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 – June 10, 2009


The market seems to have ‘known’ that -concerning the setups which were triggered on Tuesday’s close (see my post Trading the Odds on Tuesday – June 9, 2009)- no significant edge neither on the long nor on the short side was provided concerning Tuesday’s session (but nevertheless probabilities and odds were slighlty tilt in favor of the bullish side), and the S&P 500 reacted accordingly:

The S&P 500 opened higher +0.13%, posted an intraday low -0.32% below Monday’s close, posted an intraday high +0.83% above Monday’s close and finally closed higher +0.35% on the day (in compliance to the probabilities and odds which were slightly tilt in favor of the long side of the market). This was the third day in a row when the S&P 500 closed more or less flat within a +/- 0.35% range (compared to the previous session’s close).

Market breadth was relatively strong with NYSE Advancing Issues/Declining Issues at 1.53, and NYSE Advancing Volume/Declining Volume at 1.37 (for a NYSE TRIN at 1.11, with a ratio above 1 closing in regularly negative territory). Additionally NYSE Total Volume came in lower than on Monday’s session for a third consecutive session on lower NYSE Total Volume. Speculative interstest was once again running very high today, and Nasdaq Total Volume more than doubled NYSE Total Volume.

I therefore checked for the following setups which were triggered on Tuesday’s close:

  • the S&P 500 closed higher on the same day when the NYSE TRIN closed in regularly negative territory above 1 (Setup S1),
  • the S&P 500 closed within a +/- 0.35% three sessions in a row (Setup S2),
  • NYSE Volume contracted on three consecutive sessions (Setup S3),
  • the ratio of Nasdaq Total Volume / NYSE Total Volume closed above 2 (Setup S4), and
  • Setup S2 and Setup S3 combined (Setup S5).

Table I shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) on the next session immediately following those sessions where setups S1 to S5 listed above had been triggered.


With respect to all 5 setups chances for a higher/lower close the then following session are mixed only (and do not significantly deviate from the respective at-any-time probabilities for a higher/lower close the following session), and even the profit factor (expectany and pay-off) doesn’t show any significant tradable edge on either side of the market.

Due to the fact that the last 3 sessions looked like a consolidation period (or the calm before the strom) before the market will either break higher or lower, I tought it would be especially interesting -concerning the next session’s intraday stats- to dig a bit deeper into setup S5.

Table II now shows the ES (S&P 500 E-MINI) intraday performance (since 01/02/1990) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on the next session (in this event Wednesday, June 10) immediately following those 67 sessions where the S&P 500 closed within a +/- 0.35% three days in a row AND NYSE Volume contracted on three consecutive sessions (setups S2 and S3 combined).


But even with respecto to the intraday stats no significant edge is provided, but notably is at least the fact that even 3 relatively flat sessions are regularly followed by another relatively quite session due to the fact that the average winning trade and the average losing trade on the open, high, low and close are (significantly) lower than the respective at-any-time winning/losing trade, means the magnitude of change on the open/high/low/close/close versus open on those session immediatley following those 67 sessions where the respective setup had been triggered is -on average- (partly significantly) lower than the respective at-any-time magnitude of change.

Table III now shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) over the course of the following five sessions immediately following those 67 sessions where the S&P 500 closed within a +/- 0.35% three days in a row AND NYSE Volume contracted on three consecutive sessions (setups S2 and S3 combined).

20090609-ES-1i5With respect to the S&P 500′ performance over the course of the then following 5 sessions it is especially remarkable that at least in the past such consolidation periods (setup S5) have been regularly resolved to the upside. Not only probabilities for a higher close over the course of the next couple of sessions are -from a historically and statistically perspective- tilt in favor of higher closes ahead, especially the respective profit factor is significantly higher than the respective at-any-time profit factor.


Bottom line:

  1. With respect to Wednesday’s session is seems wise to keep the powder dry until the market provides a tradable edge again. Like in Blackjack and Poker you’ve to know when to hold, when to fold and when to go. On Wednesday’s session the deck will be shuffled again. But  keep in mind that with respect to the (bullish) ‘NYSE divergence‘ setup which was triggered on last Friday’s close (5 consecutive sessions with a NYSE TRIN above 1), it seems that the path of least resistance might be be up, not down (see my post Trading the Odds on Monday – June 8, 2009), additionally supported by the fact that setup S5 historically shows a significant tendency (approximately 2 out of 3 occurrences) for higher closes ahead over the course of the next couple of sessions.

Successful trading,


P.s.: WordPress recently implemented a Twitter widget, so I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclaimer: No positions in the securities mentioned in this post at time of writing.

Filed under: Daily Update, , , , ,

Twitter Updates

  • @QuantStratTradR Sorry, I didn't follow the entire communication. Link to what ? // @easyvolatility 1 month ago
  • Since 1/1/2000, $SPX 2-day RSI closed < 1 on 30 occurrences: Average move ($SPX) next day: +/-2.19% (22x up, 8x down); median move: +/-1.24% 1 month ago
  • w/ $VIX closing above $RVX in 2015 (5 occurrences so far), $SPX moved (up and down) 2.49% the next day on average (at least +/-1.35%). 1 month ago
  • @XA4P Yes, #VRPStrategy (Volatility Risk Premium Strategy w/ cont. contract) went long $VXX on yesterday's (8/10/2015) close. 3 months ago
  • w/ $VUX/N5 (Russel 2000 Volatility Futures, JUL'15 expiration) @ 15.05 , $RVX front month volatility futures settled at an all-time low. 4 months ago


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