Overnight Edges Recent PostsView All
Ugh. I personally really messed up last night. What was a borderline setup turned into my worst trade of the year, and I made many mistakes in the process. Here’s a look at the odds sheet, and then I will share my sob story.
You’ll quickly notice that while SPY and DIA met the minimum long criteria, nothing else did, including ES, which is what I trade. 99% of the time when ES does not meet the minimum criteria I do not take the trade. But on Thursday I looked at a lot of evidence, and managed to talk myself into a long position. (I then compounded the problem with poor trade management but I’ll get to that later.) ES odds actually look like they met the minimum long criteria because the profit factor is showing up as 1.30. But the reason it is not highlighted in green is that it is being rounded up to 1.30. In fact the profit factor is 1.29 something. So it was incredibly close to meeting the criteria. What got me over the hump and led me to take a long trade was that other evidence supported it. 1) There were no index securities suggesting a tendency to gap down. 2) There were two compelling EdgeFinder studies suggesting a 65%-70% chance of a gap up. 3) Price Action, Internals, and Seasonality were all at least mildly bullish. 4) And seasonality was strong enough that I could try for the larger “X target” amount, rather than the smaller target. So based on all this I took the borderline setup and went long at the close.
I also indicated in the trading room that since it was a borderline setup I might manage the trade a little tighter and perhaps trail a stop. That would’ve been a great idea. ES ran up as much as 5 1/2 points in the early part of the night. And after basing sideways for a little while I considered throwing a stop in a breakeven. But after looking at some things, I decided against it.
So when I took a look at the market this morning, ES was down about 10 points. Things never got much better than that, and it bounced around for a while. Near the open I decided to compound my mistakes. ES gapped down 10.5 points at the open. I’ve run studies that show often traders are better off trying to hold losing overnight trades for a gap fill, and simply leaving the overnight stop in place. My overnight stop was 13 points. The market was down almost that much, so I decided that rather than exit at the open as I almost always do I would simply leave the stop in place. And that is how I managed to take a borderline setup and mismanage it so poorly that I lost 13 points.
While I could kick myself for taking the trade at all, I don’t think that was a terrible decision. Everything I did after that was a terrible decision. I should have broken even when this trade ran up after hours and then reversed. There were plenty of chances not lose money here, and I didn’t take them.
Of course these aren’t the first trading mistakes I’ve ever made. And they aren’t the first public trading mistakes I’ve ever made either. It sucks, but it still occasionally happens. It’s not the end of the world. It’s just a bad trade. From here forward I simply need to continue to put the odds in my favor (and then manage the trades properly). If I do what I normally do, I’m confident I will continue to make money.
Have a great Memorial Day Weekend!
New to the Odds Sheets? Check out this video for a detailed explanation.
Get Overnight Overviews and other blog posts delivered via email - join the Overnight Edges mail list
Volatility has come back to the market, both during the day and in the overnight. Let’s take a look and see what that meant for overnight traders yesterday. Below is a screenshot of the Overnight Edges Odds Sheet as it stood near the close.
As you can see, 4 of the 8 index securities we track were suggesting yesterday’s selloff was likely overdone and that we could see a bounce in the overnight. When the “Averages” columns are highlighted in green that means those securities are meeting the minimum long criteria. Additionally, there was one EdgeFinder study that suggested an upside edge. But there were also some signs suggesting caution. For one, Wednesday was the first down day following a 50-day high. Odds typically are not as good when the market is pulling back from an intermediate-term high like this, and that is not always reflected on the odds. But more important is the fact that ES did NOT meet its minimum criteria. It looked like mkight as we approached the 4 PM NYSE close. But the bounce in the last 15 min. of futures trading served to take away some of the potential overnight gains, and also increase the downside risk. I indicated on the Trade Discussion Room board that I would take a long signal only if ES closed below 1654.50. It finished above there, and in this case it helped me avoid a big loser.
ES gapped down 19 points to open the day on Thursday. Of course if I had taken an overnight trade I would have utilized a stop. The calculated stop for Wednesday would have been 12 points, which still would have been a pretty bad loss. Fortunately, the Odds Sheet once again did me right and helped me to stay out of trouble. I expect we will have some interesting things to consider as we approach the close this afternoon, and I plan to have the Trade Discussion Room open for a short while to share my observations with Overnight Edges subscribers.
Have a good night trading, and rest easy.
New to the Odds Sheets? Check out this video for a detailed explanation.
Get Overnight Overviews and other blog posts delivered via email - join the Overnight Edges mail list
The last two days have reinforced the value of the Odds Sheets and the need to exercise patience. Let’s take a peek at Tuesday’s Odds Sheet and then I’ll discuss what I mean.
A quick glance here shows that none of the Averages are showing up in either green or orange, meaning none of the minimum long or short criteria are being met. But that does not mean we did not see directional evidence yesterday. In fact, a study I posted to the blog suggested a solid bearish overnight edge if ES closed at a new high. And the EdgeFinder identified a couple of other studies that also suggested a bearish edge. In looking closely at the ES Odds, you can see that both Price Action and Seasonality were negative, and while the Averages for ES did not meet the minimum criteria, they were slightly negative. Internals were really the lone ES indication that did not confirm.
Yet I had no inclination to take a chance on a short trade. ES may have been close to meeting the minimum criteria, but it was not there. And neither was anything else. If several other indices were meeting the minimum criteria then perhaps I could have been swayed. But with not even a single index security meeting the short criteria (and Russell and Nasdaq 100 leaning long), taking a short trade was not an option for me. Over time my win rate has been pretty good, and my drawdowns have been manageable , and I believe a large part of that is that I am selective enough that I only risk capital when the odds are clearly in my favor. Yesterday the edge was simply not strong enough. And when ES gapped up 2.75 points this morning I was glad I did not take a short based primarily on the studies.
New to the Odds Sheets? Check out this video for a detailed explanation.
Get Overnight Overviews and other blog posts delivered via email - join the Overnight Edges mail list
Yesterday I looked at what happens when ES closes at a short-term high on the day after options expiration . Today let’s take a look at what happens when there is a short-term high 2 days after. (Unless there is a holiday this will be on a Tuesday.)
The numbers here are quite bearish. I also produced a profit curve.Read more.
Monday made for a fairly straightforward trading decision for me, as indications were mixed and moderate. Below is the Overnight Edges Odds Sheet as it stood near the close on Monday.
The NASDAQ 100 securities were the ones suggest a possible upside edge. This can easily be seen with their averages showing up in green. But this was not confirmed by the other indices. In fact, ES and SPY showed moderately bearish numbers. Additionally, with ES closing up slightly on Monday, the study from yesterday’s blog , which suggested bearish inclinations, did trigger. With evidence pointing both long and short, there was no clear edge. I prefer to see most things lining up in one direction, and for my indicators to confirm each other before taking an overnight position. So the decision for me to do nothing was an easy one.
The market chopped around for much of the night, but numbers were helped out with a move higher in the last hour and ES gapped up 1.25 points at the open on Tuesday. This is the second day in a row where we saw moderate odds lead to a small gap. NQ, which did meet the minimum long criteria, gapped up 0.75 points. If time allows, I’ll be back later with some research.
New to the Odds Sheets? Check out this video for a detailed explanation.
Get Overnight Overviews and other blog posts delivered via email - join the Overnight Edges mail list
