Using Historical Tendences for Short Term Trading 2015 03-01

4/8/15 1Copyright © 2015 InvestiQuant 1

Use Historical Tendencies

for Short-Term Trading

Scott Andrews & Rob Hanna

2015 New York Traders Expo


InvestiQuant

Important DisclaimerCommodity Futures Trading Commission. Futures, options, and spot currency trading have large potential

rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This

presentation is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this

presentation. The past performance of any trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING.

ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY.

SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS

LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.


Since the inception of SPY in 1993, over 100% of the market's total

gains have come when it was closed.

The market forces driving this remarkable behavior

provide consistent and quantifiable opportunities

for trading both the night and day sessions

for stocks, ETFs, futures indices, and even commodities.


InvestiQuant

The Power of Compounding – Overnight & Intraday


Intraday Edges


InvestiQuant

What is a Gap?

The most common definition is the difference between

a security's opening price and its prior day closing price.

This difference shows up visually on a price chart as an open space or “gap.”


InvestiQuant

Opening gaps are created by global market events and Futures trading overnight on light volume

Very low overnight volume

Prior Close

9:30 am ET Open

High volume


InvestiQuantClose of Nov 11

• Nov 12 gaps down• Opens at $47.61• Fills the gap exactly

$48.38

Example of Gap: Daily Chart


InvestiQuant

“Fade the Gap”

Trade in the opposite directionof the opening gap.

If gap is up: short.

If gap is down, buy. Enter long at open

Exit at prior close(or beyond)

(five minute chart)

Fading the gap is a popular technique used by intraday tradersFading the gap is a popular technique used by intraday traders


InvestiQuant

Fade All Opening Gaps - Summary

InvestiQuant


InvestiQuant

Helpful Filters for Quantitative Analysis

• Calendar / Seasonality

• Gap Size

• Market Conditions

• Patterns

• Special Days


Calendar Filters


InvestiQuant

Fade All Opening Gaps – by Day of Week


InvestiQuant

Fade All Opening Gaps – by Month


Market Condition Filters


InvestiQuant

Gaps When Above the 200 DMA

Above 200 DMA

Below 200 DMA

10 DMA

< 10 DMA> 10 DMA


Gap Size Filters


InvestiQuant

Fade Small Gaps (<40% of 5 day ATR)


InvestiQuant

Fade Large Gaps (40 - 100% of 5 day ATR)


Pattern Filters


InvestiQuant

Gap Fill % By Gap ZoneWin % Name Prior Day

47% D-H

62% D-HO

74% D-OC

84% D-CL

65% D-L

Prior Day Name Win%

60% U-H

84% U-HC

77% UCO

67% U-OL

59% U-L

Zone #

#1

#2

#3

#4

#5

Zone #

#6

#7

#8

#9

#10


InvestiQuant

Special Days

• 1st Trading Day of the Month• Last Trading Day of the Month• U.S. Monthly Employment Report (generally first Friday of month)• Options Expiration Friday (3rd Friday of each month)• Fed FOMC Decision Day (6-8 times / year)• Days before/after holidays


Trading the Opening Range


InvestiQuant• An opening range is simply the high and low of a given period’s trading action.

• Traders use many different opening range time-frames (e.g. 15 minute,

60 minute, daily, etc.) to set up intra-day and multi-day trades.

What is an Opening Range?


InvestiQuant

Four Range Trading Setups

A. High Breakout (Long)

B. High Fade (Short)

C. Low Fade (Long)

D. Low Breakout (Short)


InvestiQuant

A. “High Breakout”

Go LONG if prices trades1 tick beyondopening rangehigh

Close at pre-defined target or end of dayif not stopped


InvestiQuant

B. “High Fade”

Go SHORT if price trades within 1 tickof openingrange high



InvestiQuant

C. “Low Fade”

Go LONG if price trades within 1 tickof opening range low



InvestiQuant

D. “Low Breakout”

Go SHORT if price trades 1 tick beyondopening rangelow

Close at pre-defined target or end of day if not stopped


Overnight Edges

4/8/15 31 31

InvestiQuant

Overnight Edges

• History of overnight market (and my history trading it)• Trading the overnight using Futures vs. ETFs• Some overnight research and tendencies• Seasonal considerations• Why overnight trading combines so well with gap trading

Copyright © 2015 InvestiQuant

4/8/15 32 32

InvestiQuant

My Experience & Work with “Overnight Edges”

• Started trading full-time in 2001.• In 2004 I began to get into quantitative research.• 4th quarter of 2004 I first noticed edges associated overnight market

and developed strategies to take advantage of them. • Traded overnight privately for several years. • In 2007 advised overnight strategy for a startup hedge fund.• 2010 I decided to revamp overnight systems & research. Incorporated

internals, seasonality, and made approach adaptive.• 2012 Launched Overnight Edges.• 2015 Overnight Edges becoming part of InvestiQuant


4/8/15 33 33

InvestiQuant

Measuring Overnight Movement


4/8/15 34 34

InvestiQuant

Day Versus Night• Market is open 6.5 hours / day and closed 17.5 hours/day.• Most market moving news events (including earnings) are announced

outside of market hours.• Daytraders and institutions are keenly aware of this and are willing to

pay a premium to avoid “overnight risk”.• Overnight traders absorb some of this perceived risk and collect the

premium. • By using historical probabilities, overnight traders may filter

opportunities and only participate in scenarios with strongly favorable risk/reward.

