Quantifying key market days

Just out of a trade this morning. In profit, but not at target. As expected, the range is tight today — but tighter than the norm by about 19%. Rather than shift to a more granular setting on my execution chart, I’m just going to sit out for the rest of the day. Which gives me some time to think while I still have some focus left.

I’m still under-developed in my programming/analytical approach. This is something I need to resolve. Friday was a perfect example of the limitations in my analysis of the crude oil market.

I noticed during the late Asian and early European session on Friday that volume for Dec crude was twice that of Nov crude. The day before, volume for Nov was twice that for Dec. When this shift occurs, I move to the more liquid contract. It is a good idea to wait until volume in the forward month is sufficient before rolling over and not before — not because I believe that volume equates to price direction. Clearly, there are better indicators for price direction than volume alone, as has been proven over and over again in a  myriad of studies going back 20 years, at least. For me, it’s simply a matter of liquidity, in particular during fast market periods. A huge day for me is not measured in volume. Rather, a huge day for me is measured in terms of ticks, volatility and, in particular, the range.

So what about ticks, range and volatility on days like these? What about specific price/volume/time studies? Up to now, I’ve focused mainly on what happens at a given time of the trading day, with a given price pattern, without putting the day in proper context. Lots of traders talk about “end of month”, “end of quarter”, “options expiry”, and “rollover”. But how many of them quantify what happens during these important periods? I’m vaguely aware that these days are important and I take it on faith that something will happen. What that might be, I have no idea. Honestly, I have no idea how my trading models would perform differently on these key days compared to any other day. Until I have quantified these periods, my model remains incomplete.

On Friday, I was expecting a breakout, given the narrow trading days all week. The breakout happened, but I underestimated the strength of the move. Fortunately, I have a model that keeps me in 70-80% of such moves, if I can enter at the right price. But what if I could more precisely define, in all market trends, the probabilities of a contraction, or an expansion, or a duplication of the previous day’s range? What if I could more precisely define the probabilities after three consecutive highs or lows? Or two consecutive inside or outside days? Or the days before, during and after OEX or rollover? And what if I could compare that to the probabilities of what happens after other conventional patterns, like a narrow or wide spread day, NR7, etc.?

It’s time that I did something about it. Excel will do for now, but I’ll need a more robust software application to do the statistal work in front of me. Any ideas?


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