A Day of Consolidation

Today (2/1/2010) ends up being another inside day. This is the second inside day within two weeks with the last one being 1/25/2010. Historically when SPY is trade below 50-day moving average but above 200-day moving average, it seems that frequent inside days signals a some sort of bottoming process and high possibility of market retracing the losses within 20 days.

I sound very uncertain because, inside day does not seem to help much on timing the rally.All I can be certain is that imminent farther sever drop does not seem likely under current condition according to historical data.

Another phenomenon I observed is that when the inside day is made on volume lighter than 20-day average, the chance of next day close higher is 60% vs. 33%, and average return of 0.15% vs. -0.07% (n=16 vs. n=15). This could be purely random, but interesting nonetheless. Today's volume happens to less than 20-day average.

So how does this information help intra-day trading? I am more incline to go long at lower extremes rather than fading breakouts, and I will tend to take profit a little bit early when fading breakouts.

Stats on Market Profile Normal Day

According to the definition in Jim Dalton's book "Mind Over Market", the main character of Normal Day is its wide Initial Balance not upset during the day and it is more of an exception rather than normal.

After this morning's somewhat slow trading, I decided to spend some time doing some counting on Normal Day, and here is what I have found:

Since 9/7/2005, there have only been 20 trading days that has the characteristics of Normal Day outside of holiday. It is indeed a exception rather than the norm to have market traded within the IB outiside of holiday.

Another interesting observation I found is that Normal Day is generally caused by lack of participation rather than strong directional conviction. Outside if IB, the volume of each 30-minute period is -36% less than 20-day average of the same 30-minute period. The two 30-minute periods that make up IB has 7% more volume than 20-day average.

From the daily data, I doubt Normal Day has any much significance. I can't find any strategy to trade Normal Day to produce profit better than a coin flip.