ES Swing Statistics

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ES Swing Statistics

December 12,2006
One of the keys to successful trading is knowing when to hold them, and knowing when to fold them. The goal of using the MoonTide forecasts is to find
a few good larger than normal swings.
So what is normal? How big are the swings in the S&P eMini?
To answer that I run statistics and measure swings. For this exercise a swing is defined as a change of direction greater than 2.25 points. That 2.25 points
is not an arbitrary number. It is the height of the diagonal white grid diamonds on the Chaos Clinic chart. It represents the 32nd harmonic of the S&P
circle of 72 points.
I ran a swing study of the eMini over the period 11/3/2006 through 12/11/2006. This resulted in finding 279 swings, which is plenty for a statistical
study. This period of time is relatively representative of the S&P, so the statistics should be fairly stable. However, doing repeated studies like this is
advised.
This chart shows the result of the study.

This chart has three curves. Together, they give you a pretty good idea of how the eMini swings behave intraday.
The blue curve shows what percentage of swings reach a certain size, or bin. For example, 17% of the swings are 3 points. Only 5% are 5 points. Only
4% are 7 points. This drops sharply to 1% for 7.5 point swings. This is why we use a Cash In On Chaos target of 5 point. We usually need to see 2 points
of the swing to recognize an entry, and the odds of getting more are small.
The black line shows the cumulative percentage of swings less than or equal to a given size. For example, 72 % of all swings are 5 points or less; 95% of
all swings are 9 points or less.
Finally, the red line shows the cumulative percentage of swings above a given size. For example, 28% of the swings will be 5 points or greater. This line
is really handy when you are sitting in a trade, wondering whether to hold them or fold them. Just look at the swing size - not just your gain or loss- and
look at the odds of it getting bigger.
For example, on 12/12/2006 I caught a trade that broke hard - I had my 5 point profit, and the market was still moving. But when the swing I was riding
hit 10 points and came back one, I covered for +6.5. I knew that the odds of getting more were down to 3 per cent.

http://daytradingforecasts.com/swingstats.asp

12/20/2014

ES Swing Statistics

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More typically, suppose you have a 5 point gain and you entered 2.5 points into the swing. The swing is thus 7.5 points. The odds of a larger swing are
11 percent, or about 10:1 against you. This is why we use the 5 point target.
The emotional reaction to a fast move is often that the sky is falling or we are bound for the Moon, and one should hold. Even if that were true, it is still
very prudent to take the fast gain while it is there, knowing that these are relatively rare.
As always, knowledge gives you an edge in trading.
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12/20/2014