V.7:11 (387-389): Inside day patterns in the S&P by Toby Crabel

V.7:11 (387-389): Inside day patterns in the S&P by Toby Crabel
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Inside day patterns in the S&P by Toby Crabel

Computer studies suggest that inside daysó where the high is lower than the previous ! day's high and the low is higher than the previous day's lowó provide very reliable t entries in the S&P 500 futures market. The basic trading pattern (Figure 1) is an inside day (ID) followed by a sale if the next day's market opens lower or a buy if next day's market opens higher. Entry is on the open and exit is on the same day's close without a stop.

In computerized tests, this basic procedure produced 68% winning trades in the S&P between 1982 and 1987. Total net profit from these trades was $18,000 after an $18-per-trade commission. This is a reasonably high percentage and suggests a strong tendency or bias for prices to continue in the direction of the open the day after any inside day.


One simple variation of this patternódiscerning | whether the ID close and next day's open are in the same directionóproduces an even higher percentage of winning trades. In Figure 2a, the ID has a higher close than the previous day and is followed by a higher open. A buy is taken on the open and exited on the close. A sale is taken when the ID has a lower close and is followed by a lower open (Figure 2b).

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