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 – April 1, 2009

Trading the Odds on Wednesday – April 1, 2009

After the SPY posted another 6 Lows on Monday’s session all exceeding the -1.0% bar and additionally posting an intraday high -1.77% below Friday’s low (leaving open an unfilled gap),  today the market almost perfectly cooperated to the expected most probable scenario again although we had to wait until the last final half hour of trading until selling pressure emerged out of sudden for the expected follow-through of Friday’s and Monday’s weakness during Tuesday’s session (see  my posting Trading the Odds on Tuesday – March 31, 2009).

The market opened higher, it didn’t manage to close the unfilled gap the next session (today) -although it missed it only by a hair- , and the SPY closed below it’s opening quotation (only by a hair again) in compliance to the negative expectancy buying on open on a day after the two setups mentioned above were triggered (in the past an concerning both setups, the direction of the open was regularly a  ‘fake’, closing below the open in the event the SPY opened higher and above the open in the event the SPY opened lower) .

Tuesday’s session was remarkable due to the fact that the SPY

  • posted a higher open,
  • posted a higher high than the previous session’s high,
  • posted a higher low than the previous session’s low,
  • posted a low above the previous session’s close,
  • posted a higher close,
  • but finally closed below the open.

Unfortunately -for the bulls-  not only 6 ‘highs’ have a statistical tendency to lead -on average- to a close -and regularly percentage wise to a significant extent- below the open on the following session (especially in the event the market opens higher), but 5 highs as listed above as well, and due to the fact that the market closed below the open -missing the 6th high- regularly to an even more significant extent.

Table I below shows -concerning the setup listed above (5 highs, triggered today) as well as regarding the at-any-time probabilities and odds- the raw historical number of occurrences (since 10/01/2007, SPY) of a higher and lower open, the average change between close and open (close -open), the average daily True Range (Wilder True Range), the number of higher highs and lower lows (than the last session’s high/low) after a higher/lower open, the number of occurrences of the then following higher or lower close as well as the respective sum of all profits and losses going long/short on open, differentiated between

  • 1st column: at-any-time probabilities and odds (taking into account every single trading day),
  • 2nd column: probabilities and odds for the following session after those ‘5 highs’ as listed above had been triggered (‘w/Survey I‘).

Table I

survey-20090331-1

(click on image to enlarge)

The second one (Table II) shows -percentage wise solely based on the figures of Table I- the historical probabilities (since 01/03/2000) for a higher and lower open, the average change between close and open (close -open), the average daily True Range (Wilder True Range), the historical probabilities for a higher high and lower low (than the last session’s high/low) and a higher or lower close as well as the respective sum of all profits and losses going long/short on open, differentiated identically. But due to the fact that in the 2nd table probabilities significantly above or significantly below their respective at-any-time probabilities (in this case +/-15.00%, but this percentage is up to everyone’s decision what may be regarded as ’significant above’ or ‘below’) are marked by a green (for a probable bullish outcome) and red (for a probable bearish outcome) background color, one may be able to catch on a glimpse if (any), where (e.g. on the open, for a higher/lower close or intraday strength/weakness) and to what extent (historical probabilities) the following session (Wednesday, April 01, 2009) possibly provides a tradable edge concerning the survey under investigation.

Table II

survey-20090331-2

(click on image to enlarge)

Bottom line:

  1. Since 10/01/2007, there were 43 occurrences which fulfilled the setup mentioned on top of the post (5 highs). Buying the SPY on open seems -from a statistical point of view concerning the ‘5 highs’ setup and the respective odds/profit factor-, a receipt for disaster.  At least as the market history tells us concerning this survey, the SPY regularly closed -on average- significantly below the open in the event the market opened higher (-1.17% compared to an at-any-time loss of only -0.05%), and at least below the open to an above average extent in the event the market opened lower. This mechanical ‘trading system’ would have (theoretically, and for statistical purposes only) always yielded a profit factor below 1 for an overall negative expectancy, and the respective profit buying on a higher open would have totaled +0.72% during 21 sessions with a higher open (adding up all profitable trades only ! -not on average-), while one would have lost -25.29% adding up all unprofitable trades respectively. Concerning this setup and for Wednesday’s session, the edge doesn’t seem to be on the long side of the market, especially (or at least) not -from a timing perspective- buying on the opening bell …

