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 Wednesday – March 25, 2009

My name is Frank, and due to the fact that this is my 2nd post after I’ve started the blog on Tuesday, March 24, 2009, a few introductory notes.

I have traded as an individual investor for more than 20 years now. I take a statistical approach in combination with historical market data to profit in the US equity and future markets, focused on intraday and swing trading opportunities (regularly using E-mini futures for intraday trading, and -leveraged- US equity index ETFs for swing trading) .

Please accept my apologies for not being a native speaker, and please take respect to the fact that that blog is (and will probably be for the time being) under construction (there is always room for improvement, especially right after the start, and especially focused to get the tables more self-explanatory; your suggestions -e.g. for different figures and/ore setups- are always more than welcome).

My email: tradingtheodds@fastmail.fm

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LOOKING BACK ON TUESDAY’s SESSION

The S&P 500 almost perfectly followed Tuesday’s bottom line which took into account the seasonality on Tuesdays, an RSI(2) reading between 70 and 90 the previous (Monday’s) session and the expected temporary intraday follow-through on Monday’s gains (survey with S&P 500 up 5%+):

The S&P 500 opened lower, gained some intraday strength, traded through Monday’s close (from below to above) and posted a higher high (than Monday’s high) as well, before the market lost all of its gains and closed lower.

BOTTOM LINE FOR WEDNESDAY – MARCH 25, 2009

  1. With respect to the weekday seasonality concerning Wednesdays and the current S&P 500 RSI(2) reading of 57.20, there is no (significant) statistical evident edge above or below the respective at-any-time probability and odds concerning the open, any higher high/lower low, the close and/or profit factor.
  2. Tuesday’s pattern of the S&P 500 posting a higher high, a higher low, but closing lower shows a notable intraday edge for Wednesday’s session in the event the S&P 500 opens lower (an above-average probability of intraday strength, limited downside potential and a potential higher close as well, see below).

The probabilities based on the weekday seasonality, the BASIC STRATEGY (S&P 500 2-day RSI) and the Survey (see below) favor a lower open on Wednesday (approximately 66%).

FOR WEDNESDAY – MARCH 25, 2009

The S&P 500 2-day Relative Strength Index RSI(2) closed at 57.20 on Tuesday, March 24, 2009.

Based on historical data since 01/03/2007, and with a 2-day RSI between 30 and 70 the previous session, all probabilities for a higher/lower open, magnitude of change, a higher high/lower low and the respective profit factor are more or less comparable to at-any-time probabilities and odds, so there is no statistical evidence of any trading edge on Wednesday concerning the RSI(2) strategy.

From my perspective a remarkable pattern on Tuesday’s session was that fact that the S&P 500 posted a higher high and higher low (than the previous session), but closed lower. I checked all occurrences since 03/01/2007 when the S&P 500 posted a higher high and higher low, but closed lower on the day (see table below, “w/Survey” on the bottom of the table, background color yellow) concerning the S&P 500′ behavior the next session. It is notable that

  • concerning those 26 out of 44 occurrences when the S&P 500 opened lower the next session, the probability that the index will close lower as well are significantly below the respective at-any-time probabilities (only 12 out of 26 occurrences), and
  • in the event the S&P 500 opens lower, the probability that the index will at least sometimes during the session exceed the lass sessions close (intraday strength) is above the respective at-any-time probability, and
  • in the event the S&P 500 opens lower, the average intraday loss between close and open is lower than the respective average at-any-time loss, and the profit factor below the at-any-time respective profit factor (if one would have shorted the open).

To make a long story short: This pattern points to a notably higher than the respective at-any-time probability that in the event the S&P 500 opens lower on Wednesday, the index may not only gain some intraday strength, but more often finally closes up than down on that day, and any downside potential may be limited.

rsi2-20090324

(click on image to enlarge)

WEEKDAY SEASONALITY FOR WEDNESDAY

The table below shows the S&P 500′ historical probabilities and odds for a higher and lower open, a higher high and lower low (than the last sessions high/low) and a higher or lower close with respect to the days of the week (since 01/03/2007).

