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

(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

(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