The Daily Market Forecast... Lesson Day

Today’s Lesson: Know your trade probabilities.

One certainty we have in trading is that price will move. Which way and how far are what we must figure out. Guessing doesn’t work. Using probabilities based on a large body of evidence does (at least enough of the time).

You get your probabilities by capturing trade data (lots of it) and analyzing. Most traders will initiate a strategy by back-testing and documenting what happened. The more stats you have for each historical trade the better.

Here are the key statistics you’ll need to know for both long and short entries (strategies are rarely “symmetrical” which means your eventual rules for longs and shorts will be different): win%, average winner, loss%, average loser, maximum adverse move, maximum favorable move, time of day, higher timeframe trend, etc.

You already know to capture and use the win/loss data. A strategy that wins 50% of the time and has a bigger average winner than loser is a great candidate. Any combination of those stats that has a positive expectation is good.

What may be new to you is the concept of maximum favorable and adverse move. This is simply how far did price move IN and AGAINST your direction before the trade terminated. Obviously, you’ll need to establish entry and exit (profit target) rules before you’ll know these stats.

Follow on the chart above. Logically, the maximum adverse move is your stop loss price. But what is vitally important is knowing for all those trades that DIDN’T stop out, how far does price move against you.

The trade above had a stop loss of 4.50 points. The maximum adverse move is 3.75. Why is this important to know? Because you can better fine tune your stop placement. For example, in our Volume Profile strategy trading the S&P futures (analyzing nearly 10,000 trades) we know, statistically, that only 5% of the time will price move against the entry by more than 5.75 points. Voila! No need to risk more.

The same logic applies to profit targets.

For Thu 211021 (Plenty can change by the open, be aware.)

Globex Review: One takeable trade currently still open with 14.25 points favorable move so far. 

Day Session Analysis: Sentiment is mildly bearish. Stats say longs will prevail. Jobless Claims should determine the early trend. Willing to trade either direction.  Thursday (both sessions combined) garnered ONLY 4% of all the gains over the past 5 years in dollars. Breakouts (95%) crush Reversals (5%). Consider not trading Volume Profile (however recent data refutes this). Trading ES/CL/GC using BB Rev with filters (download the new Edge). Looking to establish a ladder on the SPXW once direction is suggested.

S&P 500 Futures CPL: 4524.50/4527.25. We’re trading BELOW the CPL (short edge below, long edge above) and BELOW the equilibrium 4520.25/4523.50 (open below = short edge, open above = long edge).

The World Index: (+100/-100) DROPS from +21 to -36 with most major world markets bearish (longs should outperform shorts).

Catalysts: Jobless Claims & Philly Fed MFG Index @ 8:30. Existing Home Sales @ 10:00. TSLA misses on revenue (maybe the profit beat was from Bitcoin?). Inflation fears increase.

Trends: 60 min DOWN not RANGE, daily UP (no clear edge).

Low outside day: Win% and Stop% remain normal, longs CRUSH shorts earning 10X the profit. Opening -0.25%. $TRIN XMA eases to 0.89. Long term outlook stays long.

Globex: The range of 17.50 (likely wider after Jobless Claims) suggests a day session range around 33 points on a FALLING ATR of 48.08. Prior forecast around 27 points, actual 17.75. Trade Well,

Mike Siewruk

P.S. For a free “mini-course” packed full of lessons on HOW to trade the Blog… Watch this video.