STATISTICS AND PROBABILITIES APPLIED TO BULL AND BEAR INTERBARs

Forecasting future Price Action requires interbar statistical and probability studies between the current and the next bar based on historical sample data performance,  the SP-500 index is used as the standard,  to be able to make high probability successful  actionable trading forecasts.  A most basic question based on past behavior would be:

WHAT IS THE PROBABILITY OF TOMORROW?

Breaking today´s High ?

The probability of tomorrow breaking today´s High (H) is an important factor before deciding to buy or enter a long position.

breaking today´s low?

The probability of tomorrow breaking today´s Low (L) is an important factor before deciding to sell or enter a short position.

BREAKING TODAY´s high and low?

After breaking a high or a low it is important to know the probability of the market reversing the trend and breaking the High (H) and the Low (L) the same day creating an Outiside Bar (OB).

NOT BREAKING TODAY´s HIGH OR LOW?

If today´s High (H)  and Low (L) are not broken tomorrow, creating an Inside Bar (IB), it would be an important indication that the market is consolidating awaiting the start of new trend.

HIGH/LOW BREAK NEXT BAR STATISTICS AND PROBABILITIES

BULLISH or UP BAR (1UB)
SS0005 UP BAR HIGH LOW BREAKOUT STATISTICS AND PROBABILITIES

1UB – HIGH/LOW BRAKE  STATS

S&P-500 Index  – 1982-2021 – 5.537 bar sample

% Probability of Tomorrow:

1. Outside Bar. Up Bar High & Low Break - Image C
9.48%-525 bars
2. Inisde Bar. Up Bar High & Low NOT broken - Image D
11.22%-621 bars
3. Up Bar & Outside Bar High Break - Image A & C
70.45%-3.901 bars
4. Up bar Only High Break & Low Holds- Image A
60.97%-3.376 bars
5. Up Bar & Outside Bar Low Break - Image B & C
27.79%-1.539 bars
6. Up Bar Only Low Break & High Holds - Image B
18.31%-1.014 bars

Understanding the Results

The 9.832 bar historical sample database for the S&P-500 provide some very interesting Price Action probabilities for the next bar.    These probabilities derived from almost 40 years or market Price Action will not change significantly over time in the future, but they provide some basic foundational knowledge about the market indexes Price Action in general.

These probabilites do not take into account bullish or bearish market trends, corrections or technical indicators that would provide even much higher probability future Price Action forecasts.  These will be disucussed in later articles.

It is important to understand that these studies are best suited for indexes, not so much for more erratic indivicual stocks,. providing valuable timing signals to trade with the general market trend to avoid costly countertrend uneducated trading or investing decisions.

Interpretation of 1UB – HIGH/LOW BREAK STATS

There are 4 basic types of Price Action bars; Up, Down, Inside and Outside Bars.  Up and Down Bars are covered in the article PA0002 OHCLM Bars Price Action Basics  and PA0004 RAYG Body Sections Basis, Inside Bars are covered in the article PA0006 Inside Bars Price Action Basics and Outside Bars are covered in the article PA0007 Outside Bars Price Action Basics.  It is extremely important to understand the dinamycs and significance of each bar type in order to correctly predict future market behaviour.  Each case 1 to 6 from the table above are discussed in detail below.  Please pay close attention to the logical language, since it may sound confusing if not extremely careful.

1. % Probability of tomorrow forming an outside bar – imaGE C

An Outside Bar (OB) breaks the High (H) and the Low (L) of the previous bar as shown in image C above.  The data base included 525 Outside Bars (OB) in the sample of 5.537 Up Bars (1UB) for the S&P-500 study.  This means that 9.48% of the time after a High (H) or a Low (L) of an Up Bar (1UB) is broken the market will reverse and breaks the opposite High (H) or Low (L) of the Up Bar (1UB) of the previous day.  This is statistically significant, meaning that after the High (H) of an Up Bar (1UB) is broken during the next trading day there is a 91.52% chance that the Low (L) of the previous day Up Bar (1UB) will hold for the rest of the day.  Logically it also means that after the Low (L) of an Up Bar (1UB) is broken the next trading day there is a 91.52% chance that the High (H) of the previous day Up Bar (1UB) will hold for the rest of the day.  Further studies would inquire about the statistics of which happens first, breaking of the High(H) or the Low (L) of the  Outside Bars (OB) are a sign of a market in turmoil or uncertainty looking to change trend direction.

2. % Probability of tomorrow forming an inside bar – imaGE D

An Inside Bar (BI) does not break the High (H) or the Low (L) of the previous bar as shown in image D above.  There were 621 Inside Bars (IB) in the sample of 5.537 Up Bars (1UB) S&P-500 study.  This means that 11.22% of the time the High (H) and the Low (L) of the previous day Up Bar (1UB) are not broken the next day.  This is statistically significant, also meaning that 88.78% of the time the High (H) or Low (L) of the previous day Up Bar (1UB) is broken the next trading day.  Inside Bars (IB) are a sign of a market in consolidation taking a breather while deciding if it will continue the ongoing trend or change direction.