The following table shows the market’s behavior on those 43 sessions after the SPY fulfilled the ‘5 highs’ setup as listed on top of the post:

No. Date Open High Low Close Close –
Open
1 03/24/2009 -1,19% +0,17% -2,08% -1,97% -0,79%
2 03/11/2009 +1,15% +2,19% -0,47% +0,65% -0,49%
3 03/05/2009 -2,27% -1,20% -4,96% -4,08% -1,85%
4 02/09/2009 -0,02% +0,87% -0,76% +0,14% +0,16%
5 01/29/2009 -1,46% -1,18% -3,34% -3,25% -1,81%
6 12/17/2008 -1,13% +0,60% -1,98% -0,97% +0,17%
7 12/09/2008 -0,69% +1,24% -2,22% -1,65% -0,96%
8 11/25/2008 +2,67% +2,92% -1,42% +0,74% -1,88%
9 10/29/2008 +0,01% +3,64% -1,77% -0,73% -0,74%
10 10/21/2008 -1,86% -0,17% -3,63% -2,99% -1,14%
11 10/14/2008 +3,31% +4,12% -4,18% -1,48% -4,63%
12 09/22/2008 +0,27% +0,51% -3,03% -2,26% -2,52%
13 09/09/2008 +0,09% +0,29% -3,30% -2,97% -3,05%
14 08/29/2008 -0,35% -0,04% -1,29% -1,08% -0,72%
15 08/25/2008 -0,66% -0,66% -2,24% -2,03% -1,38%
16 08/06/2008 -0,26% +0,73% -0,53% +0,44% +0,71%
17 07/31/2008 -0,88% +0,03% -1,48% -1,32% -0,45%
18 07/24/2008 +0,13% +0,19% -2,35% -2,08% -2,21%
19 07/18/2008 +0,77% +0,97% -0,04% +0,62% -0,15%
20 07/17/2008 +0,95% +1,86% +0,10% +1,00% +0,05%
21 06/26/2008 -0,94% -0,80% -2,83% -2,72% -1,79%
22 06/06/2008 -0,87% -0,70% -3,24% -3,19% -2,34%
23 05/16/2008 +0,23% +0,24% -0,65% +0,09% -0,14%
24 05/02/2008 +0,86% +0,89% -0,40% +0,28% -0,58%
25 04/21/2008 -0,18% +0,36% -1,16% +0,05% +0,23%
26 04/17/2008 -0,61% +0,29% -0,87% +0,15% +0,76%
27 04/02/2008 +0,33% +0,78% -0,46% +0,07% -0,26%
28 03/25/2008 +0,10% +0,62% -0,71% +0,10% -0,01%
29 03/19/2008 +0,38% +0,76% -2,69% -2,48% -2,85%
30 03/12/2008 +0,10% +0,88% -1,09% -0,94% -1,03%
31 02/14/2008 +0,43% +0,37% -1,16% -0,88% -1,30%
32 02/13/2008 +0,76% +1,56% +0,11% +1,02% +0,26%
33 02/04/2008 -0,27% -0,20% -1,39% -1,26% -1,00%
34 12/26/2007 -0,39% +0,30% -0,49% +0,21% +0,61%
35 12/24/2007 +0,47% +0,91% +0,24% +0,74% +0,28%
36 12/06/2007 -0,12% +1,61% -0,16% +1,43% +1,55%
37 12/03/2007 -0,32% -0,14% -0,92% -0,66% -0,34%
38 11/29/2007 -0,35% +0,40% -0,70% +0,03% +0,38%
39 11/26/2007 +0,21% +0,52% -2,41% -2,21% -2,41%
40 11/14/2007 +0,77% +0,89% -0,88% -0,28% -1,04%
41 10/29/2007 +0,20% +0,53% -0,05% +0,33% +0,13%
42 10/10/2007 -0,28% -0,03% -0,68% -0,17% +0,12%
43 10/08/2007 -0,30% -0,23% -0,69% -0,53% -0,24%

