Trading the Odds

A statistical approach to profit in the US equity markets, trading the markets like professional card counters are playing Blackjack or expert poker players are playing Poker.

Trading the Odds on Thursday – April 2, 2009

Trading the Odds on Wednesday – April 1, 2009

On Wednesday, April 1, the market did exactly the opposite of what -from a statistical point of view concerning the ‘5 Highs’ setup triggered on Tuesday’s session- it was supposed to do: It opened lower (not surprisingly), but almost immediately went straight up and never looked back for the strongest of those  (now) 44 occurrences which fulfilled the ‘5 highs’ setup since 10/01/2007 (see my posting Trading the Odds on Wednesday – April 1, 2009). As if the market wanted to show us that we always utilize probabilities and not certainties.

NYSE breadth (ratio of advancing / declining issues) was positive 3:1 the second day in a row, and the McClellan closed at +176, above +100 the second day in a row and rising (greater than yesterday’s McClellan of 110). Since 01/03/2007, a NYSE McClellan above +100 two running days still rising on the second day was regularly a sign that the SPY (as a proxy) was trading lower the day when the NYSE McClellan fell back under +100 again.

The following table shows the SPY‘ behavior and the respective performance of those 50 occurrences/trades since 01/03/2007 assumed one would have shorted the SPY on close of the day the signal was triggered (2nd day with a McClellan above +100, still rising) and covered on close of the day when the NYSE McClellan fell back under +100 again (overlapping trades are allowed for):

(Date: signal triggered, and SPY shorted on close of the session; McClellan: McClellan on the trigger date; Profit/Loss: not the SPY’s performance but the trade’s performance; Trade closed x days later: speaks for itself; Drawdown: percentage loss based on SPY’s closing quotations while the respective trade was open)

Performance:

Win/Loss Ratio: 45 winner, 5 looser (Win/Loss Ratio 90%)
Average Gain per Trade: 2.73%
Average Loss per Trade: -2.65%
Maximum Loss per Trade: -4.28%
Maximum Drawdown per Trade: -9.56%
Time in Market: 8.87%
Profit Factor: 9.28

There were periods in the market when it took a long(er) time to get the trade closed, and one had to face some large drawdowns. That could very well indicate that -especially with respect to the fact that NYSE breadth was especially strong two days in a row, and the market closed significantly higher altough it was -from a statistical point of view- supposed to close lower- there may still be some additional upside potential in store.

But don’t forget: This is provided for statistical and informational purposes only and should not be interpreted or regarded as an investment advice or to state or imply that past results are an indication of future performance.

No. Date NYSE
McClellan
Profit/Loss Trade closed
x days later
Drawdown
1 03/26/2009 296 +5,26% 2 -
2 03/25/2009 234 +3,22% 3 -2,04%
3 03/23/2009 293 +4,14% 5 -1,08%
4 03/18/2009 330 +1,02% 8 -3,98%
5 03/17/2009 260 -1,22% 9 -6,31%
6 03/16/2009 185 -4,28% 10 -9,56%
7 03/13/2009 171 -3,98% 11 -9,23%
8 01/08/2009 235 +4,55% 2 -
9 01/06/2009 386 +7,13% 4 -
10 01/05/2009 348 +6,46% 5 -0,67%
11 01/02/2009 344 +6,58% 6 -0,55%
12 12/31/2008 278 +3,57% 7 -3,58%
13 12/30/2008 194 +2,14% 8 -5,06%
14 12/19/2008 185 +2,32% 2 -
15 12/17/2008 203 +5,42% 4 -
16 12/12/2008 167 +1,39% 1 -
17 12/10/2008 247 +2,61% 3 -
18 12/08/2008 282 +3,57% 5 -
19 12/05/2008 205 +0,08% 6 -3,49%
20 12/03/2008 234 -0,69% 8 -4,21%
21 12/02/2008 190 -3,09% 9 -6,72%
22 11/28/2008 235 +1,92% 11 -1,01%
23 11/04/2008 321 +9,74% 2 -
24 11/03/2008 244 +6,35% 3 -3,40%
25 10/31/2008 236 +6,06% 4 -3,70%
26 08/28/2008 189 +4,79% 4 -
27 08/15/2008 114 +1,37% 1 -
28 08/11/2008 169 +1,64% 2 -
29 08/06/2008 154 +1,49% 1 -
30 07/30/2008 187 +2,78% 3 -
31 07/23/2008 208 +2,08% 1 -
32 07/22/2008 177 +1,53% 2 -0,54%
33 05/02/2008 119 +0,48% 1 -
34 04/28/2008 112 +0,39% 1 -
35 04/03/2008 177 +0,88% 4 -
36 04/02/2008 168 +0,64% 5 -0,25%
37 02/01/2008 261 +3,94% 2 -
38 01/31/2008 184 +2,33% 3 -1,61%
39 01/29/2008 152 +1,24% 5 -2,70%
40 12/10/2007 221 +2,74% 1 -
41 12/06/2007 215 +1,99% 3 -0,76%
42 10/09/2007 146 +0,65% 2 -
43 10/05/2007 181 +0,24% 4 -0,40%
44 10/02/2007 163 +0,20% 1 -
45 09/21/2007 131 +0,18% 1 -
46 09/19/2007 197 +1,09% 3 -
47 09/06/2007 182 +1,39% 1 -
48 09/04/2007 259 +2,03% 3 -
49 08/24/2007 231 +3,13% 2 -
50 03/21/2007 192 +0,30% 4 -0,07%

Successful trading,

Frank

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DISCLAIMER

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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