trading analytics

One question that most people interested in investing would like to know is : how much money can you make on a specific investment? What is the potential ROI  or Return on investment? The answer to this question, for any investment, should be : it depends on your time scale.  As a genreal rule, as long as the market goes up on the long term, that the longer you hold a position, the longer your potential returns are. Warren Buffet made his money buying early and holding for extremely long period of time without selling. This idea is also valid in the bond market: unless there are special circumstances (yield curve inversion), longer term bonds give better yields than shorter term ones: 2 year bonds will give lower yields than 5, 10 or 30 years bonds. Also, holding a position for a long time provides enormous tax saving benefits.  For day trading, on a single trade, you can make more money if you buy and wait 15 minutes instead 1 minute to sell your position. Of course, the...

In statistics, averages can be tricky. On a winning day, the S&P goes up on average 0.76% of the index, and on a losing day, it goes down 0.79%. The problem is, as people know, most of the time the market is relatively stable, but there are moments of violent volatility that can blow years or earnings in a few days or months. So averages are not really useful to understand stock markets. The goal of this article is to help readers have a clearer high-level view on how much and when the market is more likely to move violently. Note: The following paragraph relies heavily on the notion of quantile. If you are unfamiliar with the quantiles used in the calculation, you might want to have a look at the appendix at the end of this article. We have plotted the yearly price movement using an idea close to the standard deviation. In theory, when a dataset is normally distributed , a standard deviation of 1 ("std1") should represent 68% centered around the mean, a standard deviatio...

In the previous articles, we analyzed the return on investment of going long every day on the S&P 500 and found out this would be a profitable strategy. In this article, we will try to see if there are ways to utilize some very basic concepts of market profile to improve this strategy's return. What is market profile? Developed by J. Peter Steidlmayer in his book Mind Over Market , market profile displays prices on the vertical axis and time on a horizontal axis of a chart. The approach is very complex, in this article we will use only one concept: the value area. The value area represents the zone in intraday trading where the market spends more than 70% of the time.  If the price reaches at least once during a 30 minutes block, a Time Price Opportunity TPO block is created is added to the chart. Traditionally a letter is used to represent a TPO, but we use a number to make it easier to read (see graph below). Just with a glance by looking at the three long bars on the profile...

As we have seen in our  previous article , over the last 90 years, the S&P 500 ended up with a positive daily return a little bit more than 50% of the times. Over the last 5 years, the average was about 53%. If every day you were long, you would have been right 53% of the time, and therefore you would have made money on these days. On the other hand, on the days you would have been wrong, you could have lost as much as 3, 4 even 6-7% (March 2020). It is therefore very important to use stop losses to minimize losses when days are not going our way. Every trader has to ask the question : What would be the right number for a stop-loss? This article proposes an approach based on historical data and statistics.  Step 1 : Use Open-Low difference historical data as reference As a theoretical exercise, we looked at 5 years of ES data (S&P 500 futures), from October 2015 to October 2020. Futures are traded 23 hours a day, so we restricted the time frame to 9:30 to 17:00 Eastern...