(open, high, low and close are the percentage changes compared to the last session’s close; close – open speaks for itself: any positive percentage change means a close above the open and vice versa)

Example: The SPY closed at 82.22 on 03/23/2009, the most recent occurrence of the ‘5 highs’ setup (see #1 on the list, ‘date’ defines the then following session under investigation). The following session (03/24/2009) it opened at 81.23 (-1.19% below the previous session’s close of 82.22), posted a high at 82.36 (0.17% above the previous session’s close of 82.22), a low of 80.51 (-2.08% below the previous session’s close of 82.22), and closed at 80.60 (-1.97% below the previous session’s close of 82.22, and -0.79% below it’s opening quotation of 81.24 on the same day)

Successful trading,

Frank

Advertisements

Filed under: Daily Update

SPY and Gap Fills

SPY and Sessions until Gap Fill

After the SPY left open an unfilled downside gap on Monday’s session (see my posting Trading the Odds on Tuesday – March 31, 2009), a reader raised the question how long it regularly takes to get a downside gap in the SPY filled (as well as in other indexes).

The following table shows those 57 sessions (see also Trading the Odds on Tuesday – March 31, 2009) since 01/03/2000 after the SPY left an unfilled downside gap and the respective number of sessions it took to get the gap closed (those session with a ‘?‘ instead of any number of days mark those sessions where the gap is still unfilled).

No. Date Gap fill
x days later
1 03/02/2009 8
2 02/17/2009 27
3 01/14/2009 9
4 01/07/2009 ?
5 12/01/2008 5
6 10/22/2008 5
7 10/06/2008 ?
8 06/26/2008 31
9 06/20/2008 ?
10 06/02/2008 3
11 02/29/2008 21
12 02/05/2008 13
13 01/04/2008 93
14 12/17/2007 4
15 09/07/2007 2
16 08/28/2007 1
17 07/10/2007 2
18 02/27/2007 28
19 09/06/2006 3
20 08/01/2006 1
21 07/13/2006 4
22 08/05/2005 2
23 01/20/2005 7
24 12/17/2004 1
25 09/22/2004 7
26 08/06/2004 2
27 07/06/2004 42
28 06/14/2004 1
29 05/10/2004 1
30 03/22/2004 3
31 11/17/2003 1
32 10/22/2003 4
33 09/22/2003 9
34 06/09/2003 1
35 02/04/2003 1
36 12/18/2002 9
37 09/12/2002 3
38 09/03/2002 5
39 08/28/2002 60
40 07/19/2002 6
41 06/21/2002 241
42 04/22/2002 431
43 03/20/2002 494
44 02/19/2002 4
45 09/17/2001 12
46 07/06/2001 5
47 06/14/2001 1.038
48 05/23/2001 1.207
49 03/12/2001 26
50 03/09/2001 35
51 02/16/2001 65
52 12/20/2000 2
53 12/15/2000 2
54 07/18/2000 24
55 05/19/2000 7
56 05/03/2000 8
57 04/14/2000 2

(‘date’: session where the gap was left open)

Successful trading,

Frank

Filed under: Studies/Survey, Trading Strategies

Trading the Odds on Tuesday – March 31, 2009

Trading the Odds on Tuesday – March 31, 2009

After the S&P 500 posted ‘6 Highs‘ on Thursday – March 26, 2009 and 6 Lows on Friday – March 27, 2009 (see my respective posts), it posted another 6 Lows on Monday’s session:

  • posted a lower open,
  • posted a lower low than the previous session’s low,
  • posted a lower high than the previous session’s high,
  • posted a high below the previous session’s close,
  • posted a lower close,
  • and finally closed below the open.

It therefore almost completely complied to the most probable scenario posted in Trading the Odds on Monday – March 30, 2009 and 6 Highs plus 6 Lows = ? (see w/Survey I+II).

The market opened lower on the high of the day and never looked back. Remarkable was the fact that using the SPY (S&P 500 ETF) instead of the S&P 500 not only all of those 6 Lows exceeded the -1.0% bar, but additionally the SPY posted a high today -1.77% below Friday’s low (leaving open an unfilled gap).