3. % Probability of tomorrow breaking yesterday´s high – imaGE A & C

This includes all the cases in which the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar, including the cases in images A and C above.  There were 3.901 bars in the sample of 5.537 Up Bars (1UB) or 70.45% of the cases in which the high was broken the next day.  This is a very statistically significant probability and worth taking into account when making investmente decisions.

4. % Probability of tomorrow breaking yesterday´s high AND THE LOW HOLDS – imaGE A

This includes all the cases in which only the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar and Low (L) holds, meaning the bar does not become an Outside Bar (OB) including the cases in image A above only.  There were 3.376 bars in the sample of 5.537 Up Bars (1UB) or 60.97% of the cases in which the high was broken the next day, but the low held.  It also means that once the high is broken in 3.901 of the bar only 525 or 13.46% of the times does the bar break the low or become and Outisde Bar (OB).

5. % Probability of tomorrow breaking yesterday´s LOW – imaGE B & C

This includes all the cases in which only the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar and Low (L) holds, meaning the bar does not become an Outside Bar (OB) including the cases in image A above only.  There were 3.376 bars in the sample of 5.537 Up Bars (1UB) or 60.97% of the cases in which the high was broken the next day, but the low held.  It also means that once the high is broken in 3.901 of the bar only 525 or 13.46% of the times does the bar break the low or become and Outisde Bar (OB).

6. % Probability of tomorrow breaking yesterday´s LOW AND THE HIGH HOLDS – imaGE B

This includes all the cases in which only the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar and Low (L) holds, meaning the bar does not become an Outside Bar (OB) including the cases in image A above only.  There were 3.376 bars in the sample of 5.537 Up Bars (1UB) or 60.97% of the cases in which the high was broken the next day, but the low held.  It also means that once the high is broken in 3.901 of the bar only 525 or 13.46% of the times does the bar break the low or become and Outisde Bar (OB).

 

 

HIGH/LOW BREAK NEXT BAR STATISTICS AND PROBABILITIES

BEARISH or DOWN BAR (1DB)
SS0005 DOWN BAR HIGH LOW BREAKOUTS STATISTICS AND PROBABILITIES

1DB – HIGH/LOW BRAKE  STATS

S&P-500 Index  – 1982-2021 – 4.295 bar sample

% Probability of Tomorrow:

1. Up Bar & Outside Bar High Break - Image A & C
70.45%-3.901 bars
2. Up bar Only High Break & Low Holds- Image A
60.97%-3.376 bars
3. Up Bar & Outside Bar Low Break - Image B & C
27.79%-1.539 bars
4. Up Bar Only Low Break & High Holds - Image B
18.31%-1.014 bars
5. Outside Bar. Up Bar High & Low Break - Image C
9.48%-525 bars
6. Inisde Bar. Up Bar High & Low NOT broken - Image D
11.22%-621 bars

Understanding the Results

Statistical and Probabilitues studies derived from long term historical databases are better suited for indexes since they reflect the true sentiment and trend of the broad market by smoothing out short term fluctuations of individual stocks that are more prone to wild fluctuations in response to their Earnings per Share (EPS) quarterly releases.

These studies are better suited for day, swing or long term traders of futures, options and exchange traded funds (ETF) of indexes or to determine proper market timing to enter or exit a position of a specific company stock, since they tend to move with the  general market.

Combining these statistics and probability studies with other technical indicators to identify trades with a 75% chance or higher of success is the key to stardom.  Research is the key!

Interpretation of 1UB – HIGH/LOW BREAK STATS

There are 4 basic types of Price Action bars; Up, Down, Inside and Outside Bars.  Up and Down Bars are covered in the article PA0002 OHCLM Bars Price Action Basics  and PA0004 RAYG Body Sections Basis, Inside Bars are covered in the article PA0006 Inside Bars Price Action Basics and Outside Bars are covered in the article PA0007 Outside Bars Price Action Basics.  It is extremely important to understand the dinamycs and significance of each bar type in order to correctly predict future market behaviour.  Each case 1 to 6 from the table above are discussed in detail below.  Please pay close attention to the logical language, since it may sound confusing if not extremely careful.

