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I haven't stopped thinking about future goal of 'holding positions overnight'. Infact, I constantly research and had many interesting observations. I will share them every now and then here with some practical examples.
Yesterday I was short and was rewarded on a trend down day. The question is 'Is the down-trend likely to continue overnight?'. In other words, are we more likely to open gap down next day?'. Anecdotally I would say yes. Trends tend to continue, right? Let's look at the real data.
First things first. What I have found is that Market behaves differently in different 'regimes' or 'seasons'. I have divided them into 4 for the sake of my primitive brains understanding. This is based on Moving Averages and VIX. What's astonishing (perhaps not) is that ES behaves differently in these conditions.
Strong/Weak Bull & Strong/Weak Bear
In the last 20 years (5000 trading days), we closed lower on 2250 occasions. Interestingly, we open gap down on only 40% of occasions. So, in general, it's NOT a good idea for me to hold my winning shorts overnight after a down day. When I looked at this specific market condition, it get's lot worse and only 30% of the times we had overnight follow through. i.e. gap UP is lot more likely the following day. It gets wierder once you consider the fact that previous day low was likely to be tested on 75% of the times overnight, before RTH open.
Hence the ideal strategy would have been holding my (hypothetical) short position overnight but take profit below Y-L and get out before RTH open.
15 minutes into open and I'm still waiting. Buyers are barely winning with regards to price movement but lot of tick and delta support underneath.
I'm unsure what to make of it. Still not a good location to trade.
I'm however considering shorting above ONH @ 4025 so that weak shorts can be shaked off before journey south. Expectation is a decisive test of 4000 levels with another high ATR day. Let's see.
Though ES range was exactly what I expected, I was unable to monetize my thesis.
My limit short at 4025 above was not filled early on. Then ONL was tested. Though I took a stab at shorts subsequently, I was struggling to read the price again. I was also distracted with some house issues and mild fever. Hence got out breakeven. Never a good idea to trade when I don't feel balanced.
I'm actually lucky to have 50 SPY long position from EOD order. Another example of how mistakes happen when I'm not 100% emotionally and physically. However, on this occasion, I'm not complaining.
I will add more position if there is a pullback and possibly even @ RTH open (due to the strength of the bullish sign).
Planning to load more if pullback comes down to ES 4010.
I have a handful of reliable market behaviour with high profit odds. Today is one of them. Ofcourse, I can loose money but I'm willing to go to max position on days like this with proper risk managment.
The pattern is 'Lower close followed by Gap UP open above Y-H'.
This happened on more than 200 occasions. Win ratio is a respectable 58% and profit factor of 1.4. If I look at the current market conditions, I had 50+ samples and the result is a pretty impressive 65% win rate with PF 2.3. I don't see that kind of strength very often.
I'm only 1/2 my position size @ 100 SPY. I'm hoping to push it up to 200 but the dilemma is between buying the strength vs buying the weakness.
I did scale in and bought around 4015 but scaled out breakeven. Though my intent was to hold till EOD, lower lows didn't 'feel' right and decided to go light with position size. It's a valuable lesson today that despite strong statistical signal, that's the past data and current price action is the king.
Still holding my original 100 SPY which saw $300 MFE and now $600 MAE. The day started innocous but turning out to be monstrous one. Will stick to my basic rules. If we bounce up to vwap, I will scale out. If not, I will take my loss @ the end of the day.
Big gap UP RTH open seemed bullish at the start. However, sellers were relentless and ES travelled down 70 points to take Y-L. Then we had a V shaped recovery and buyers almost made a new high. Intraday!
Despite having a losing trade, I think I managed it reasonably well. except for the early aggressive scaling, which was unnecessary, but that was intentional as I have been trying to push up from 100 SPY to 200 SPY without much success so far.
I was prepared for a $600 loss day but instead I was down ONLY 150 in the end. That feels like a win.
I don't regret my long trade as the signals were bullish. However, I will consider adding to strength instead of weakness of the market in my future trades. Easier said than done.