Since 01/03/2000, there were 13 occurrences when the SPY posted those 6 Lows exceeding the -1.0% bar, and 57 occurrences when the SPY left an unfilled downside gap (intraday high below the previous session’s low, no minimum percentage wise extent required).

Table I below shows -concerning both setups as well as regarding the at-any-time probabilities and odds- the raw historical number of occurrences (since 01/03/2000) of a higher and lower open, the average change between close and open (close -open), the average daily True Range (Wilder True Range), the number of higher highs and lower lows (than the last session’s high/low) after a higher/lower open, the number of occurrences of the then following higher or lower close as well as the respective sum of all profits and losses going long/short on open, differentiated between

  • 1st column: at-any-time probabilities and odds (taking into account every single trading day),
  • 2nd column: probabilities and odds for the following session after the SPY posted ‘6 Lows‘ all exceeding the -1.0% bar (‘w/Survey I‘),
  • 3rd column: probabilities and odds for the following session after the SPY left an unfilled downside gap (‘w/Survey II‘).

Table I

survey-20090330-4

(click on image to enlarge)

The second one (Table II) shows -percentage wise solely based on the figures of Table I- the historical probabilities (since 01/03/2000) for a higher and lower open, the average change between close and open (close -open), the average daily True Range (Wilder True Range), the historical probabilities for a higher high and lower low (than the last session’s high/low) and a higher or lower close as well as the respective sum of all profits and losses going long/short on open, differentiated identically. But due to the fact that in the 2nd table probabilities significantly above or significantly below their respective at-any-time probabilities (in this case +/-15.00%, but this percentage is up to everyone’s decision what may be regarded as ’significant above’ or ‘below’) are marked by a green (for a probable bullish outcome) and red (for a probable bearish outcome) background color, one may be able to catch on a glimpse if (any), where (e.g. on the open, for a higher/lower close or intraday strength/weakness) and to what extent (historical probabilities) the following session (Tuesday, March 31, 2009) possibly provides a tradable edge concerning both surveys.

Table II

survey-20090330-5

(click on image to enlarge)

Bottom line:

  1. Concerning both surveys historical probabilities favor a higher open on Tuesday’s session (in comparison to the at-any-time probability for a higher open).
  2. Again the market history’s concerning both surveys shows a significantly above random probability for some intraday follow-through of Friday’s and Monday’s weakness during Tuesday’s session. Concerning survey II  (downside gap), in only 14 out of 57 occurrences was the SPY able to post a higher high, but on 38 occurrences it posted a lower low.
  3. At least as the market history tells us concerning both surveys, the direction of the open most probably seems to be a fake, at least with respect to the respective profit factor (theoretically, and for statistical purposes only) going long on a higher open and short on a lower open (the SPY regularly closed below the open in the event the market opened higher, and above the open in the event the market opened lower). This mechanical ‘trading system’ would have always yielded a profit factor below 1 for an overall negative expectancy, so following the direction of the market open would have -on average- been a very unprofitable preposition. At least concerning those setups, shorting a higher open and buying a lower open would have provided a tradable edge.
  4. And last but not least the most interesting question: What are the -historical- chances that the SPY will fill the gap (remember: the SPY posted a high below the previous session’s low) on the then following session ? To make a long story short: chances are slim. Only on 8 out of those 57 occurrences since 03/01/2000 was the SPY able to fill the gap on the then following session.

The following table shows the market’s behavior on those 57 sessions after the SPY left an unfilled downside gap (‘w/Survey II‘):

