TRADING THE ODDS

Miscellaneous

1. All stats (e.g. probabilities, profit factor), percentage-wise magnitudes of changes (on the open, intraday high, intraday low, close, close vs. open), returns, ratios (e.g. Sharpe Ratio) and others refer to regular day sessions only (including shortened sessions like the one on December 24), starting at 9:30 AM EST and ending 4:00 PM EST (but 4:15 PM EST if the ES E-mini S&P 500 is utilized). Exchange holidays and/or GLOBEX sessions (e.g. shortened GLOBEX sessions on exchange holidays or GLOBEX on Sunday evening) are completely ignored. You’ll always find an additional statement on top of the stats concerning the next session for which the stats will be applicable for.
2. The ES E-MINI S&P 500′ performance concerning the first hour and the last hour of a session are deduced from the Dow Jones Industrial’s performance during the first and the last hour of the session (there is regularly an almost 1:1 correlation, and any minor changes would be averaged out over the course of time).
3. All stats (e.g. probabilities, profit factor), percentage-wise magnitudes of changes (on the open, intraday high, intraday low, close, close vs. open), returns, ratios (e.g. Sharpe Ratio), among others, do NOT account for commissions, slippage and fees.

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How to Read the Stats

Example

Index :
The utilized index, regularly the ES E-mini S&P 500 (front month future).

Time frame:
Statistics cover all occurrences between start date and end date.

Investment Period:
The index’ performance over the course of the then following x sessions (regularly 1 day, means the index’ performance on the close of the then following session after a setup had been triggered).

Strategy:
Buy on close of a session when a setup had been triggered, sell on close x sessions (Investment Period) later.

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Number of Winning Trades:
The equivalent of the number of higher closes (than the trigger day’s close) x sessions (Investment Period) later.

Number of Losing Trades:
The equivalent of the number of lower closes (than the trigger day’s close) x sessions (Investment Period) later.

Unchanged :
The equivalent of the regularly very low number of unchanged closes (than the trigger day’s close) x sessions (Investment Period) later.

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Winning Trades (in %):
The equivalent of the percentage-wise ratio of higher closes divided by the total number of occurrences (the sum of Winning Trades + Losing Trades + Unchanged).

Profit Factor:
The ratio of the sum of all percentage-wise profits (positive changes) on higher closes divided by the sum of all percentage-wise losses (negative changes) on lower closes. The equivalent of the amount of dollar won for every dollar lost. Obviously, the larger the number is, the better.

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Average Trade (in %):
The equivalent of the average percentage-wise change on the close (comprises all occurrences).

Average Winnig Trade:
The equivalent of the average percentage-wise positive change on all higher closes (occurrences with lower and unchanged closes are left out).

Average Losing Trade:
The equivalent of the average percentage-wise negative change on all lower closes (occurrences with higher and unchanged closes are left out).

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Maximum Winnig Trade:
The equivalent of the highest percentage-wise change (regularly a positive number).

Maximum Losing Trade:
The equivalent of the lowest percentage-wise change (regularly a negative number).

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Average Intraday High:
The equivalent of the average percentage-wise changes of all intraday highs.

Average Intraday Low:
The equivalent of the average percentage-wise changes of all intraday lows.

Intraday Profit Factor:
The ratio of the sum of all percentage-wise changes on the intraday high divided by the sum of all percentage-wise changes on the intraday low. Measures the intraday upside versus intraday downside potential (magnitude of change) indicating if – and to what extend – the market shows a regularly positive or negative intraday performance.

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Maximum Consecutive Losses:
The equivalent of the maximum number of consecutive lower closes whenever a setup had been triggered.

Compounded Returns:
Return of investment assumed profits would’ve been reinvested, and one would’ve been always ‘all in’ (no position sizing/money management).

Annualized Returns:
Annualized Compounded Returns.

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Sharpe Ratio (annual.):

http://en.wikipedia.org/wiki/Sharpe_ratio

Sortino Ratio (annual.):

http://en.wikipedia.org/wiki/Sharpe_ratio

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Time in Market:
The (percentage-wise) time one would’ve been invested in the market (number of occurrences multiplied by the investment period, divided by the total number of trading days within the specified time frame).

Maximum Drawdown:
The percentage loss that incurred from the peak net asset value to the lowest value (states the largest percentage “Peak to Valley” decline experienced by the strategy/setup during the time frame).

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t-score:
Student’s t-test for the statistical significance of the difference between two sample means in order to test whether there are differences between two groups on the same variable, means does the index perform better or worse over the course of the then following x sessions when a specific setup had been triggered on close of the previous trading day in comparison to the index’ at-any-time performance over the course of x sessions. Estimates the probability that returns of setups S1 to Sx in comparison to at-any-time returns occurred by chance only, or there is a statistically significant probability that the respective setups show a statistically significant deviation from at-any-time returns. With p = 0.05 (the calculated t-score falls into the extreme 5% of the distribution) and a sample size (the degrees of freedom) greater than 30 (adding up the number of observations for each group, and then subtracting the number two, means number of observations in setup Sx and at-at-time observations minus 2), the calculated t-score must equal or exceed +/- 1.645 to indicate statistical significance (’+’ if the setup indicates statistically significant positive returns, and ‘-’ for statistically significant negative returns).

t-score (vs. chance):
Estimates the probability that returns of setups S1 to Sx occurred by chance only. This number is different from the t-score (vs. market) – and regularly higher – due to the fact that the market shows a long-term positive performance (buy-and-hold approach), and even in the event the respective setup would show a long-term positive performance as well, but would under-perform a buy-and-hold approach, it would be a positive number while the t-score (vs. market) would show a negative number (due to it’s under-performance in comparison to the index).

t-score (vs. market):
Estimates the probability that returns of setups S1 to Sx in comparison to at-any-time returns occurred by chance only, or there is a statistically significant probability that the respective setups show a statistically significant deviation from at-any-time returns (means a statistically significant out- or under-performance of the respective setup in comparison to the index’ at-any-time performance).