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.

Follow-up on Trading the Odds on Friday – April 17, 2009

This is a follow-up on my post Trading the Odds on Friday – April 17, 2009.

In my previous post I mentioned that we witnessed a very strong breadth (NYSE Advancing Issues/Declining Issues and the NYSE Advancing Volume/Declining Volume) during the last couple of sessions, but on Thursday  -although a heavily lopsided breadth session with NYSE Advancing Issues/Declining Issues and the NYSE Advancing Volume/Declining Volume both greater than 3.5- the SPX by contrast posted a ‘relatively small end-of-day gain’ of +1.55% (‘only’).

Of course to mark a gain of +1.55% as ‘relatively small’ doesn’t sound overly modest, but you have to take such a gain into context.

Since 10/01/2007 there were 39 occurrences when the ratio of NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed above 3.5. The following table shows the SPX‘ (S&P 500) behavior and the respective performance

  • the day the signal was triggered (close -trigger day-),
  • the session following the session on which the signal was triggered (close -next day-), and
  • the performance (end-of-day change) three days later in comparison to the close on the trigger date.

Especially notable is the last column ‘on average’ due to the fact that

  • on average, on the day the signal was triggered (NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed above 3.5) the SPX gained +3.74% (compared to yesterday’s +1.55% gain ‘only’, which is one of the smallest gains on record concerning this setup since 10/01/2007),
  • on average, the SPX posted an intraday low -1.70% below the trigger day’s close on the next session, while by contrast it posted an intraday high of -on average- +0.92% above the trigger day’s close on the next session.
  • on average, the SPX closed lower -1.07% three days later.

To make a long story short: At least over the course of the next couple of sessions (1-3) upside potential will probably not only be limited, but the odds (potential payout and expectancy, NOT the true chances that the event -in this case the probabilities for a higher or lower close- will occur) are tilt in favor of the short side of the market.

No. Date high low close
(trigger day)
close
(next day)
3 session(s) later
1 04/09/2009 +0,90% -1,31% +3,81% +0,25% -0,53%
2 04/02/2009 +0,97% -0,92% +2,87% +0,97% -2,26%
3 03/23/2009 +0,09% -2,12% +7,08% -2,02% +1,21%
4 03/18/2009 +1,12% -1,58% +2,09% -1,30% +3,60%
5 03/17/2009 +3,20% -1,60% +3,21% +2,09% -1,23%
6 03/12/2009 +1,01% -1,10% +4,07% +0,77% +3,65%
7 03/10/2009 +1,71% -0,80% +6,37% +0,24% +5,13%
8 02/24/2009 +0,90% -2,62% +4,01% -1,07% -4,92%
9 02/06/2009 +0,74% -0,80% +2,69% +0,15% -4,01%
10 01/28/2009 -0,59% -3,43% +3,36% -3,31% -5,57%
11 01/21/2009 -0,06% -3,45% +4,35% -1,52% -0,44%
12 01/02/2009 +0,52% -1,32% +3,16% -0,47% -2,70%
13 12/31/2008 +3,49% -0,43% +1,42% +3,16% +3,48%
14 12/30/2008 +2,21% -0,11% +2,44% +1,42% +4,13%
15 12/16/2008 +0,62% -1,89% +5,14% -0,96% -2,77%
16 12/08/2008 +0,72% -2,67% +3,84% -2,31% -3,97%
17 11/26/2008 +0,97% -0,73% +3,53% +0,96% -4,38%
18 11/24/2008 +2,01% -1,97% +6,47% +0,66% +5,22%
19 11/04/2008 -0,39% -5,56% +4,08% -5,27% -7,43%
20 10/30/2008 +3,17% -1,00% +2,58% +1,54% +5,41%
21 10/28/2008 +3,13% -1,94% +10,79% -1,11% +3,00%
22 10/20/2008 +0,00% -3,34% +4,77% -3,08% -7,84%
23 10/13/2008 +4,08% -3,12% +11,58% -0,53% -5,67%
24 09/30/2008 +0,06% -2,19% +5,42% -0,45% -5,76%
25 09/19/2008 +0,02% -3,94% +4,03% -3,82% -5,51%
26 08/28/2008 -0,24% -1,38% +1,48% -1,37% -1,98%
27 06/05/2008 -0,28% -3,14% +1,95% -3,09% -3,25%
28 04/18/2008 -0,01% -0,80% +1,81% -0,16% -0,75%
29 04/16/2008 +0,29% -0,55% +2,27% +0,06% +1,72%
30 04/01/2008 +0,57% -0,63% +3,59% -0,19% +0,02%
31 03/24/2008 +0,56% -0,64% +1,53% +0,23% -1,79%
32 03/18/2008 +0,81% -2,43% +4,24% -2,43% +1,44%
33 03/11/2008 +0,95% -0,97% +3,71% -0,90% -2,46%
34 02/01/2008 -0,00% -1,13% +1,22% -1,05% -4,94%
35 01/28/2008 +0,81% -0,28% +1,76% +0,62% +1,82%
36 12/06/2007 +0,20% -0,31% +1,50% -0,18% -1,97%
37 11/28/2007 +0,33% -0,73% +2,86% +0,05% +0,23%
38 11/23/2007 +0,37% -2,40% +1,69% -2,32% +1,97%
39 11/13/2007 +0,75% -0,96% +2,91% -0,71% -1,51%
on average: +0,92% -1,70% +3,74% -0,68% -1,07%

Successful trading,

Frank

P.s.: WordPress recently implemented a Twitter widget, so I’ll regularly make some intraday updates as well using Twitter (as I already did during the last couple of session, but unfortunately there seems to be a connectivity issue between WordPress and Twitter; hope that will be solved soon). If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclosure: No positions in the securities montioned in this post at time of writing.

Filed under: Daily Update, , , , ,

Twitter Updates

  • LONG $SPY vs. $RTH at a ratio of 3.3855 $$ 2 years ago
  • SHORT $SPY vs. $RTH closed at a ratio of 3.3825 (+1.10%) $$ 2 years ago
  • Short $SPY / Long $RTH (Pairs Trade, equal dollar amount) at a ratio of 3.42125 $$ 2 years ago
  • New blog post: OpEx and Index Highs ( bit.ly/y4rVIv ) $$ $SPY $SPX $ES_F 2 years ago
  • Short $SPY / Long $RTH (Pairs Trade, equal dollar amount) CLOSED at a ratio of 3.40619 (+0.52%) $$ 2 years ago

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