No. Date Open Gap fill Lower
Low
True Range
Close – Open
1 03/03/2009 +1,43% No -1,04% +2,92% -2,15%
2 02/18/2009 +0,72% No -1,12% +2,10% -0,95%
3 01/15/2009 -0,30% No -1,73% +4,18% +0,33%
4 01/08/2009 -0,56% No -0,59% +1,57% +0,98%
5 12/02/2008 +1,66% No +0,22% +4,20% +2,16%
6 10/23/2008 -0,39% No -1,97% +7,33% +1,55%
7 10/07/2008 +2,02% No -0,98% +7,33% -6,37%
8 06/27/2008 +0,04% No -0,82% +1,42% -0,58%
9 06/23/2008 +0,39% No +0,08% +0,69% -0,48%
10 06/03/2008 +0,29% No -0,56% +1,72% -0,87%
11 03/03/2008 -0,51% No -0,41% +1,18% +0,27%
12 02/06/2008 +0,34% No -0,94% +2,12% -1,14%
13 01/07/2008 +0,35% No -0,57% +1,51% -0,44%
14 12/18/2007 +0,71% No -0,62% +1,74% -0,15%
15 09/10/2007 +0,31% No -0,64% +1,64% -0,50%
16 08/29/2007 +0,45% Yes +0,35% +2,10% +1,50%
17 07/11/2007 -0,11% No -0,17% +1,01% +0,82%
18 02/28/2007 +0,64% No +0,58% +1,78% +0,38%
19 09/07/2006 -0,34% No -0,75% +0,93% -0,12%
20 08/02/2006 +0,28% Yes +0,75% +0,97% +0,39%
21 07/14/2006 +0,13% No -0,94% +1,15% -0,52%
22 08/08/2005 +0,24% No -0,24% +0,84% -0,42%
23 01/21/2005 +0,25% No -0,55% +1,15% -0,86%
24 12/20/2004 +0,24% Yes +0,01% +0,94% -0,22%
25 09/23/2004 +0,04% No -0,47% +0,67% -0,58%
26 08/09/2004 +0,16% No +0,23% +0,59% -0,02%
27 07/07/2004 -0,07% No +0,11% +0,73% +0,37%
28 06/15/2004 +0,60% Yes +0,57% +1,08% +0,11%
29 05/11/2004 +0,58% Yes +0,90% +1,12% +0,26%
30 03/23/2004 +0,55% No +0,24% +0,95% -0,72%
31 11/18/2003 +0,30% Yes -0,33% +1,67% -1,33%
32 10/23/2003 -0,63% No -0,34% +1,07% +0,45%
33 09/23/2003 +0,04% No +0,32% +0,91% +0,34%
34 06/10/2003 +0,21% Yes +0,43% +1,09% +0,80%
35 02/05/2003 +0,44% Yes +0,22% +2,40% -1,05%
36 12/19/2002 -0,50% No -0,82% +2,34% -0,21%
37 09/13/2002 -0,84% No -0,83% +1,84% +1,10%
38 09/04/2002 +0,38% No -0,10% +2,48% +1,04%
39 08/29/2002 -0,90% No -1,08% +2,44% +0,95%
40 07/22/2002 -0,71% No -3,38% +5,27% -2,27%
41 06/24/2002 -0,67% No -1,46% +3,46% +1,21%
42 04/23/2002 +0,08% No -0,60% +1,18% -0,51%
43 03/21/2002 +0,03% No -0,93% +1,48% +0,02%
44 02/20/2002 +0,27% No -0,73% +2,55% +1,41%
45 09/18/2001 +0,08% No +3,36% +1,86% -0,32%
46 07/09/2001 +0,37% No +0,13% +1,25% +0,17%
47 06/15/2001 -0,89% No -1,11% +1,64% +0,78%
48 05/24/2001 +0,17% No -0,54% +1,12% +0,12%
49 03/13/2001 +1,12% No -0,19% +2,46% +0,52%
50 03/12/2001 -0,83% No -4,35% +4,55% -3,48%
51 02/20/2001 +0,49% No -0,93% +2,33% -2,02%
52 12/21/2000 +0,12% No -0,45% +2,64% +0,57%
53 12/18/2000 +0,84% No +0,92% +1,91% +0,50%
54 07/19/2000 -0,20% No -0,73% +1,11% -0,61%
55 05/22/2000 +0,09% No -2,43% +3,17% -2,69%
56 05/04/2000 +0,89% No +0,69% +1,14% -0,13%
57 04/17/2000 -0,60% No +0,89% +4,46% +4,11%

(‘open’ and ‘close’: percentage change in comparison to the last session’s close; ‘lower low’: percentage change in comparison to the last session’s high and low respectively; close – open speaks for itself: any positive percentage change means a close above the open and vice versa; ‘gap fill’: Yes/No)

