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 15, 2009 -follow up-

Follow-up on Trading the Odds on Wednesday – April 15, 2009

This is a follow-up on my post Trading the Odds on Wednesday – April 15, 2009.

Due to the fact that market breadth (Advancing Issues, Declining Issues, Advancing Issues, Declining Issues, New 52-week Highs, New 52-week Low) does regularly not only own a good quality of forecast concerning the next session but over the course of the next couple of sessions as well, I additionally checked for the SPY’s performance over the course of the following 10 sessions after a session when the 2-day simple moving average of NYSE Advancing Issues/(Advancing Issues + Declining Issues) closed on a 4-day low while the 2-day simple moving average of NYSE Advancing Volume/(Advancing Volume + Declining Volume) didn’t post a 4-day high respectively setup was triggered for a potential positive divergence.

The table below shows the SPYs’ performance over the course of the then following 10 sessions concerning those 15 sessions since 10/01/2007 which fulfilled the setup mentioned above.


(click on image to enlarge)

Although the chances (probability) that the market will probably close higher during the following 2 days are slightly negative, odds (profit factor as the sum of all profits divided by the sum of all losses going long on close of the session when the setup was triggered, NOT the true chances that the event -a higher close x days later- will occur) are significantly in favor of the long side due to the fact that the average and total profit on the long side regularly almost doubles the respective losses. And the real edge was provided from day 3 onward when the respective profit factor on the long side is more than fivefold compared to the respective profit factor on the short side (the same applies to the maximum gain/loss).

So any follow-up on Tuesday’s weakness might be shallow only, but will probably provide a favorable buying opportunity over the course of the then following couple of days.

But due to the insignificant sample size, it is questionable if and to what extent this setup might have any quality of forecast for the next couple of session, but nevertheless something to keep in mind.

Successful trading,


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.

Disclosure: Long BGU (Large Cap Bull 3x Shares) at time of writing.

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April 2009
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