Daily Commentary - Posted on Wednesday, November 11, 2009, 11:21 PM GMT +1

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Nov Wednesday 11

TRADING THE ODDS on Thursday – November 12, 2009

A short note: Due to some private and business matters, from now on I’ll probably not be able to keep on publishing a post on a daily basis (at least not within one or two hours after the close, Twitter updates remain unaffected).

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On Wednesday’s session the ES E-MINI S&P 500 as well as the NQ E-MINI NASDAQ 100 closed higher on the eighth consecutive session (close at 04:15 PM EST), and the ES E-MINI S&P 500 posted it’s sixth consecutive session with a higher high, the seventh consecutive session with a higher low, and it’s sixth consecutive session with a close at or above the previous session’s high .

But after four sessions with a close above the open, the ES E-MINI S&P 500 today closed below the open and in the lower half of today’s trading range as well (after three out of four sessions with a close in the top quartile of the daily trading range).

2009-11-11-indices

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

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 closed higher on the eighth consecutive session
2 E-MINI S&P 500 posted a higher high on the sixth consecutive session
3 E-MINI S&P 500 posted a higher low on the seventh consecutive session
4 E-MINI S&P 500 closed at or above the previous session’s high on the sixth consecutive session
5 E-MINI S&P 500 posted a higher high and a higher low at least +0.50% above the previous high/low, but closed below the open

* ) : –

( * 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 01/01/1990) on the next session (in this event Thursday, November 12) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-11-11-ES-S1-5

Since 01/01/1990 there were 5 occurrences where the ES E-MINI S&P 500 had closed higher eigth sessions in a row, and the ES E-MINI S&P 500 up to now always opened and closed lower on the then following session (in this event on Thursday, November 12). Although 5 occurrences only is too small a sample size to read anything statistically significant into it and nothing to bet the farm on, at least setup S5 (the black candle – a close below th open – after a higher high and higher low) shows a statistically significant tendency for some intraday weakness on the then following session as well.

Table II below shows the ES E-MINI S&P 500’s intraday performance (since 01/01/1990) concerning the open, the intraday high, the intraday low, the close and the end of the first hour of the session in comparison to the previous session’s close on those sessions wherewhere the ES E-MINI S&P 500 had closed higher eigth sessions in a row in the past.

2009-11-11-ES-S1i

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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 Thursday, November 12 is negative.

A favorable short-term opportunity on the short side would be provided in the event of any pre-opening strength targeting a lower open and probably a lower close as well.

Successful trading,
Frank

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Summary of potentially tradable edges for Monday – November 9, 2009

DATE TIME WHAT ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
11/11/2009 04:15 PM E-MINI S&P 500 SHORT see setup S1 above 1096.25 (-18) $5,625

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: Short 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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