1. % Probability of tomorrow forming an outside bar – imaGE C

An Outside Bar (OB) breaks the High (H) and the Low (L) of the previous bar as shown in image C above.  The data base included 525 Outside Bars (OB) in the sample of 5.537 Up Bars (1UB) for the S&P-500 study.  This means that 9.48% of the time after a High (H) or a Low (L) of an Up Bar (1UB) is broken the market will reverse and breaks the opposite High (H) or Low (L) of the Up Bar (1UB) of the previous day.  This is statistically significant, meaning that after the High (H) of an Up Bar (1UB) is broken during the next trading day there is a 91.52% chance that the Low (L) of the previous day Up Bar (1UB) will hold for the rest of the day.  Logically it also means that after the Low (L) of an Up Bar (1UB) is broken the next trading day there is a 91.52% chance that the High (H) of the previous day Up Bar (1UB) will hold for the rest of the day.  Further studies would inquire about the statistics of which happens first, breaking of the High(H) or the Low (L) of the  Outside Bars (OB) are a sign of a market in turmoil or uncertainty looking to change trend direction.

2. % Probability of tomorrow forming an inside bar – imaGE D

An Inside Bar (BI) does not break the High (H) or the Low (L) of the previous bar as shown in image D above.  There were 621 Inside Bars (IB) in the sample of 5.537 Up Bars (1UB) S&P-500 study.  This means that 11.22% of the time the High (H) and the Low (L) of the previous day Up Bar (1UB) are not broken the next day.  This is statistically significant, also meaning that 88.78% of the time the High (H) or Low (L) of the previous day Up Bar (1UB) is broken the next trading day.  Inside Bars (IB) are a sign of a market in consolidation taking a breather while deciding if it will continue the ongoing trend or change direction.

3. % Probability of tomorrow breaking yesterday´s high – imaGE A & C

This includes all the cases in which the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar, including the cases in images A and C above.  There were 3.901 bars in the sample of 5.537 Up Bars (1UB) or 70.45% of the cases in which the high was broken the next day.  This is a very statistically significant probability and worth taking into account when making investmente decisions.

4. % Probability of tomorrow breaking yesterday´s high AND THE LOW HOLDS – imaGE A

This includes all the cases in which only the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar and Low (L) holds, meaning the bar does not become an Outside Bar (OB) including the cases in image A above only.  There were 3.376 bars in the sample of 5.537 Up Bars (1UB) or 60.97% of the cases in which the high was broken the next day, but the low held.  It also means that once the high is broken in 3.901 of the bar only 525 or 13.46% of the times does the bar break the low or become and Outisde Bar (OB).

5. % Probability of tomorrow breaking yesterday´s LOW – imaGE B & C

This includes all the cases in which only the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar and Low (L) holds, meaning the bar does not become an Outside Bar (OB) including the cases in image A above only.  There were 3.376 bars in the sample of 5.537 Up Bars (1UB) or 60.97% of the cases in which the high was broken the next day, but the low held.  It also means that once the high is broken in 3.901 of the bar only 525 or 13.46% of the times does the bar break the low or become and Outisde Bar (OB).

6. % Probability of tomorrow breaking yesterday´s LOW AND THE HIGH HOLDS – imaGE B

This includes all the cases in which only the High (H) of the previous day 1 Up Bar (1UB) is broken by the next bar and Low (L) holds, meaning the bar does not become an Outside Bar (OB) including the cases in image A above only.  There were 3.376 bars in the sample of 5.537 Up Bars (1UB) or 60.97% of the cases in which the high was broken the next day, but the low held.  It also means that once the high is broken in 3.901 of the bar only 525 or 13.46% of the times does the bar break the low or become and Outisde Bar (OB).

 

 

Interpretation of 1DB – HIGH/LOW BREAK STATS

It is extremely important to note that the daily graph above shows only intrabar or within the same bar Up bars (1UB) in color green and Down Bars (1DB) in color red.  This graph differs from the standard or classic daily interbar relationship charts used in all trading platforms for any stock, commodity or derivative.   In standard charts the difference between the Close (C) of the current bar and the Close (C) of the previous bar defines if the relationship between them is bullish or bearish.    If the close of the current bar is higher than the close of the previous bar then the current bar will be color green and if the Close (C) of the current bar is lower than the Close (C) of the previous bar the current bar will be color red.   See artible PA000X for more information.

MULTIPLE TIME FRAME STUDIES

It is extremely important to note that the daily graph above shows only intrabar or within the same bar Up bars (1UB) in color green and Down Bars (1DB) in color red.  This graph differs from the standard or classic daily interbar relationship charts used in all trading platforms for any stock, commodity or derivative.   In standard charts the difference between the Close (C) of the current bar and the Close (C) of the previous bar defines if the relationship between them is bullish or bearish.    If the close of the current bar is higher than the close of the previous bar then the current bar will be color green and if the Close (C) of the current bar is lower than the Close (C) of the previous bar the current bar will be color red.   See artible PA000X for more information.

1 Comment

  1. Darius j bond

    Good morning Sir,

    May I say, I find your work very interesting. I will certainly keep an eye on it.

    Best regards
    Darius J. Bond

    Reply

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