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Statistical edge in trading the indexes e-minis


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Statistical edge in trading the indexes e-minis

  #1 (permalink)
Bucharest
 
 
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Statistical edge in trading the indexes e-minis

I recently came across some very interesting articles that discuss statistical evidence of certain price behaviors during the trading day that could be taken advantage of when trading.
Al Brooks is one example of a discretionary trader that uses statistics such as - in 90% of the days the high or low of the day happen during the first 1.5 hours of the day - as a trading edge.

Are there experienced traders here who successfully use such statistical edges in their trading? which ones?

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  #2 (permalink)
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Rustic View Post
I recently came across some very interesting articles that discuss statistical evidence of certain price behaviors during the trading day that could be taken advantage of when trading.
Al Brooks is one example of a discretionary trader that uses statistics such as - in 90% of the days the high or low of the day happen during the first 1.5 hours of the day - as a trading edge.

Are there experienced traders here who successfully use such statistical edges in their trading? which ones?


I absolutely use that statistic every day! I trade between 8am and 11am and the low or high of the day happens approximately 40% to 60% of the time within the first hour or so. There are a lot of "things" for me to remember.

I am profitable finally after years and slowly becoming more of a "retail professional" I guess. But I do not trade in a mechanical way, at all. I'm very creative naturally, so maybe a way of explaining it is to connect your left and right side of your brain and then you'll get my "system".

Because look...here's an example having to do with the opening range... you might be buying support right? Then suddenly support is a trap-door that opens downward with a rush of selling on the Tape, and you need to be flexible to at least exit and possibly reverse (realizing you are wrong vs being shook out unnecessarily). Also, there are days I scale into my position. Today at open I sold, and I kept selling, because I knew price was near resistance and prior highs that held. It rode a little bit against me, but not enough to even make me nervous at all.

I'm a scalper who refuses to trade more than 3-4 hours a day. So even though I do use that statistic you mentioned, I don't turn 1 single statistic into a full blown "mechanical system". I try to keep my trading loose.
I can attribute most of my improvements to monitoring my psychology and learning how to use the Jigsaw platform. I'm reading the tape for large orders and I have a tape for small orders, as well as total bid/ask at each price summarized. My alerts are set for large trades, icebergs, and divergences (good for turns, absorption, or knowing when price is stalling).

I'm looking for momentum in the tape, is the tape speeding up at a turning point?
Cumulative delta vs price is often helpful. When you get a massive divergence lasting hours, that's the big trade about to pop! That was yesterday's long...a negative divergence with price trading up steadily.

I don't know what I would do without a proper Time & Sales tape at this point. It would be like trading blind. It saved me on Monday..all it took was 1 trade to show up for me to close and reverse. Eventually the cards are shown and if you watch closely, you can take a "free" ride.


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  #3 (permalink)
Bucharest
 
 
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133usd View Post
I can attribute most of my improvements to monitoring my psychology and learning how to use the Jigsaw platform. I'm reading the tape for large orders and I have a tape for small orders, as well as total bid/ask at each price summarized. My alerts are set for large trades, icebergs, and divergences (good for turns, absorption, or knowing when price is stalling).


Sounds easy but I am sure it isn't.
Where did you learn to read the tape?
What or who influenced your trading the most? e.g. how did you decide to trade the /ES, or trade the opening hours etc'?
How did you find out about the 40-60% stats?

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  #4 (permalink)
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Here is a similar type of stat that I find helpful.

The historical odds of an inside day in the ES futures (using regular trading hours) is 10.7% based on data going back to 2003.

That means ~89% of days will have a higher high or lower low compared to the prior day.

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  #5 (permalink)
Bucharest
 
 
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InvestiQuant View Post
Here is a similar type of stat that I find helpful.

The historical odds of an inside day in the ES futures (using regular trading hours) is 10.7% based on data going back to 2003.

That means ~89% of days will have a higher high or lower low compared to the prior day.

Interesting, I will need to think about it.

Can you give an example of how you use it?

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  #6 (permalink)
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Rustic View Post
Interesting, I will need to think about it.

