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June 12th, 2022, 05:28 AM

Baby steps towards swing trading

My goal for this autumn is to start Overnight holding of my positions and possibly upto 3 days.

I am just starting my homework/prep for several scenarios and hoping to use stats for that as well.

Let's assume a scenario where I was short on Friday. Whilst sitting on a decent profit by close, is it advisable to square off my shorts or carry on over the weekend?

Stats show that the Friday low was taken out on Sunday overnight by an overwhelming majority of 80% of the times. However, the close on Friday was very close to the LOD. Hence the reward is not great.On the other hand, Monday RTH opening price is more likely to be a gap up rather than a gap down. 60v40. So the risk seems more.

Finally, Monday RTH is favourable for bulls (if we gap up open). So overall, it's NOT sensible to hold short trade overnight under the current market conditions.

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If I am really adventurous, I can even play the opposite. @ Sunday night, enter long below Friday's low then hold till Monday RTH open for an expected gap up (both are high probability scenarios). If we gap down, then I exit @ RTH open for a loss and consider initiating short as it's a bearish scenario for Monday.

I understand it may sound complicated especially for scalpers but I want the Market to work for me and hence want to hold the positions for as long as possible.

June 13th, 2022, 09:08 AM

June 13 2022 Prep

Interesting scenario today.

2 Big down days last week and a big gap down open (more than 2%) Monday AM.

Stats wise, it's strongly bullish. Surprisingly no ambiguity except a small seasonal bearish factor of Monday gap downs.

Though I am going to consider long only today and not arguing with the stats, I can't help but notice my bearish thought patterns. (and excuses to NOT follow the stats saying 'this time it's different').

My perma-bear tendency is wide awake this weekend and I'm back to my fundamental analysis. (mostly looking at the reasons why market is heading down). I have stepped up my game on intermarket analysis and recently reviewed the business cycle model of early contraction when stocks and bonds goes down together. It's a complicated financial world and I can see myself as a student for years if not for decades. My main worry is to look for confirmation bias in the analysis that supports my bias, which is usually bearish.

Hence, I prefer to stay with pure stats based trading for now. However, I am keeping a note of 'gut feeling trading' for each trade and will compare that with stats based trading.

June 13th, 2022, 10:55 AM

July 13 update

Currently long from open, as per plan. However it's only 1/4 size as it's counter-trend & not aligned with my gut feeling and technical analysis. I did try to scale in but quickly got out as it's a slow creeping down day (which is usually bearish). Every little bounce has been sold so far. Reversal looks unlikely but you never know. I am ok taking a loss by following my methodology and my goal is to keep it lot smaller than winners.

Not adding to my long but may consider if we make new HOD. Otherwise EOD closing of my small position. (since ATR is high, even small sizes can cause significant loss though).

June 13th, 2022, 10:38 PM

June 13 2022 Recap

Stats didn't work out and we had a low probability outcome. My long was obviously a loser.

To begin with, gap down was a lower probability event after Friday's selloff. To make matters worse, the bounce was very shallow at the opening. Subsequent vwap test was quickly rejected and sellers were in control throughout. This suggests that there may be fundamental changes and perhaps this time is really different. We will see.

Though I had a short bias, I had to take my long as per my rules this month. I kept my position small. However, I scaled-in at poor location, a bit too early, and hence the outcome is slightly worse that I hoped. It's still much smaller than my winners though. In the future, Ideally I would like to reverse my direction once new lows are made or when vwap poses strong resistance with rejection.

Reversal trade was my achilles heel in the past. I mostly avoided it recently and When I do try, it's with hard stop and often very close. It looks very appealing as the risk reward is often more than 3R. However, it's very easy to be shaken out even if it works out eventually. More often than not, it just continues in the original direction. Like today.

I will do stats analysis for reversal days today. Not sure how easy it will be. Will try.

June 13th, 2022, 11:48 PM

Stats homework - Reversal trades

Let's analyze it for days like Monday. i.e. Gap down open below the previous day's low.

We had close to 400 occurrences.

