The sky is falling! The sky is falling! Financial news likes to package the day’s narrative into a bite-sized morsel of a headline. “Fear of Covid-19.” “Fear of inflation.” “Fear of higher interest rates.” “Fear of higher taxes.” “China tariffs.” Sound familiar? These are the type of typical round-robin narratives financial media spews out every single time markets suffer a steep fall. They just rinse and repeat. But, are they right? Well, there’s no way to actually prove them wrong, so they may be right! However, why don’t we look at the stats, particularly the past price action stats for the last quarter, or to be more granular, the last 12 weeks, and see how Mondays (July 19th was a Monday) performed in the recent past.
Below, I have captured actual price action stats from the last 12 Mondays preceding the July 19th Monday, for the E-mini Spooz (E-mini S&P 500 $ES_F) based on precise times (remember, in order for past price action stats to be meaningfully measured, we need both the day, and the precise start and end times), and all the way at the bottom of these images, I have the $ES chart from July 19th, 2021:
You will notice from the first image as captured using Price Action Harvester™ (the indicator not the automated trading system) when I applied it to NinjaTrader’s Market Analyzer, which is 6:45A to 10:30A PST, the market was down 75% of the time based on the last 12 Mondays during the 6:45A and 10:30A PST time slot! Moreover, starting from 11AM and increasing the time-frame measured by 15-minute increments, you will notice price had moved up based on past price actions stats, nearly every 15 minutes until RTH close!
Did that same pattern play out on July 19th, as it had primarily played out in the last 12 Mondays? Yep, it sure did! Of course the fall and rise had a steeper grade line on July 19th, but it doesn’t mean the fall was completely unforeseeable, as it had happened a majority of the time in the last 12 Mondays! Moreover, was it foreseeable that from 12P to 1P PST the market was going to move higher based on past price action stats? Yep, it sure was, because during the last 12 Mondays, the market had moved up 66.67% of the time between 12P and 1P PST!
At Pinnacle Quant, LLC, we believe if something has occurred in the market place in the recent past with relative consistency, then the odds are it is likely to happen again. It’s obviously not guaranteed to happen, but the odds are that based on past price action stats, so it is likely to happen again.
Imagine if you were asked to place a wager on an MMA fight. On one hand you have a 17-0 fighter, and on the other a 3-14 fighter. What are the odds the 17-0 fighter is going to win a fight against a fighter that has lost a majority of their fights? Same concept applies in trading. The same traders that were trading those time-frames, weather they are trading via algos or manually, may be looking at the same set of data, and placing the same bets. Of course, past price action stats is not the only factor. For example, there are many other factors in our Price Action Harvester™ Automated algo, but looking at what happened in the past over particular days and particular times sure seems to be helpful in determining potential price action patterns.
Want to see how professional trading firms use past price action stats as a component of their trading algorithm? Attend a FREE webinar on August 5th, 2021 presented by Raffi Sosikian, principal at Pinnacle Quant, LLC, a Commodity Trading Advisory firm that specializes in building professional automated trading systems. This webinar is hosted by NinjaTrader Ecosystem. Register today!