Daily Commentary - Posted on Thursday, November 5, 2009, 10:59 PM GMT +1

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Nov Thursday 5

TRADING THE ODDS on Friday – November 6, 2009

Due to some business and family related matters, today a condensed version only.

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A trend day up was – based on historical probabilities and odds – the least expected outcome with respect to Thursday’s session. But due to the fact that the ES E-MINI S&P 500 already showed the expected weakness during the GLOBEX session (posting a low < -0.75%), it allowed for closing the overnight short position for another respectable profit.

Posting a pre-opening low (on GLOBEX) at least -0.75% below the previous session’s close, but leaving an unfilled opening gap up and closing higher at least +1.0% during the then following regular session is a rare occurrence (only happened 8 times since 01/06/2001).

2009-11-05-indices_________________________

The following setups (among others) were triggered on Thursday’s close:

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 posted a pre-opening low of at least -0.75% below the previous session’s close, but left an unfilled opening gap up and closed higher at least +1.0% during the regular session
2 E-MINI S&P 500
3 E-MINI S&P 500
4 E-MINI S&P 500
5 E-MINI S&P 500

* ) : –

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

Table I below shows the ES E-MINI S&P 500’s intraday performance (since 01/06/2001) concerning the open, the intraday low, the start of the first hour of the session in comparison to the end of the first hour, the close, and the pre-opening low (on GLOBEX) on those sessions where setup S1 had been triggered on close of the previous session.

2009-11-05-ESS1

It is interesting to note that – since 01/06/2001 and with respect to the then following session (in this event on Friday, November 6) – the ES E-MINI S&P 500

  • posted a pre-opening low on GLOBEX at least -1.0% below the previous session’s close on 5 out of 8 occurrences,
  • never left an unfilled opening gap up,
  • was trading lower between the end of the first hour and the start of the last hour on 6 out of 8 occurrences,
  • closed lower on 7 out of those 8 occurrences.

But 8 occurrences only is too small a sample size to read any statistically significant into it, but nevertheless something to keep in mind.

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Bottom line:

At least based on historical probabilities and odds and the market’s regular recent 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 close of Friday’s session is at least slightly negative.

A favorable short-term opportunity on the short side would be provided in the event of any pre-opening strength and/or a higher open targeting some weakness during the final part of Friday’s session.

Successful trading,
Frank

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Summary of potentially tradable edges for Monday – November 2, 2009

DATE TIME WHAT ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
11/06/2009 n.a. E-MINI S&P 500 SHORT see setup S1 above

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
xx
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)
xx

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: 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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