Wednesday, December 21, 2005

Up On the Day, Down From the Open

Note: Some people are trying to post spam to the comments section of the site, so I've gone to moderated mode where I have to approve comments before they're posted. Please excuse the delay that this entails. Rest assured that I welcome comments and will do my best to respond to all legitimate ones. Thanks.

Well, Wednesday was interesting in that it followed the recent posts on this blog. We did see strength after the flat day in a downtrend, and we did see weakness following an up open.

One other thing interesting about Wednesday: We were up for the day, but down from the open. Looking back to January, 2003 (N = 747), I found 60 days in SPY that were up days, but which closed below their opening prices. Two days later SPY averaged an impressive gain of .57% (43 up, 17 down). All other occasions averaged a two-day gain of .05% (356 up, 331 down). If you go back to earlier posts on breadth, you'll also see favorable forecasts arising from relatively flat days that had strong breadth (such as Wednesday).

An up day that finishes below its open sounds weak on the surface and might lead to expectations of weakness the next day. Such expectations have not panned out since 2003.


txtrader said...

"Weakness on the surface" that's the key part of it.I noticed a lot of stocks still holding well,even as the S&P came down.To me it seems this thing may not roll over as soon as expected.Factor in the holiday effect as less of the big money will be involved and the markets may just get a few days of upside next week.Just an opinion,I'm enjoying your analysis.

Brett Steenbarger, Ph.D. said...

Thanks for the note. The Demand/Supply stat that I follow on my Trading Psychology Weblog tracks underlying strength and weakness quite well, and it definitely picked up on what you're observing.

Lynn H said...

I just found your web and weblog. I plan on studying it fully. Thank you. I have two questions at this point.
1. How do I use your sites to aid me in becoming a sustained profitable trader and 2. What were you specifically thinking of when your wrote "The next great advance in trading technology, I believe, will be the creation of dynamic learning environments that serve as the electronic equivalent of chess books".
Thanks Lynn

Brett Steenbarger, Ph.D. said...

Thank you for your questions. My sites are designed to help traders think about themselves and think about markets. The Weblog tracks day to day strength and weakness primarily in the ES market; the Articles offer perspectives on trading psychology and performance. This site, TraderFeed, is designed to look for historical edges in the next 1-3 trading days. How traders integrate this information (and whether they do) depends wholly on their trading styles. My hope is that the information can provide useful context for discretionary traders, a la the saying, "Chance favors the prepared mind."

My comment re: dynamic learning environments stems from my conviction and experience that realistic trading simulations and the collection of metrics on one's trading *greatly* accelerates the learning curve for new traders and greatly enhances performance for experienced ones.