1. Over 55% of the times, the day's closing price was 'higher' than the opening price. hmmm. Lot more than I expected.
2. The Gap was closed on 40% of the times.
3. The pivot price (RTH) was exceeded about 1/3 of the times.
4. The 'mid' of the previous day was tested on 25% of the times.
5. Previous day's high was tested only 5% of the times.

In terms of the actual low point for a reversal entry, price overwhelmingly moves further down before reversing. Hence no hurry in buying the open. S2 entry with opening price target seems to be a good strategy in terms of Risk vs Reward.

June 14th, 2022, 01:57 AM

Narcissus

June 13 2022 Recap

Stats didn't work out and we had a low probability outcome. My long was obviously a loser...

It is important to see WHEN a gap (end of cash to cash opening) is too large to be closed. That in mind, a bias to see the movement 'for sure' will no longer exist.
With the help of the Kumo (Ichimoku indicator) one can see the support or the resistance for an opening price and further development.
Yesterday in the DAX I did not see any chance to close that monster gap. So a further red day was ahead.

Just my 2c.
GFIs1

June 14th, 2022, 03:34 AM

GFIs1

It is important to see WHEN a gap (end of cash to cash opening) is too large to be closed. That in mind, a bias to see the movement 'for sure' will no longer exist.
With the help of the Kumo (Ichimoku indicator) one can see the support or the resistance for an opening price and further development.
Yesterday in the DAX I did not see any chance to close that monster gap. So a further red day was ahead.

Thanks for your input and I agree with your observations. Bias was clearly to the downside, both from S/R & Trend/Momentum point of view. I do use EMA crossover strategy similar to Ichimoku, developed by Ripster. (I will elaborate on this @ a later post). Anyways, my preferred direction @ open was short too.

However, I'm testing 'only' the statistics this month and keeping all the other variables like indicators, price action and gut feeling neutral. This is to see whether stats can be useful in my future trading strategies.

Note that I have used 60% ATR as gap (which is a mistake on my part, in order to maximize sample size to 36). We actually had a 90 to 100% ATR drop which happened only 9 times in a similar market environment the last 20 years.

After your post, I went through the stats again and what I found was fascinating.

Gap down size & Profit factor

60% - 1.8
70% - 1.32
80% - 1.15
90% - 0.84

I can clearly see the trend now. As the gap increases, it's less favourable for longs and Yesterday clearly favoured shorts. It confirms what you observed from your experience with actual raw numbers from the past!

Obviously stats is just one piece of the puzzle but the one that has been missing in my methodology for years. Hence, I am putting everything else in the back burner, for now, until I get more clarity & utility of stats. It's looking very promising, I must say. Thanks again for your contribution and keeping me on my toes.

June 14th, 2022, 09:29 AM

June 14 2022 Tuesday Prep

Stats are bullish.

Will go long @ RTH open.

Will attempt to scale in during vwap test. May add once below ONL if deeper pullback. Will see.

June 14th, 2022, 11:47 AM

June 13 update

Still long. Price action bearish so far and every bounce has been sold. I scaled out @ vwap but subsequent scale in didn't work out.

I scaled in again at Y low. I'm not out of the woods yet as vwap holding price down. I will hold my long till EOD with the expectation of ONH test, which is still within daily ATR range.

Sent using the NexusFi mobile app

June 14th, 2022, 11:00 PM

June 14 2022- Review

We had a lower probability event play today and hence my long didn't work out (I like phrasing this way as it feels less personal

)

My loss was kept to a minimum though by making 2 changes.

1. Though stats showed that we had a higher probability of bullish close @ EOD in similar market conditions, we often tested the previous day's low in EU session. Hence I didn't jump in @ the open. I waited for a retrace to Y-Close and entered for better price. I scaled out @ vwap during the 1st bounce.

(I lost some discipline in my 2nd trade and scaled in way too early and paid a price for that).

2. Once Y-L was tested, I went long again. Though the expected bullish move didn't happen, the bearish move didn't cause much pain as the price closed at breakeven.

Though it's a small losing day, it's mainly from my lack of patience. This is a good example of how I can preserve money even when the stats don't play out purely by execution skills.

I am a big fan of running P&L which is a perfect match of my emotional ebbs & flow.

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