The Daily Market Forecast... Lesson Day

Today’s Lesson: Winning streaks.

Yesterday was the perfect day… 6 trades all winners trading the S&P, Gold and Oil. The buy at 4560.75 for the S&P caught the exact bottom (read the September 24th blog to understand WHY you should always buy ON the proximal line moving your stop IN if need be).

Everyone enjoys winning streaks and no one knows when they’ll end. But they do.

How many wins in a row is likely? What is the probability? There is a simple mathematical formula to help visualize this called Theory of Runs. You only need two data points to determine the odds of the next trade being a winner: Total number of trades (sample size) and historical win percentage.

Before you shake your head when you read what the win percentage is for our strategies you need to know that breakeven trades are counted as “wins” simply because they are not losses. It’s a reframing technique to help your personal trading psychology. The number is around 60% depending on the asset.

Given the 60% win rate and the sample size we have of over 10,000 trades the Theory of Runs returns a probability of 4.67% that you’ll get 6 in a row. So yesterday was a relatively rare day. How about 7 in a row? Those odds drop down to 2.8% of the time. 8 in a row? 1.68%.

Given that we don’t really know when the streak will end and we’re certainly not going to stop trading, what good is this analysis?

It’s good to know because your expectations will be in check no matter what happens next. Many traders will size down after several wins. Others will be more selective. Take your pick or do nothing different. The point is be prepared for the loss and don’t worry about it.

For Wed 211027 (Plenty can change by the open, be aware.)

Globex Review: The winning streak continued with the short trade running 11.75 points to the next level and the buy at yesterday’s low catching 4.25 points before stopping out. 😊

Day Session Analysis: Sentiment is bearish. Stats point to longs outpeforming. Willing to trade either direction under Alt1 stop movement. Wednesday (both sessions combined) garnered 24% of all the gains over the past 5 years in dollars. Reversals (74%) crush Breakouts (26%). Trading ES/CL/GC using BB Rev with filters (download the new Edge). Looking for credit spreads on both sides.  

S&P 500 Futures CPL: 4572.50/4576.25. We’re trading BELOW the CPL (short edge below, long edge above) and BELOW the equilibrium 4571.25/4572.25 (open below = short edge, open above = long edge).

The World Index: (+100/-100) PLUMMETS from +29 to -50 with all major world markets flat or bearish (longs should outperform shorts).

Catalysts: Durable Goods & International Trade @ 8:30. EIA Petroleum Status report @ 10:30. MSFT beats and is up, GOOG beats and is off slightly.  Subtle tension arises with China about technology & Taiwan.

Trends: 60 min DOWN, daily UP (longs should outperform shorts).

Low outside day: Win% and Stop% remain normal, longs CRUSH shorts earning 10X the profit.  Opening flat. $TRIN XMA steady at 1.08. Long term outlook stays long.

Globex: The range of 19.75 (possibly higher by the open) suggests a day session range around 35 points on a FALLING ATR of 41.31. Prior forecast around 35 points, actual 29.25.

Trade Well,

Mike Siewruk

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