Can you give an example of how you use it?

Sure, and example would be you open near the middle prior day range and see choppy action early on, then you see sellers start to become more aggressive and it breaks out of the opening range to the downside, you could get short on the breakdown from the opening range and target the prior day low knowing that odds favor a break of either the high or the low from the prior day. Now it doesn't mean there is a 89% probability of the prior low getting breached, but in this example you are seeing sellers start to become more aggressive so following their lead would give you a nice stat to lean on as well.

Below is a picture of what it might look like. This is a 5 minute chart including 2 days of price action. The prior day high and low are marked with dashed lines. The 15 minute opening range is highlighted in blue. The entry would be the break of the 15 min opening range low. Your stop would depend on how you trade but a few ideas for stop placement could be above the 15 min opening range high, above the prior day high, or based on volatility like a percentage of the average true range.


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  #7 (permalink)
Bucharest
 
 
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I understand and appreciate your example, but I don't see how this is using the statistics you mentioned.
If the chances of the price breaking out to either side is X% or Y% was not really a factor in your decision making..

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  #8 (permalink)
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I have an indicator in downloads called stat suite that is a framework to help you generate statistics like this in ninjatrader. One indicator will show you the probability of a certain event. The other will show you the distribution histogram of a given value (IE bar range).

I created a thread about it here:


My offer that I'll help write out any stat you want to see in the thread is still good.

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  #9 (permalink)
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Rustic View Post
I understand and appreciate your example, but I don't see how this is using the statistics you mentioned.
If the chances of the price breaking out to either side is X% or Y% was not really a factor in your decision making..

This stat is not something I use for a trade setup, it's a piece of information that can be useful for managing a trade. The idea being there is a high probability stat of either the prior day high or prior day low being breached, so use those areas as targets once you see a setup that is working in the direction of that target. Hope that helps.

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  #10 (permalink)
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Rustic View Post
Sounds easy but I am sure it isn't.
Where did you learn to read the tape?
What or who influenced your trading the most? e.g. how did you decide to trade the /ES, or trade the opening hours etc'?
How did you find out about the 40-60% stats?

I don't recall where I heard the statistic about the 40%-60% of the high/low is within the first 1.5 hours, but I continued to see it often in my observations.

Jigsaw is a huge influence and I have no clue what I was trying to do before I had jigsaw (!?!?!). Seems silly to trade without it at this point! Kind of like a big a-ha moment I guess??? So that was a huge influence. I also watch a lot of trader interviews and I have learned from lots of my own past mistakes. Listening/reading about how pit traders trade also helped me a lot...idk why exactly.

Reading the tape I've learned partially on my own. I'm looking for pace of tape to speed up at the points I trade and for momentum. Just having the Jigsaw platform was a huge improvement because now I can see a summary of total trades at bid/ask at each price. I have audible alerts that also sorta train my brain as those follow patterns based on volume alerts. I use a divergence alert with a minimum volume set, to detect potential reversals. Prior to Jigsaw, I had no clue how a market order is aggressive vs a passive limit order. I didn't even know mechanics of how price actually moved, because think about it... each buyer has a seller to match it, right? Well ask a novice how price goes up....they say "more buyers vs sellers"...not possible. Watching Jigsaw videos explains it all...If you asked me in the past what absorption is, I would've been clueless!

I tell myself I'm a low frequency human algo, so when I sit down and draw my levels I want to watch, I also ask myself if it's an inside range trading day. I will scalp, scale in, scale out, add to winners if momentum is there, and a variety of mini attack plans. Everyday is different since participants change on a daily basis.
--> which is why knowing those random statistics can come in handy

I made $1000+ this week, huge for me, massive. Most weeks $400 to $600, still huge for me, as it's finally consistent.
I've come a long way from where I've started, that's all I'm trying to say. And jigsaw helped that big time. I still screw stuff up definitely. I also suck at mentoring, so if I happen to make millions, I will have no clue how to teach anyone LOL.

The best rule I've ever created is to stop trading once you hit a daily profit goal, that way you don't give back your profit. A lot of times I can be done in 1-3 hours each day.

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