I have just completed a study of pivot straddles and there impact on gap fading outcomes. I have only looked at the ES and have used 10 years of 1min data. The assumptions made in this study were as follows:
1. Gaps only greater than 2 ticks were analyzed
2. 10 contracts
3. Exit 100% of Gap
4. Stop Loss 20 ticks (5pts)
5. Position closed at end of day if Gap unfilled
6. Commission $2.40 per contract
Case 1- all Gaps using the above assumptions and
Case 2- the 6 assumptions above but excluding gaps with pivot straddle.
What is a pivot straddle you may ask? Simply it is when the daily pivot is between the previous days close and the current days open. I will now post the results and then explain the results.
Case 1 Results
Case 2 Results
The results are that pivot straddles are a risk to gap fading as we saw today were we tested the Pivot twice but failed to transverse it. My study highlights this over a 10 year period that Pivot straddles reduce gap fading profitability by 12 cents for every $1.00 risked. We can see this by the Profit Factor for All Gaps is 1.15 and when we exclude Gaps where there is a Pivot Straddle we see the Profit Factor increase to 1.27 (ie a factor of 0.12). Furthermore, the percentage of profitable trades increases by 5% when we exclude the Gaps with pivot straddles as we would expect it to. It is also worthy to note that both Gaps up and down preformed similar in the study there was no real bias to long or short trades.
Conclusion, give consideration to pivot straddles when gap fading as they do impact the likelihood of a gap filling on the day.
Hope this helps.
Good trading and may all your trades have fat tails and flat distributions.
I have decided to share with you all an update to my correlation matrix for the end of the 2009 year. It is based off continuous contracts and the daily settlement prices over the last 12 months. There are bound to be some numbers that shock some.
Good trading and may all your trades have fat tails and flat distributions
Here is a study that I did just recently the numbers are fairly mind blowing but consistent with a lot of sources. The analysis was done from 19 Oct 1999 to 16 Oct 2009 so approx 10 years worth of data was used, test was with no stop just looking for gap fill. So are you sitting down….
the winners are Tuesdays, Wednesdays and Thursday as the best days to fade gaps 70%, 71.2% and 73% respectively as the probability of a gap fill on the ES and 65% - 69% closed within the first hour of trading. In fact the first 15mins was the largest percent of all gaps closed for all days of the week.
Hope this helps and may all your trades have fat tails and flat distributions!
Well the bears are in town! Yes here is my unfilled gap chart that highlights that we have 1009.50 as an unfilled gap magnet which lines up closely to the 89EMA on the daily and after Fridays session it all looks very achievable as a near term target!
I want to share some very interesting and what I think is very useful information that will allow some to formulate a trade set up that uses this probability to trade the range expansion of index markets.
All these tables that follow are based off the first 60 minutes of trading that is the Initial Balance or the first two sets of TPO’s on the Market Profile. The period of time was 52 wk rolling year to 28 Oct 2009. I have covered the ES, YM, NQ, TF, DAX, and Euro Stoxx50
Let me present my data and then I will explain it.
Now to explain the outcomes of this study. Lets first isolate the analysis to the 4 US index futures.
ES (Emini S&P500 Futures) has made 79 highs and 104 lows in the first 60 mins, that is a high or low - don’t mistake it for high and low which was only 3 times in this 1year study. The sample size for the ES was 249 trading days. This means that there is a 31.7% chance that the ES has made a high in the first 60 mins of trade, a 41.8% chance that a low is made in the first 60 mins and 1.2% chance that the ES will make by definition in Market Profiling and statistical terms a normal day where the high and the low are made on the IB (Initial Balance). Combining probabilities that the ES has made a high or a low in the first hour is a 73.5% chance.
YM (mini Dow Futures) has made 84 highs and 101 lows in the first 60 mins, and for a high and low which was only 2 times in this 1year study. The sample size for the YM was 250 trading days. This means that there is a 33.6% chance that the YM has made a high in the first 60 mins of trade, a 40.4% chance that a low is made in the first 60 mins and 0.8% chance that the YM will have a normal day. Combining probabilities that the YM has made a high or a low in the first hour is a 74% chance.
NQ (mini NASDAQ100 Futures) has made 86 highs and 115 lows in the first 60 mins, and for a high and low which was only 6 times in this 1year study. The sample size for the NQ was 249 trading days. This means that there is a 34.5% chance that the NQ has made a high in the first 60 mins of trade, a 46.2% chance that a low is made in the first 60 mins and 2.4% chance that the NQ will have a normal day. Combining probabilities that the NQ has made a high or a low in the first hour is a 80.7% chance.
TF (mini Russell 1000 Futures) has made 95 highs and 114 lows in the first 60 mins, and for a high and low which was only 5 times in this 1year study. The sample size for the TF was 251 trading days. This means that there is a 37.8% chance that the TF has made a high in the first 60 mins of trade, a 45.4% chance that a low is made in the first 60 mins and 2.0% chance that the TF will have a normal day. Combining probabilities that the TF has made a high or a low in the first hour is a 83.3% chance.
Hypothesis on US indexes that on the ES 98.2% chance, YM 99.2% chance, NQ 97.6% chance, TF 98% chance of the range expansion on one side of the IB, lets say in a broad sense there is 95% + chance that the US equity index futures will have some type of range expansion after the first hour of trading. If I was a betting man I would want these type of odds.
Now lets jump to the European index futures I have just looked at the DAX and ESTX50 applying the same methodology you can see that the numbers are drastically reduced in terms of the IB setting the range of either a high or a low in the first 60 mins. So the Hypothesis here is that there is 99.9% chance that there will be range expansion to the DAX and ESTX50 both sides after the first hour of trading.
Hope this helps and may all your trades have fat tails and flat distributions!
Welcome to Kurtosis Trading! Here at Kurtosis Trading we are Day Traders and Swing Traders this is a forum to provide information tips, trade setups and trade ideas on day trading and swing trading. We believe here at KT that information and education is the most important ingredient to the sucess of day traders. We are not a company of Financial Analysts publishing research and recommendations I will leave that for the IB and Brokerage Houses. All ideas are our own trading ideas and are intended for educational purposes but if you should profit from our ideas feel free to make a donation to help fund this site.