• These include short-side opportunities.


4/8/15 35 35

InvestiQuant

Overnight vs Daytime Ranges


4/8/15 36 36

InvestiQuant

The Growth of Overnight Trading


4/8/15 37 37

InvestiQuant

Overnight Liquidity – A Luxury

• Great overnight liquidity not required to take advantage of overnight edges.

• Trades typically opened at/near the close and closed at/near the open.

• Close and open are 2 most liquid times of day.• SPY/ES traders are trading most liquid securities in the world at the

most liquid times of the day.• Slippage minimal at these times.


4/8/15 38 38

InvestiQuant


4/8/15 39 39

InvestiQuant


4/8/15 40 40

InvestiQuant• After hours close at 20:00 EST.• Pre-market opens at 8:00 EST.• No Sunday night session.• Target levels may be used.

Stops may not be used.• Leverage possible but not

inherent.

• ES market open 23 hours. (Closed for 15 min between 16:15 and 16:30 EST and 45 min between 17:15 and 18:00.)

• Close Fri at 18:00. Re-open Sunday at 18:00.

• Stops and targets may be used during after hours.

• Highly leveraged.

Futures vs ETFs for Overnight Trading

Futures ETFs



Some of my favorite Overnight Edges

4/8/15 42 42

InvestiQuant

Fed Days – a Seasonal Edge


4/8/15 43 43

InvestiQuant


Fed Days – a Seasonal Edge

4/8/15 44 44

InvestiQuant

Fed days – 20-day highs


4/8/15 45 45

InvestiQuant



4/8/15 46 46

InvestiQuant



4/8/15 47 47

InvestiQuant




Short-term Positioning

4/8/15 49 49

InvestiQuant

Short-term positioning considerations


4/8/15 50 50

InvestiQuant

Short-term positioning considerations



Intermediate-term Positioning

4/8/15 52 52

InvestiQuant

Intermediate/long-term considerations


4/8/15 53 53

InvestiQuant

Intermediate/long-term considerations


4/8/15 54 54

InvestiQuant

Reasons to Consider Overnight Trading

• Looking to take advantage of historical edges that are only found in overnight session.

• Interest rates near 0% means money is not working for you overnight..• No screen-watching necessary.• Would like to expand trading arsenal and diversify strategies.• Trading opportunities not being exploited by other traders.• High probability setup with uncorrelated results that does not tie up

capital marked for daytrading strategies.• Trades can be entered and managed in just minutes per day.• Compounding of portfolio returns.


4/8/15 55 55

InvestiQuant

The Natural Fit for Gap Traders

• Often a failed overnight signal will see that gap fill during the day.• InvestiQuant gap traders will have additional knowledge that would

help to turn some of those losers into winners, and bail on those that are unlikely to fill.


4/8/15 56 56

InvestiQuant

Sometimes Edge Will Be Same Direction

• Fed Days• In general, there is an upside overnight edge, and if not realized, there

is a high probability of a gap fill.• If overnight edge is realized and ES gaps higher, then gap fill

probability is lower than usual.


4/8/15 57 57

InvestiQuant

Sometimes edge will call for a reversal,

allowing 2x the opportunity• Opex Fridays

• Opex Thursday night often provides a bullish overnight edge.• Gaps up on Opex Friday often provide gap-fill opportunity• When conditions set up Overnight / Gap traders can profit in both directions.


4/8/15 58 58

InvestiQuant

InvestiQuant Overnight Edges Beliefs (COMBINE WITH

SUMMARY)• Overnight market has offered very consistent edges over the years.• They can be enhanced by examining price action, internals and

seasonality.• Pattern studies are also quite useful.



InvestiQuant

Summary (Rob finalize summary for who presentation)

Historical data should be part of ALL trading decisions

Use history to supplement or drive decision-making

‘Around the clock’ and diversified strategies provide best results

It’s a marathon, not a sprint: focus on the long term.


InvestiQuant

To Learn More:

30 minute demo of InvestiQuant.com starting in 15 minutes

Join us for a comprehensive (paid) workshop:

“Night and Day: Scott & Rob’s Top Quantifiable Edges for Short Term Strategies”

Monday, 1:00 – 5:00 pm

(Bonus: $250 credit at InvestiQuant)

Using Historical Tendences for Short Term Trading 2015 03-01

Economy & Finance

gap copyright

investiquant close

gaps summary copyright

calendar filters copyright

light volume copyright

day of week copyright

intraday edges copyright

example of gap