Own Market Observations (from January to June 2018)

Trading books and educational material teach us the importance of observing key Support and Resistance (S/R) levels where price reversals can occur or new trends start. Popular S/R levels are yesterday’s close, high and low, today’s open, etc. but I always wanted to know if those levels are really still acting as key S/R levels or not. Also, I didn’t want to rely on anybody else’s theory, but on my very own observations. Since the beginning of the year 2018, every weekend I reviewed the past week’s price action on a 5 minutes chart and annotate my observations in the following categories:

  • Date
  • Range
  • Close > Open
  • Open Gap Closed
  • Day Shape
  • Reversal Time
  • Key S/R levels
    • Ytd. HLC
    • Over-Night H/L
    • Opening
    • Mid-Point
  • Morning Session Shape
  • Morning Session Reversal Time

Open Gap Closed field will have a Yes if price closed the gap with yesterday’s close, a No if the price gets near but doesn’t reach the level and N/A if price doesn’t even goes near the yesterday’s close.

Day Shape was intended to know the overall market behavior by mapping the price “shape” to one of 4 categories:

  • L-Shape: Price has a strong movement up or down and then remains flat for the rest of the day
  • Reversal: V or inverted V shaped day where price has a clear reversal pivot point
  • Horizontal: Sideways price action with multiple reversals
  • Diagonal: The price went all day up/down without major reversals

Reversal Time tracks when the day’s major reversal occurred, either before NYSE noon time, right at noon or after.

For the key S/R levels, it is considered that if price bounced several times it is a valid S/R level even though the price could eventually traverse the level. If price traversed the level without showing any struggle then the level will be marked as a No key S/R level. If price never gets near the level then N/A will be entered for that level and day.

Morning Session Reversal Time contains the time area when price reversed during the morning session with a maximum resolution of 15 minutes.

In total I compiled 125 days of observations in an Excel file that you can download here.

To summarize and analyze the data I created a simple dashboard using Microsoft’s Power BI, which is a free Business Intelligence tool that allows you to connect to a data source and quickly generate from simple to powerful reports and dashboards. You can download and use the tool for free here.

20180101_20180630_Dashboard

As a summary:

  • The day with the highest range is Monday and the one with the lowest is Thursday
  • 50% of the days are positive, which means that if the overall market went up or down it was due to the range on the days not on the number of up or down days
  • 66% of the times the opening gap is closed
  • There is not a clear winner on day shape
  • Yesterday’s High, Low and Close levels have a high chance of failure
  • Over-night High and Low S/R levels have a high chance of impact in the daily price action and I’ve found that these levels are the most reliable of all the S/R levels together with the Opening
  • Morning sessions tend to be reversals with the reversal pivot point occurring between 10 and 11am

From this observations you can already extract some high probability setups, for example:

  1. Trade the morning reversal if the pivot point occurred between 10 and 11am
  2. Trade the reversal at over-night H/L or Opening levels if other indicators support the trade
  3. Avoid entering a trade which development could be interrupted by the over-night H/L or Opening levels

Moving forward I will continue taking observation notes as they do improve my understanding of the markets and my performance. The observations will change discarding the ones that I find less useful and adding new ones, specially focused in the morning session. In 6 months times I will publish my new findings.

You can download the dashboard here. Remember you will need an installed copy of Power BI Desktop in your machine to open the file.

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