Daily Commentary - Posted on Tuesday, October 13, 2009, 11:24 PM GMT +1

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Oct Tuesday 13

Trading The Odds On Wednesday – October 14, 2009

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With a loss of -0.26% on the close, Tuesday’s session complied to the slightly negative outlook based on those setups which were triggered on close of Monday’s session (six consecutive higher closes, and the significantly out-performance of the SOX Semiconductor Index two sessions in a row). The Nasdaq 100 expectedly out-performed the SOX Semiconductor Index, and additionally a favorable exit of Monday’s potential short position was provided early in the session (see my respective Twitter Update).

The Nasdaq 100 now posted it seventh consecutive higher close, and at time of writing it seems that the eighth one will probably follow.

At 04:00 PM CET is seemed that the ES E-MINI S&P 500 would close in the top quartile of today’s daily trading range which would’ve tilt probabilities and odds in favor of a lower close on the then following session (three higher closes followed by a lower close in the top quartile of the respective session’s trading range, therefore I took a short position at 04:00 PM CET), but finally (and may be fortunately because Wednesday’s session – as index futures indicate – would’ve become an ‘outlier‘) it didn’t (by a hairbreadth). Unfortunately this makes a huge and decisive difference (see setups S2 and S3 below).

Index / Future / ETF Symbol Date Close (%) Open 1) High 1) Low 1) 1st Hour 2) Last Hour 3)
E-MINI S&P 500 * ESZ9 10/13/2009 -0.26% -0.23% +0.05% -0.77% -0.33% 0.00%
S&P 500 SPX 10/13/2009 -0.28%
Dow Jones Industrial INDU 10/13/2009 -0.15%
Nasdaq 100 NDX 10/13/2009 +0.04%
E-MINI Nasdaq 100 * NQZ9 10/13/2009 -0.06% -0.06% +0.46% -0.41% -0.13% 0.00%
Russel 2000 RUT 10/13/2009 -0.34%
Semiconductor Index SOX 10/13/2009 -0.31%
Philadelphia Bank Index BKX 10/13/2009 -0.44%
* close at 04:15 PM CET 1) vs. the previous session’s close 2) 09:30-10:30 AM 3) 03:00-04:15 PM

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On Tuesday’s session the following setups were triggered …

No. INDEX SETUPS TRIGGERED
1 E-MINI Nasdaq 100 closed higher on seven consecutive sessions
2 E-MINI S&P 500 after three higher closes, closed lower in the 3rd quartile of the daily trading range
3 E-MINI S&P 500
4 E-MINI S&P 500
5 S&P 500

* ) : after three higher closes, closed lower in the 4th quartile of the daily trading range

( * for statistical purposes only)

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/2000) on the next session (in this event Wednesday, October 14) immediately following those sessions where setups S1 to S3 (S3 = the ES E-MINI S&P 500 posted three higher closes followed by a lower close in the top quartile) listed above had been triggered in the past.

2009-10-13-ES1-S3

Setup S3 (a close in the top quartile, the classical ‘Hanging Man‘ – Japanese Candlesticks – in an uptrend) shows a statistically significant edge (the t-score significantly exceeds the -1.645 mark) on the short side of the market (10 lower versus 5 higher closes, the average trade is -0.70% on close of the then following session, and with 0.10 only the profit factor is close to zero), while setup S2 (a close in the third quartile) doesn’t show any statistically relevant edge in comparison to at-any-time probabilities and odds.

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the open, the (end of the) first hour of the session compared to the previous close, the (start of the) last hour of the session compared to the end of the first hour (means the ES‘ performance between the end of the first hour and the start of the last hour of the session), the (start of the) last hour of the session compared to the previous close, and the close (in chronological order) on those sessions where the ES E-MINI S&P 500 had triggered setup S3 (‘the ES E-MINI S&P 500 posted three higher closes followed by a lower close in the top quartile‘) in the past.

2009-10-12-ES-S3i

The ES E-MINI S&P 500 would’ve shown a (statistically significant) negative tendency during all phases of the then following session. But ‘woulda shoulda coulda‘ … (this setup wasn’t triggered at Tuesday’s close).

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Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after any of those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on close of Wednesday, October 14 is -from a pure statistical point of view not taking into account the fact that the ES E-MINI S&P 500 is already up +0.75% after hours – mixed . The short position taken on Tuesday’s close has already been stopped out (Twitter Update), so I’ll wait what that market will provide on Wednesday’s session.

Successful trading,
Frank

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Summary of potentially tradable edges for Wednesday – October 14, 2009

DATE TIME WHAT
ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
10/13/2009 .

1)
  • due to the fact that the data is intended for statistical purposes only, regularly no stop is provided (if not stated otherwise) ; the trade may be closed early if the respective market environment suggests (published via Twitter)
  • the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop order ; the inverse applies to a short position respectively
2) For position sizing, optimal f (by Ralph Vince) is utilized;

optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio );
win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ;          /% simplified version
Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ]
(Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625)

3) Position size in units per $xxx of marginable equity; if the E-MINI S&P 500 is utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

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

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. 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(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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