gained
! — a powerful visual tool for understanding market volatility and potential turning points.
! — It tells you exactly where price is, relative to the bands, at any given time.
! — This extra precision can help you spot breakouts, reversals, and trend confirmations faster.

Periods is 20.
Multiplier is 2.

! Step 1: Moving Average of Close

MA20 is simpleavg([close],Periods).

! Step 2: Squared Deviations from MA

Deviation is ([close] - MA20) * ([close] - MA20).

! Step 3: Average of Squared Deviations

Var20 is simpleavg(Deviation,Periods).

! Step 4: Square Root to get Standard Deviation

SD20 is sqrt(Var20).

! Step 5: Upper and Lower Bands

UpperBand is MA20 + Multiplier * SD20.
LowerBand is MA20 - Multiplier * SD20.

! Step 6: %B Calculation

PercentB is ([close] - LowerBand) / (UpperBand - LowerBand).

! — Buy when %B < 0.05 (price hugging lower band) and momentum turns up.

BuyReversal if PercentB < 0.05 and [close] > val([close],1).

! — Sell when %B > 0.95 (price hugging upper band) and momentum turns down.

SellReversal if PercentB > 0.95 and [close] < val([close],1).

! — Buy when %B crosses above 1.05 (price breaks above upper band in an uptrend).

BuyBreakout if PercentB > 1.05.

! — Sell when %B crosses below -0.05 (price breaks below lower band in a downtrend).

SellBreakdown if PercentB < -0.05.

! — create an indicator for walking the bands use a one line indicator with upper at 80 lower at 20 by %B x100

walkindicator is PercentB*100.

! — Band “Walks” in strong trends up, price can walk, the band %B will often stay above 0.8 for extended periods.

walkuptoday if walkindicator>80.
walkup1ydy if valresult(walkindicator,1)>80.
walkup2back if valresult(walkindicator,2)>80.
wlkupfor3days if walkuptoday and walkup1ydy and walkup2back.

! — Band “Walks” in strong trends down, price can walk, the band %B will often stay below 0.2 for extended periods.

walkdowntoday if walkindicator<20.
walkdown1ydy if valresult(walkindicator,1)<20.
walkdown2back if valresult(walkindicator,2)<200.
wlkdownfor3days if walkdowntoday and walkdown1ydy and walkdown2back

Adding the %B and Walking the BBands Indicator

Open Charts.

Go to Chart → Settings → Indicator Library → EDS Indicators.
Click Add.

Select the Bollinger%25B.EDS file from your /wintes32/EDS strategies folder and click Open.

Choose a Plot Type Histogram for %B

Give it a Description/Name, then choose the UDF to Plot (PercentB).

Click Finish, then Done. Your new indicator now appears in the Indicator Library and can be added to charts like any other study.

Repeat for the Walk the BBands but select Plot Type One Line with Upper/Lower Limits

Give it a Description/Name, then choose the UDF to Plot (Walkindicator) and select Upper Support 80, Lower Support 20.

Click Finish, then Done. Your new indicator now appears in the Indicator Library and can be added to charts like any other study.

Final Thoughts

%B adds mathematical precision to Bollinger Band analysis. Whether you’re hunting for reversals, breakouts, or just trying to understand volatility better, %B gives you an exact reading of the price’s location in the band structure.

Knowing what the overall market is doing is useful — but knowing which sectors and industry groups are leading or lagging gives you tactical precision.

TradingExpert Pro’s Group/Sector module analyzes over 150 industry groups and 11 broad sectors. Each day, it assigns a score based on recent performance, momentum, and breadth.

You can find top-ranked groups, then drill down to find the strongest stocks within them. This rotation-based approach keeps you on the right side of macro moves. When a group moves from lagging to leading (or vice versa), you’ll see it reflected in the daily scores.

Smart traders pair this with chart setups, AI ratings, and EDS strategies to align timing and selection. Sector rotation isn’t just for institutions anymore — TradingExpert Pro makes it usable for everyone.

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