Daily Commentary - Posted on Tuesday, November 3, 2009, 10:31 PM GMT +1

No Comments


Nov Tuesday 3

TRADING THE ODDS on Wednesday – November 4, 2009

Unfortunately I’m still suffering from the touch of the flu, so posting will still be light (but that doesn’t matter with respect to Wednesday’s session).

Tuesday’s session perfectly complied to historical probabilities and odds calling for some extensive weakness before the open (the ES E-MINI S&P 500 posted a pre-opening low of -1.44% on Tuesday’s GLOBEX session) and for a lower open as well (providing another profitable trade), see my posting Trading the Odds on Tuesday – November 3, 2009.

The commanding (bullish) setup with respect to Wednesday’s session will be the FOMC announcement at 02:15 PM EST. The market regularly shows a statistically significant, way above-average probability (and profit factor) for trading higher between the close of the session immediately preceding an FOMC announcement session until at least the start of the last hour of the FOMC announcement session (FOMC Meeting calendars, statements and minutes can be found here).

2009-11-03-indices

_________________________

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

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 next session will be an FOMC announcement 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 01/01/1990) concerning the intraday high, the end of the first hour of the session in comparison to the previous session’s close, the start of the last hour in comparison to the end of the first hour of the session, the start of the last hour of the session in comparison to the previous session’s close, and the close on all FOMC announcement sessions (Scheduled Meetings only) since 01/01/1990.

2009-11-03-ES1

It is interesting to note that – since 01/01/1990 and with respect to the then following FOMC announcement session (in this event on Wednesday, November 4) – the ES E-MINI S&P 500

  • was trading lower at least -0.75% at the end of the first hour on only one out of the last 53 occurrences (not all occurrences listed), but up +1.0% or more on 7 out of the last 13 occurrences,
  • was trading higher between the end of the first and the start of the last hour on 20 out of the last 23 occurrences,
  • was trading above the previous session’s close at the start of the last hour on 21 out of the last 22 occurrences (thereof on the last 14),
  • and finally closed higher on 9 out of the last 11 occurrences.

________________________________

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 until the start of the last hour on Wednesday, November 4 is positive.

A (highly) favorable short-term opportunity on the long side (if not already positioned on the long side) would be provided in the event of any pre-opening weakness and/or a lower open targeting some extensive strength until at least the start of the last hour of Wednesday’s session.

Successful trading,
Frank

________________________________

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

DATE TIME WHAT ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
11/03/2009 n.a. E-MINI S&P 500 LONG FOMC announcement session

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

________________________________

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

xx

Disclaimer: No positions in the securities mentioned in this post at time of writing (but long DAX German Aktien Index, short Volatility) .

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.

Add to Technorati Favorites

Leave a Reply

Your email address will not be published. Required fields are marked *