Successful trading,

Frank

Filed under: Daily Update, , , , , ,

Short-term Mean-Reversion Between Implied and Realized Volatility

Short-term Mean-Reversion Between Implied and Realized Volatility

The VIX® (CBOE Volatility Index) is an index that infers 30-day (calendar days, regularly between 20 and 22 trading days) expected (implied) market (S&P 500) volatility from S&P 500 index options (usually in the first and second month, and averaging the weighted prices of puts and calls over a range of strike prices). It closed at 41.04 last Friday.

The current 21-day realized (not implied) volatility closed at 49.15(%) last Friday. Thus the delta between the markets expectation of future (30-day = 21 trading days) volatility and the just experienced realized volatility during the last 21 trading days is currently at -8.11% (means the markets expectation of future volatility is  trading (significantly) below the  just experienced realized volatility), which could be regarded as some kind of complacency in the market (which regularly doesn’t bode well concerning the market’s short-term performance).

The table shows

  • percentage wise (for those 46 session which fulfilled the conditions of w/Survey I since 01/03/2007),
  • utilizing the VIX (index data) itself and not any equity index,
  • and taking into account those sessions only after the VIX closed at least -8.00% below the then current rolling 21-day realized volatility the day before (‘w/Survey I‘)

the historical probabilities (since 01/03/2007) for a higher and lower open, the average change between close and open (close -open), the average daily True Range (Wilder True Range), the historical probabilities for a higher high and lower low (than the last session’s high/low) and a higher or lower close as well as the respective sum of all profits and losses (theoretically, and for statistical purposes only due to the fact that the VIX is not a tradable asset) going long/short on open. But due to the fact that in the 2nd table probabilities significantly above or significantly below their respective at-any-time probabilities (in this case +/-15.00%, but this percentage is up to everyone’s decision what may be regarded as ’significant above’ or ‘below’) are marked by a green (for a probable bullish outcome) and red (for a probable bearish outcome) background color, one may be able to catch on a glimpse the impact of taking into account those sessions only after the VIX closed -8.00% or less below the then current rolling 21-day realized volatility on the respective probabilities and odds.

Table I

survey-20090330-1

(click on image to enlarge)

Bottom line:

  1. On those 46 occurrences which fulfilled the conditions of w/Survey I, the VIX closed -on average- the next session not only significantly above it’s opening quotation independently if it opened higher or lower, but additionally significantly above the respective at-any-time magnitudes of change. This may be regarded as some kind of a short-term mean-reversion tendency between implied and realized volatility. On those 16 sessions with a higher open the VIX’ True Range averaged 16.00% (that would correspond to an approximately 6+ move today).
  2. Going long on open (that means theoretically ‘buying’ the VIX on open) would have yielded a high profit factor of above 4 (way above the at-any-time profit factor theoretically buying the VIX on open in the event the VIX opens higher), and going short the VIX on a lower open would have yielded a profit factor below 1 for a negative expectancy.
  3. Needless to say that on average (not to be mistaken for ‘always‘) -and due to the regularly inverse relationship between the VIX and the S&P 500- this didn’t bode well for the equity indexes (S&P 500, SPY) in the past (concerning the specific session after this setup had been triggered) …

Successful trading,

Frank

Filed under: Studies/Survey, Trading Strategies

6 Highs plus 6 Lows = ?

(Due to the fact that this blog is -naturally after going live a week ago- in the early stages, I’d be happy to get and discuss your suggestions concerning the presentation of figures and/or potential setups you’d like to get looked into -among others-; my email is tradingtheodds@fastmail.fm)

6 Highs plus 6 Lows = ?

After the S&P 500 posted ‘6 Highs‘ on Thursday – March 26, 2009 and 6 Lows on Friday – March 27, 2009, (see my respective posts) I thought it might be interesting to not only explore and present both setups in direct comparison to each other concerning the S&P 500′ performance on the respectively following session, but to explore as well what market history might tell us about those occurrences when a session with ‘6 Highs‘ was immediately followed by a session with 6 Lows‘, utilizing the strategy tables that I presented in my last post (raw number of occurrences and their respective outcome, Table I, and ‘market heat/scorecard’ percentage wise as Table II, see my posting Trading the Odds on Monday – March 30, 2009).

