Daily Commentary - Posted on Tuesday, October 27, 2009, 10:47 PM GMT +1

1 Comment

Oct Tuesday 27

Trading The Odds On Wednesday – October 28, 2009

The recent failure of regularly bullish setups is getting more and more the rule, not the exception, and the NQ E-MINI NASDAQ 100 will probably have a rough time to comply to recent historical probabilities and odds (’the NQ E-MINI NASDAQ 100 closed lower, with Nasdaq 100 Adv./Decl. Volume < 0.4′; with a higher close over the course of the then following five sessions on 19 out of the last 20 occurrences since the current bull market started in April 2009) calling for at least one close above 1754 until Friday, October 30.

The Philadelphia Bank Index closed lower on the ninth out of the last 11 sessions, the Russell 2000 lost more than -1.0% the third day in a row, and market internals were (partly heavily) lopsided on the downside again. NASDAQ Advancing/Declining Volume closed at 0.19 (5:1 negative breadth, after 3:1 on Friday and 2.5:1 on Monday).

But despite the fact that the Nasdaq 100 posted a significantly lower low (-1.43%, in comparison to Monday’s intraday low), fewer Stocks on the NASDAQ penetrated their previous session’s low than on Monday’s session (where the Nasdaq 100 posted a lower low of –0.52% in comparison to Friday’s intraday low only), so participation on the downside seems to be waning.





The following setups were triggered on Tuesday’s close:

1 E-MINI S&P 500 closed lower three days in a row
2 E-MINI S&P 500 closed at least -0.50% below the open three days in a row
3 E-MINI S&P 500 closed below the previous session’s low two days in a row
4 Nasdaq 100 closed lower three days in a row, with Nasdaq Adv./Decl. Volume <= 0.40 (2.5:1 negative)
5 Russell 2000 closed lower at least -1.00% three days in a row

* ) : –

( * the setup doesn’t provide a statistically significant edge on any side of the market)

Table I shows the ES E-MINI S&P 500 performance on the close (since 01/01/2000) on the next session (in this event Wednesday, October 28) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.


All setups are agreeing concerning their positive outlook on the then following session, showing an above-average probability (at least 2:1), profitability (average gain) and t-score (with respect to the ES E-MINI S&P 500 – setups S1 to S3 – always exceeding the +1.645 mark for statistical significance) for a higher close (over the course of) the next day(s).


Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after 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 Wednesday, October 28 is positive.

A favorable short-term opportunity on the long side might be provided in the event of any pre-opening weakness and/or a lower open targeting a significantly higher intraday high and probably a higher close as well.

Successful trading,


Summary of potentially tradable edges for Wednesday – October 28, 2009

Pos. Size 2) 3)
10/28/2009 n.a. E-MINI S&P 500 LONG short-term oversold

1) 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 loss 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 ] ;

Margin requirements:
ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ;
ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ;
Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000)

3) Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are 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: Long ES E-MINI S&P 500 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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Comments (1)


  1. ADD says:

    Dear Frank,

    Thanks for all you do. I’ve learned a lot about trading with help from your efforts. It is truly i public service and I know many lurkers agree.

    Thanks again,

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