The simplest kind of intraday trading is to initiate a position at the open of the day and exit at the close. Although it sounds simple in principle, this type of trades require good timing of entries to maintain a high profit factor. Quite often, markets gap at the open and move laterally for most of the day leaving no room for profit to such simple trading methods. In this report we will look at the probability of win for opening a position in SPY and QQQ, as calculated by the p-indicator, for Friday, July 15, 2011.
In the screenshot above, p-indicator results for SPY and QQQ are shown for entry at the open and exit at the close. The p-indicator is a technical analysis indicator based on price patterns that considers the whole available price history of a security for calculating a probability of directional moves. In this case, it is used to calculate the probability for a position that is entered at the open and exited at the close.
The results indicate a higher than usual win probability P-long of 61.44 for SPY. The corresponding probability for QQQ is lower and equal to 53.25. What is the meaning of this probability? It means that, in the case of SPY for example, based on historical daily data since 01/1997, the probability of success of a long position initiated at the open and exited at the close is much higher than the corresponding probability of a short position. Specifically, for SPY the difference between P-long, the win probability of longs, minus P-short, the win probability of shorts, which is indicated as P-delta, is equal to 22.08. This difference I call the directional bias. A figure of 22.08 is much higher than the mean and its significance is equal to 7, a moderately high figure.
Thus, the p-indicator points to a higher close than the open for SPY, for today, Friday, July 15, 2011. Like all indicators, the p-indicator also generates false signals. Probabilities are not related to events themselves but only to their frequency of appearance, in the sense of the low of large numbers. At least this is just one of the many interpretation of probability. Also, what is measured in terms of probabilities holds until the close of the next day, when the indicator is recalculated. This applies to all technical analysis indicators.
For more p-indicator results click here.
Disclosure: No relevant positions before the submission of this post.
Disclaimer: The author is not a financial advisor and does not recommend the purchase of any security or advise on the suitability of any trade or investment in any timeframe. ETF, stock, futures, forex and options trading and investing involves substantial financial risks and can result in total loss of capital. If investment or other professional advice is required, a licensed professional should be consulted.