Table I below shows the raw historical number of occurrences (since 01/02/2000) of a higher and lower open,  the average change between close and open (close -open), the average  daily True Range (Wilder True Range), the number of higher highs and lower lows (than the last session’s high/low) after a higher/lower open, the number of occurrences of the then following  higher or lower close as well as the respective sum of all profits and losses going long/short on open, differentiated between

  • 1st column: at-any-time probabilities and odds (taking into account every single trading day),
  • 2nd column: probabilities and odds for the following session after the S&P 500 posted ‘6 Highs‘ (‘w/Survey I‘),
  • 3rd column: probabilities and odds for the following session after the S&P 500 posted 6 lows (‘w/Survey II‘),
  • 4th column: probabilities and odds for the following session (session 3) after the S&P 500 posted ‘6 Highs‘ on day 1 followed by 6 lows on day 2 (‘w/Survey I+II‘).

Table I

survey-20090327-7

(click on image to enlarge)

The second one (Table II) shows -percentage wise solely based on the figures of Table I- the historical probabilities (since 01/03/2000) for a higher and lower open,  the average change between close and open (close -open), the average  daily True Range (Wilder True Range), the historical probabilities for a higher high and lower low (than the last session’s high/low) and a higher or lower close as well as the respective sum of all profits and losses going long/short on open, differentiated identically. But due to the fact that in the 2nd table probabilities significantly above or significantly below their respective at-any-time probabilities (in this case +/-15.00%, but this percentage is up to everyone’s decision what may be regarded as ’significant above’ or ‘below’) are marked by a green (for a probable bullish outcome) and red (for a probable bearish outcome) background color, one may be able to catch on a glimpse if (any), where (e.g. on the open, for a higher/lower close or intraday strength/weakness) and to what extent (historical probabilities) session 3 possibly provides a tradable edge concerning the setup ‘6 Highs‘ on day 1 followed by ‘6 lows‘ on day 2. This represents a kind of scorecard with respect to the specific market pattern under investigation.

Table II

survey-20090327-8

(click on image to enlarge)

Bottom line:

  1. Concerning w/Survey I (‘6 Highs‘)  the edge would have been on the short side (as posted in Trading the Odds on Friday – March 27, 2009) -but to a lesser extent compared to the time frame since 01/02/2007- due to the S&P 500′ tendency to close on average -0.03% below the open even on a higher open, and the significantly below at-any-time profit factor going long on open as well as the significantly above at-any-time profit factor going short on open. The above at-any-time probability that the S&P 500 would probably not post a lower low (33.33%) was ‘violated’ on Friday’s session (just to remind us that we’re always talking about probabilities, not certainties).
  2. Concerning w/Survey II (‘6 Lows the edge would be -in the event the market opens lower- to capitalize on any follow-through of Friday’s weakness due to the S&P 500′ tendency to post a lower low than the previous session’s low, and the significantly above at-any-time profit factor going short on open.
    In the event the market opens higher, the edge would be to capitalize on the S&P 500 statistically above-average profit factor going long on open (but not necessarily directly going long on open due to the above-average chances of some intraday follow-through of Friday’s weakness and the above-average probability of violating Friday’s low -to a significant percentage wise extend-, but playing the positive expectancies on the long side of the market on a higher open only and by timing one’s intraday engagement).
  3. Concerning w/Survey I+II (‘6 Highs‘ followed by 6 Lows) -which went into effect on Friday’s close and applies to Monday’s session- the partly bullish edge gets almost completely lost (except the slightly above at-any-time probability for a higher open on Monday).  Concerning this setup the S&P 500 closes -on average- below the open independently from the direction of the opening quotation, and in the event the markets open lower to a -on average- significantly above-average percentage wise extent. In only 3 out of a total of 21 occurrences did the S&P 500 manage to post a higher high, while it posted a lower low on 14 out of those 21 occurrences. And the profit factor going long on a higher open and short on a lower open is either significantly below average (for the ‘buy side’ on a higher open) or significantly above average (for the ‘short side’ on a lower open) for an overall bearish tendency.

