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.

Rollercoaster ride w/the S&P 500 – Follow Up

Rollercoaster ride w/the S&P 500 – Follow Up

This is a follow up to my yesterday’s post Rollercoaster ride w/the S&P 500 (posted after the market’s close).

The fact that the sample size with only 10 occurrences since 01/02/2001 stayed on my mind (and to be serious, which is from a statistical point of view way too small to read anything into it), and in order to check

  • what may have really caused such a striking statistical variance (reminder: 10 occurrences for the S&P 500, all posting a higer high and a higher low than the previous session to a significant percentage extent), the fact that the S&P 500 posted a higher high and a lower low intraday or the True Range of greater than 4%+,
  • if there is a way to increase the sample size still based on a variance of the setup mentioned before (higher high, lower low, True Range greater than x).

For the time frame from 01/02/2001 until 03/25/2009, I checked the following setups concerning the S&P 500′ behavior the session after the following setup would have went into effect (on the previous session, like Wednesday’s session):

  • at-any-time (as always, taking into account every single session)
  • S&P 500 posted a higher high, a lower low with a True Range exceeding 4%+ (the setup discussed in my previous post to be verified against)
  • S&P 500 posted a higher high and a lower low (leaving out the True Range condition)
  • S&P 500′ True Range greater than 4%+ (leaving out the higher high and lower low)
  • S&P 500′ True Range greater than its rolling simple  10-day Average True Range plus 2 standard deviations (thanks to commentator Aesus for the suggestion)
  • S&P 500 posted a higher high, a lower low with a True Range greater than its rolling simple  10-day Average True Range
  • S&P 500 posted a higher high, a lower low with a True Range greater than its rolling simple 10-day Average True Range plus 1 standard deviation

The following table shows the respective outcome (in the order of precedence as listed above).

survey-20090325

(click on image to enlarge)

None of the other inspected setups (except the respective survey to be verified against) provided such a striking statistical variance like the one to be verified against, but nevertheless they share at least some observations in common and, accounting for their respective probabilities and expectancies,  are favoring the bullish case for Thursday’s session:

  1. almost all of these setups show a probability for a higher open above the respective at-any-time odds,
  2. the odds following (for statistical purposes only) a simple mechanical trading system like ‘buy on open in the event the S&P 500 opens higher; sell on open in the event the S&P 500 opens lower; close the trade on market’s close‘ favor the bullish case (with respect to the S&P 500’ behavior at and after the open -e.g.  a potential higher open, a higher high or limited downside potential-, not necessarily concerning the close) due to the fact that the profit factor (the sum of all potential profits divided by the sum of all losses) going long on a higher open would be significantly above and the profit factor going short on a lower open regularly significantly below the respective at-any-time profit factor.

Successful trading
Frank

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Filed under: Daily Update, , ,

2 Responses

  1. trader99 says:

    Frank,
    I read each of your posts and your insights are great. Based on yesterday’s post, I bought 10 SPY calls with the SPX at approximately 818. I sold half at about 826 and the remainder at 829. I would like to make a contribution to your blog for the trading idea.

    • Frank says:

      Trader99,

      thanks for the honorable offer, but due to the fact that this blog is designed for informational purposes only, it was your decision and your achievement only (congrats). Enjoy the profit, and if you are consistently profitable, you could make some charitable donations to let those participate which are not always on the lucky side of life.

      Best,
      Frank

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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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