MP August 21 S&P

With such a small range today (around 5 points) the chance of an outside day is only 35%?

I'm guessing that the chance for a larger range is like over 95% right?

nope statistically only 35%. you have to understand when the market is vertical or when it is horizontal and in which timescale.

Surely those measurements are subjective? For example, if the timescale that you are referring to is by day then the probability is subject to how many days you have when measuring vertical range. If, for example, I used a much shorter day range then I am going to come up with a higher outside day probability.

I take your point Daytrader but since 1987 I have found that it is only 35% chance because on the other times the market did not make the outside day. For me it is a valid heads up when identified for that gives far more information (ie failure and reversal). It s not about oh look its a small range day therefore that means 35% .....it's about reading the profile in its entirety and being able to see what stage of market development and timescale we are in.

quote:

---

...it's about reading the profile in its entirety and being able to see what stage of market development and timescale we are in.

---

Okay, so the "stage of market development" gives you the probability of the day (1) opening in the previous day's range and (2) being a Z instead of trend day. Using that probability you would then factor in the probability that the current day's range would be larger than the previous day's which would be a function of previous day's range size. This would be part (3) of the probability equation.

Is this the sort of methodology you used to come up with the 35%?