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.

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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.

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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.

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Friday showed some interesting odds and led to a close call in which I did not get filled on a potentially profitable trade. Let’s take a look at the Odds Sheet and I’ll discuss how it played out.

Most of the numbers shown here on the odds sheet were fairly weak. SPY was the only index security we track that actually managed to post numbers so weak that they met the minimum short criteria. ES came close, though. Price Action, Internals, and Seasonality all showed mildly negative odds. I noted on the Trade Discussion Room board that if ES closed at 1,664.25 or higher that would cause ES odds to worsen further. Additionally, there was a bearish study identified by the EdgeFinder. So I indicated that I would look to short on a close of 1664.25 or higher. The last trade was at 1663.75 (settlement price was 1663.00), so I just missed getting filled.

ES wiggled around during the night. It appeared it was going to gap down a few points with about a half-hour left until the open. But a rally in the last few minutes meant it gapped down a mere 0.25 points. So the likelihood of me making much on this one wasn’t very high anyway. I did get notes from Overnight Edges subscribers indicating they took the short despite the odds just missing. I don’t think that was a bad idea. I tend to demand a lot from my entries, so I often miss out on these borderline setups. As I have said in the past, that probably means I give up a little in profits over time, but I also believe my conservative style helps to reduce drawdown versus a more aggressive approach.

I’ll be back a little later with some research for tonight.

New to the Odds Sheets? Check out this video for a detailed explanation.

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Wednesday showed moderate evidence all around, and nothing strong enough to compel me to take an overnight position. Below is a look at the Odds Sheet as it looked near the close.

ES and SPY showed moderate downside inclinations but those odds were not confirmed by the other indices. And while the EdgeFinder pointed out a bearish study to consider, the overall evidence just was not strong enough to interest me in a trade. As it turned out ES did gap down on Thursday morning, but only 1.5 points.

I’ll be back later with some research to consider for tonight.

New to the Odds Sheets? Check out this video for a detailed explanation.

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Tuesday provided some interesting odds, and a difficult decision for me. So I want to talk a bit about that decision. First, let’s take a look at the Odds Sheet as it stood near the close.

As you can quickly see since they are highlighted in orange, SPY, DIA & YM all met the minimum short criteria. And ES just missed. Providing further evidence for the bearish case was one EdgeFinder study, and another study that I looked at in detail in the trade discussion room. So there was a fair amount of evidence suggesting a short side edge overnight. Most of the time I don’t take trades if the minimum ES criteria is not met, but between SPY, DIA, & YM odds and the EdgeFinder studies, and the fact that ES odds were pretty close, I nearly convinced myself to take a short. In the end I decided against it though. The NASDAQ 100 and Russell 2000 index securities were not in agreement, showing mildly bullish inclinations. And the other issue I had was that I would be using the smaller target amount in a situation like this. This meant that I would be risking as much as 8 points in order to make a maximum of 3.75 points. I don’t mind doing that when odds are strongly in my favor, but with a borderline setup I don’t like that risk/reward. So I stood aside.

The bearish inclinations did play out Tuesday night and ES opened this morning with a 3 point gap down. Had I taken the trade my target would have been hit while I was sleeping for a 3.75 point gain. So I missed this one. But I can live with that. It’s not the ones I miss that concern me. It’s the success or failure of the ones I take that are important. By not taking these borderline setups I probably miss out on a small amount of profits over time. But I also believe that I am better able to control my drawdowns and maintain my confidence by only trading when the setups are strongly favorable. So I will continue to be selective and patient. And I will also continue to rest easy, knowing the odds are in my favor.

New to the Odds Sheets? Check out this video for a detailed explanation.

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The Odds Sheet has seen moderate odds as of late, and that continued on Monday. Below is how it looked near the close.

While all the indices showed mildly bullish numbers, the Nasdaq 100 stood out as the lone index meeting the minimum criteria for a possible long trade. But the EdgeFinder studies leaned bearish. So with moderate odds, and conflicting evidence it was an easy decision for me to simply sit out. And the overnight did not offer much opportunity anyway as ES gapped up just 1 point this morning.

New to the Odds Sheets? Check out this video for a detailed explanation.

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