Interesting Data on the TRIN

[Soultrader 12]

Stats for the YM; mini-sized Dow ($5)

 

Here are some stats based on the TRIN at the market close. One strategy is to buy the dow at the close on a high TRIN reading. The idea behind is that the markets are oversold and expect the market to gap up the next morning.

 

Stats are based on the last 2 years from 2004 May to 2006 May.

 

When the TRIN closes above 2.0, there is a 64.7% chance that the markets will open higher. This has happened 17 times over the past 2 years.

 

When the TRIN closes above 1.9, there is 71.4% chance that the markets will open higher. This has happened 21 times over the past 2 years.

 

When the TRIN closes above 1.8, there is a 69.6% chance that the markets will open higher. This has happened 23 times over the past 2 years.

 

When the TRIN closes above 1.7, there is a 76.7% chance that the markets will open higher. This has happened 30 times over the past 2 years.

 

When the TRIN closes above 1.6, there is a 73.2% chance that the markets will open higher. This has happened 41 times over the past 2 years.

 

When the TRIN closes above 1.5, there is a 70.9% chance that the markets will open higher. This has happened 55 times over the past 2 years.

 

Do not take this information and blindly buy the Dow Futures contracts at the close. This does not take into account the overnight action. Prices can drop overnight to stop you out then take off to the upside. Therefore, adjust your strategy accordingly. A trader I know will wait until after hours to buy. This allows a better fill at times. Remember, this setup requires a wider stop and depending on your risk tolerance this strategy may not be for you. I usually minimize my position to a quarter size and use a 40 point stop on the dow mini's. Due to the high percentage of the setup, I am able to risk 40 points on a quarter size.

[ezduzzit 10]

Soul: I recognize this TRIN > 2.0 strategy from my two week trial with Hubert Senters but my question comes down to the breakdown you have shown on the probabilities. For instance, taking the bottom item.. you note that when TRIN closes above 1.5 it has a 70.9% chance of being higher at the OPEN and that it has happened 55 times over the past two years. But then 1.6, 1.7, et al are all "above 1.5" as you noted, yet their percentages are different. Did you mean to say for instance that if it closes above 1.5 but below 1.6? I know that as I sit here typing the question it may sound a bit anal, but it somehow seems there must be a real difference in the cut-offs that I am not understanding. I have played the strategy twice before and won about 40 to 50 mini DOW points at OPEN both times. However, much like you noted, I waited until well into the evening after the afternoon CLOSE to take my position so as to avoid getting stopped out for a 30 or 40 point loss.

 

Happy Trading! :-)

[Soultrader 12]

Hello ezduzzit,

 

Sorry about the confusion. What I meant was if it closes above 1.5 but below 1.6. This data is a little outdated now but from my observation, this is still a pretty good setup. From my experience, waiting until the evening to establish a position works better. It allows you to use a tighter stop. I have also heard Hubert mention going long at the close. A couple other professional traders use this setup and most of them will wait until the evening. They all agree that it works better establishing a position in the overnight session.