Statistical Trading Using the Open

Discussion in 'Strategy Development' started by trhudson, May 16, 2011.

  1. Does anyone use the Open as a key component of their trading method / strategy?

    My research shows that the Open is crucial to the direction of the trading day. I developed an Open Probabilities calculator that will gives ranges for where the Open may occur and probabilities of certain prices being met during the trading day.

    Working on a Gap Probabilities Calculator that will do the same for Gaps. I will complete this today.
  2. Open Probabilities for 5/16/2011

    Previous Day was: Down
    Open Between 134.81 - 135.34
    78% High Above 135.34
    47% Low Below 134.45
    Open Between 134.11 - 134.81
    43% High Above 135.34
    44% Low Below 133.56
    Open Between 133.56 - 134.11
    72% High Above 134.45
    77% Low Below 133.56

    This is a sample of the information displayed using the Open Probabilities Calculator. I have this information broken down into greater detail and will be increasing the functionality of this calculator soon. This will include taking into account many more variables in hopes to increase probabilities.

    This doesn't support Gaps, but that's in the works.
  3. The QQQQ's Gapped Down, so I will post them later this evening.

    The DIA Probabilities for 5/16/2011

    Previous Day was: Down
    Open Between 126.61 - 127.12
    80% High Above 127.12
    44% Low Below 126.27
    Open Between 125.94 - 126.61
    41% High Above 127.12
    44% Low Below 125.41
    Open Between 125.41 - 125.94
    74% High Above 126.27
    78% Low Below 125.41
  4. Lornz


    I focus a great deal on the opening range, which works surprisingly well.
  5. I will re-check these numbers as I just put this together, but here are the results for the QQQQ's. High Probability Trade didn't work out here as the QQQQ's didn't close the Gap even to the Low (missed by 7 cents).

    BLDD (Below the Low of Down Day)Analysis
    BLDD Count: 289
    BLDD Count Close the Gap: 189
    BLDD Count Low Close the Gap: 232
    BLDD Close %: 65.4 % Close the Gap to the Close
    BLDD Low Gap Close %: 80.28 % Close the Gap to the Low

    Working to make this better, will include Gaps by % as well as Gaps above / below Pivots among other things...
  6. Thee open is the one price ALL participants get.

    It's a price point at the discretion of the ax, in theory, to clean out the most open orders.

    But the ax is the one entity most married to the stock. They maintain inventory postures. An open, particularly a gap, could very well be his moving AWAY from his basis.

    Often, the biggest move of the entire session is the gap open.

    An open on bad news is usually the low of the day or near it. High percentage trade.

    Absent the alibi, until an opening range is established, it's amateur hour.

    IF I'm to be humbled by Mr. Market, it's apt to be on a gap open. Cannot be foreseen.

    In newspapers, the open column was elimintated around 1970 because it took up too much room. They had room for every bullshit ad or vignette. Might be a clue there.

    Alas, with technology, we have that price point readily available.

  7. Yes, the open is a large part of my trading.
  8. I will have to do more research on this, as I have been 'told' so many things about what happens when, I will just put it to the Test and find out. However, from what I have found, in this situation, the Gap fills 65% of the time back to the CLOSE. If this is the case, the market had to have at least a move intra-day equal to the amount of the gap 65% of the time back to the close.

    I do believe you may be correct, but I don't have the evidence to prove what is considered 'Bad News'...wish I did. My studies are based on price alone.

    However, in today's event, there was an Open Below the Low of a Down Day which historically has closed the Gap to the Low of the previous session 80% of the time and 65% of the time it closed the Gap to the Close of the previous session. In the Q's in particular, a gap down has about a 50% chance of closing up or down, so there is no evidence to prove that there is an edge in blindly buying a gap down. I will put more work into this and find out on a % basis if large gaps down often close up or not.

    It won't take long...Thanks PHP / MySQL.
  9. Gaps can be categorized. That's not the point.

    The point is a gap promotes "signs" of life. Ax intervention. An agenda.

    An unfilled gap, after 3 days, probably should run. Doesn't mean it will.

    Look at ticker SUR. Stagnant. Unfilled. I own it.

    With the absence of a gap, I consider it amateur hour until I can discern whether the low was made first or.......the high made first.

    I haven't back-tested anything. But I did buy my first stock in 1967 with paper route money. Mucho tuition to the skool of finance.

    Think about it, a 75 cent gap and eh.....25 cents more of movement. WHO made the most money off that "event"?

    Now take take total shares outstanding and multiply by just the gap. Walla, you have a quantified theoretical magntude. Volume for the day would be somewhat better. Some kind of market profile on just opening volume would be even better (but not precise since the ax had inventory the day before).

    Stats are appoximations not gospel, and not necessarily have predictive qualties. This is a predator/prey arena.

    The essence of my point is with the presence of an aliibi, the "open" is in play, in the absence of one, amateur hour.

    One more thing..............many over-emphasize entries, but exits are taxable events and where the money is made (or lost).
  10. Very interesting concept, but probably? or probability?
    #10     May 16, 2011