Since 01/03/2007 regarding Wednesdays there is no (significant) statistical evident edge above or below the respective at-any-time probabilites and odds concerning the open, any higher high/lower low, the close and/or profit factor.

weekdays-20090324

(click on image to enlarge)

Successful trading
Frank

Filed under: Basic Strategy, Daily Update, Weekday Seasonality, , , , , ,

Trading the Odds on Tuesday – March 24, 2009

My name is Frank, and due to the fact that this is my first post on the blog, a few introductory notes.

I have traded as an individual investor for more than 20 years now. I take a statistical approach in combination with historical market data to profit in the US equity and future markets, focused on intraday and swing trading opportunities (regularly using E-mini futures for intraday trading, and -leveraged- US equity index ETFs for swing trading) .

Please accept my apologies for not being a native speaker, and please take respect to the fact that that blog is (and will probably be for the time being) under construction (there is always room for improvement, especially right after the start, and especially focused to get the tables more self-explanatory; your suggestions -e.g. for different figures and/ore setups- are always more than welcome).

My email: tradingtheodds@fastmail.fm

BOTTOM LINE FOR TUESDAY – MARCH 24, 2009

  1. We may expect an above-average intraday volatility due to the fact that the S&P 500 closed up +5% on Monday (see table “w/Survey” below).
  2. If opening lower, the S&P 500 may probably trade up through Monday’s close and exceed Monday’s intraday high of 823.37 sometimes during the session, but might close flat to down (an S&P 500 +5% up session does regularly see some follow-through on such gains the next trading day).
  3. Even if the S&P 500 manages to open higher, the index may probably close flat to down.

The probabilities based on the weekday seasonality,the BASIC STRATEGY (S&P 500 2-day RSI) and the Survey (the session following a 5%+ gain in the S&P 500) favor a lower open on Tuesday (approximately 66%).

WEEKDAY SEASONALITY FOR TUESDAY

The table below shows the S&P 500′ historical probabilities and odds for a higher and lower open, a higher high and lower low (than the last sessions high/low) and a higher or lower close with respect to the days of the week (since 01/03/2007).

Since 01/03/2007 Tuesdays have been the strongest days of all weekdays, with on average and as a total (sum of all profits when buying the open) the biggest intraday gains (close versus open) of all weekdays in the event the S&P 500 opened higher, and the second smallest gains (going short on open) on the short side in the event the S&P 500 opened lower (close versus open), the latter pointing to a -on average- limited downside potential on Tuesdays in general.

weekdays-20090323

(click on image to enlarge)

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BASIC STRATEGY FOR TUESDAY – MARCH 24, 2009

The S&P 500 2-day Relative Strength Index RSI(2) closed at 84.84 on Monday, March 23, 2009.

Based on historical data since 01/03/2007, and with a 2-day RSI between 70 and 90 the previous session, the S&P 500 closed regularly flat to down the next session, with on average a close below the open independently if the S&P 500 opened up (on average a close -0.06% below the open) or down (on average a close -0.34% below the open). But in the event the S&P 500 opened up, the intraday high almost always exceeded the last sessions high, so we might expect to see the S&P 500 trading above 823.37 sometimes during Tuesday’s session.

Due to the fact that the S&P 500 index closed up more than 5% on Monday, I checked all (8) occurrences since 01/03/2007 when the S&P 500 closed up 5%+ (see table below, last column “w/Survey“) concerning the S&P 500′ behavior the next session.

# Date Higher High Close
1 03/11/2009 +1,71% +0,24%
2 12/17/2008 +0,46% -0,96%
3 11/25/2008 +0,39% +0,66%
4 11/24/2008 +8,04% +6,47%
5 11/14/2008 +0,42% -4,17%
6 10/29/2008 +3,13% -1,11%
7 10/14/2008 +3,71% -0,53%
8 10/01/2008 -0,09% -0,45%

Almost all of these sessions saw above-average intraday swings and in every case but one a (significantly) higher high (table row ‘Higher High’ = percentage change of today’s high versus the last sessions high), so at least intraday we might expect some follow-through on Monday’s gains.

rsi2-20090323

(click on image to enlarge)

xxxxxxxxxxx

Successful trading
Frank

Filed under: Basic Strategy, Daily Update, Weekday Seasonality, , , , , ,

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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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