But 21 out of 2,321 sessions for w/Survey I+II (‘6 Highs‘ followed by 6 Lows) is not a sample size which would allow for reading anything into it, and we’re always talking about probabilities (to capitalize on in the long run) , not certainties. Nevertheless something to keep in mind …

The following table shows the market’s behavior on those 21 sessions (day 3) after the S&P 500 posted ‘6 Highs‘ on day 1 followed by 6 lows on day 2 (‘w/Survey I+II‘):

No. Date Open Higher High Lower
Low
Close Close – Open
1 03/06/2009 +0,22% -1,30% -1,64% +0,12% -0,10%
2 01/30/2009 +0,07% -1,98% -2,66% -2,28% -2,34%
3 11/06/2008 -0,04% -4,93% -5,28% -5,03% -4,99%
4 09/02/2008 +0,39% +0,42% -0,82% -0,41% -0,80%
5 06/27/2008 +0,04% -2,04% -0,87% -0,37% -0,41%
6 06/09/2008 +0,01% -2,10% -0,68% +0,08% +0,07%
7 10/31/2007 +0,07% +0,87% -0,01% +1,20% +1,12%
8 07/06/2006 -0,01% -0,02% +0,39% +0,25% +0,26%
9 03/01/2006 +0,08% -0,11% +0,23% +0,83% +0,75%
10 01/23/2006 +0,04% -1,28% +0,06% +0,18% +0,15%
11 09/20/2005 +0,02% -0,04% -0,62% -0,79% -0,81%
12 09/23/2004 +0,00% -1,16% -0,42% -0,47% -0,47%
13 09/21/2004 +0,06% +0,33% +0,22% +0,63% +0,58%
14 04/29/2004 +0,00% -0,82% -1,22% -0,76% -0,76%
15 09/10/2003 -0,52% -1,11% -1,12% -1,20% -0,68%
16 08/04/2003 -0,02% -0,42% -1,23% +0,27% +0,30%
17 03/25/2003 +0,08% -1,24% +0,07% +1,22% +1,14%
18 09/30/2002 -0,19% -3,28% -3,22% -1,46% -1,27%
19 04/12/2002 +0,15% -1,56% +0,03% +0,66% +0,51%
20 10/15/2001 -0,26% -0,49% +0,56% -0,15% +0,11%
21 05/03/2000 -0,14% -1,59% -3,24% -2,16% -2,02%

(‘open’ and ‘close’: percentage change in comparison to the last session’s close; ‘higher high’ and ‘lower low’: percentage change in comparison to the last session’s high and low respectively; close – open speaks for itself: any positive percentage change means a close above the open and vice versa)

Successful trading,

Frank

Filed under: Daily Update

Twitter Updates

  • w/ 18.30 at time of writing, the gap between $VIX and $VSTOXX is close to its all time closing low of 19.90, posted on 10/16/2008. 3 years ago
  • The $VIX gained 48.33% over the course of the last week. Since 1/2/1990 there were 38 other occurences w/ $VIX gained > 48% over 5 sessions. 3 years ago
  • On Friday iShares MSCI Brazil Capped ( $EWZ ) closed at 19.09 , a 11+ year low and its lowest level since 11/08/2004. 3 years ago
  • On Friday the Russell 2000 Index ( $RUT ) closed at 1,046.20 , a 2+ year low and its lowest level since 10/09/2013. 3 years ago
  • @QuantStratTradR Sorry, I didn't follow the entire communication. Link to what ? // @easyvolatility 3 years ago

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.

The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website, including the information that others post here.

While every effort will be made to provide complete, the most accurate and current information, none of the information on this site is guaranteed to be correct, and anything written here should be subject to independent verification. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to this blog or the information, analysis, statistics, or related graphics contained on the blog for any purpose.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

Please read the full ... DISCLAIMER

Calendar

March 2009
M T W T F S S
    Apr »
 1
2345678
9101112131415
16171819202122
23242526272829
3031