Monday, January 25, 2010

Recalculating Daily Profit Targets

As regular readers are aware, a cornerstone of my preparation for the day is calculating price targets for the trading session, so that I can handicap the odds of hitting those objectives. Having concrete, backtested targets in advance is helpful in holding winning trades.

What makes the targets I calculate different from normal "pivot levels" is that I adjust the targets for recent market volatility, so that the odds of hitting a distant target in a high volatility environment are similar to the odds of hitting a more modest target when volatility is low.

In the last couple of years, I've made several adjustments to my calculations so that the targets work as well as possible in providing guidance in terms of how far we're likely to move up or down. Over the last few days, I've made yet another adjustment. I'll be keeping the methodology proprietary for now, but will continue to post target levels in my morning Twitter posts (subscribe to the Twitter stream free of charge here).

Here are the pivot, resistance, and support numbers with the revised methodology for this morning for SPY:

Pivot = 109.81
R1/R2/R3 = 110.93/111.31/111.68
S1/S2/S3 = 108.69/108.32/107.95

To calculate rough equivalent values for the ES contract, multiply the above numbers by 9.96. In the tweets, I refer to this conversion factor as ESf.

For more on the targets, see the links below: