Identifying trend and market conditions with stats.

  1. Market heading into seasonally strong period, end of January into early Feb. February itself has been strong first week. This shows that over the past 24 years, the end of Jan into beginning of Feb has, on average, been strong (this doesn’t guarantee the same path of gains, just that when this pattern has occurred, the market produced more winners or bigger winners.).

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2. SPY/ES futures has shown signs typical of momentum which usually carries it higher going out 2 weeks, though not without some form of consolidation first.

SPY closes at an ATH on the biggest up day in 20 days. This shows some emotional trading and chasing, which does carry some mean reversion. What happens if you bot the close, sold it 1, 2, 3, 4, 5…xdays later? Generally, the market continues to trend up after a few weeks, on average. Again, this doesn’t guarantee the same path of gains, just that in the past, when this pattern has occurred, the market produced more winners or bigger winners.

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3. But also QQQ and NQ futures as well: QQQ up 15 of the past 20 days. What happens if you bot the close and sold 1, 2, 3, 4, 5….x days later?

Summary: Market showed signs of momo, which doesn’t just rollover and die in a A shape peak. Typically results in some form of continuation. I don’t expect the market to match the past 100%, but these patterns have produced either more winners or bigger winners when they occurred. Feb and March has also historically been strong. Given these historical repeating tendencies, my bias is long.

 

 

 

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spy etf day trade based on stats

esstats spyetftrade

The system produced a bullish edge based on overlapping conditions. 56% probability is by no means a great edge, but the profit factor was enticing to me. A PF of 1.67 indicates that for every dollar I risked under similar conditions, I stand to make 1.67.

My plan was to buy the dips.

The market dipped and buyers ramped prices back to the open where I exited. What I’m upset about is getting out way too early (I always do).

Next time.

trades

es futuers day trading odds, buying the dip

esstatesestrades

 

Es futures stats were bullish. My goal was to buy the dip. Since the day before closed on the lows, I figured if the market will rally, it will do so fairly early (bull market behavior!). I entered on the first small spike down and exited on some spike action on the way up. I missed out on a huge run up, this is a problem I am trying to address on both a psychological as well as systematic space.

YM buy the dip statistical odds trade

ymstats ymtrade

 

Statistical odds for the YM futures were bullish with 60% chance of closing green. I waited for the market to drop a bit according to my intraday VSA rules and got long. I exited when I saw a large range spike, thinking the market would come back a little before moving forward. That was pretty dumb of me, but at least it’s a profit.

Losses are important in trading

Pullbacks are important for the market. They serve to flush out rampant optimism and reminds everyone of risk. People who think about risk make educated decisions. It keeps the market efficient. A market that continues without pause creates an imbalanced demand and supply equation. People feel comfortable buying higher and higher, people forget about risk and everyone is long from overvalued prices.

When the market finally corrects, it tends to be much quicker and much more fierce. If everyone is long, who is left to buy when the market finally drops?

Your equity curve is like a stock chart, you need pullbacks along the way. Why? Because those are when the real lessons are learned. Losses reminds us of risk, it refocuses our attention on the type of game we need to play in to win in the long run. Losses motivate us to research more, to think more and to correct our mistakes.

Compare this to what winners do for us mentally and emotionally. Winners make us complacent, cocky, arrogant, maybe even lazy. We feel we know everything there is to know about the market. We give ourselves the “I made it!” speech. After all, who needs to research when we are already making money, right?

I guess what I am trying to say is embrace losses. If you embrace them, you won’t fear them. If you don’t fear losses, you can take them naturally and not let them get out of control. This is more of a reminder to myself than to any of you. But if you find it helpful, well that’s cool too.

 

ES Gap fill and hold until close trade

Stats for the day were bullish, high chance of gap fill and closing above the open. I entered long a few minutes after ES open and experienced a pretty big draw down (comparable to my profits). I was still confident in the trade. Even if the market did not fill the gap, it should close above the open.

I would normally hold for the entire gap fill, however, because ES dropped so much (compared to the average range), I thought it would be difficult for the market to rally much further. In my experience, complete reversals are not that common. As you can see, my extincts proved accurate for the day as the market essentially closed where I cut.

This trade honestly had a terrible entry, I’ll try to do better next time.

esstats

ESTRADE

estrades

YM gap fill trade and nq odds

Stats for the morning trade was bullish, signaling a gap fill for the NQ and the YM. I usually don’t trade all my stats, there really is no point to since most of the indices are highly correlated and I can make up for it by using size. Today I chose the YM over the NQ because it was a bit more bullish. Based on the YM’s configuration of the past few days, it had a 70% chance of closing above previous lows in addition to the gap fill. I took the long a few minutes after the open and exited just before the gap filled.

ymnq

trades

Trading and discomfort

I cut winners early because I want to lock in a profit.

I hold on to losers because I don’t want to realize a loss.

I ignore system trades when “feeling” afraid, only to see those trades win.

But, this is not a defect of my personality (or yours). Centuries of survival instincts have made the human mind very irrational when dealing with matters of money. These same irrational money tendencies have been studied in apes which imply that risk/reward instincts stem from a very ancient and un-evolved portion of the brain.

When dealing with issues of survival, information bypasses the logical thinking and shoots straight to the fear center, otherwise known as the fight or flight center located in the amygdala. The same instincts that keep us safe ironically makes trading a very dangerous profession for the the uninitiated. Emotional impulses desperately seeking comfort and security hinders the ability to make logical risk decisions. We can’t take a loss because it goes against untrained human nature.

This means that proper trading is very difficult. Usually the correct trading decisions are very uncomfortable as they stand against the mind and body’s natural urges. Traders must suppress a lot of their instincts and intuitions to make money. A lot of what “feels” right in the market is completely wrong.

The good news is that due to neural plasticity the brain can be trained with focused practice. As martial artists train and build new connections, it forces the brain to adopt new automatic emotional and physical responses when faced with certain kinds of stress.

Indeed, it can be done but you need focused and dedicated practice, and most importantly, time. Simply understanding “how to trade” is not enough, you need enough experience and practice that your brain carves out new pathways.

If you are struggling, don’t rush it. Make sure you have enough capital to sustain through the learning curve. Adopt good processes and practice, practice, practice. Eventually your brain will adapt, as it was designed to do.