First impressions

Posted by Scriptaty | 9:37 PM

There were 127 outside bars in the Euro futures between May 14, 2001 and Aug. 23, 2005. It is a snapshot of the Euro’s performance in the 20 days after these outside bars. The chart shows the median largest up moves (LUM) and median largest down moves (LDM) at each daily interval, and also shows the median LUMs divided by the median LDMs (blue line).

The LUM is the distance between the close of the outside bar and the highest price at a given interval.The LDM is the distance between the close of the outside bar and the lowest price at a given interval. For example, the LUM value for day 8 is .0150 points, which means the median move from the close of the outside bar to the high of day 8 for all 127 outside bars was a gain of .0150 points. The LDM figures are calculated the same way, except they are shown as absolute values (that is, the negative signs are dropped) to make comparing them to the LDM numbers easier. For example, the median LDM for day 8 is .0117, which represents a -.0117 decline from the close of the outside bar.

The overall rise of the LUM/LDM ratio line shows the biggest typical gains at each daily interval tend to be larger than the biggest typical losses — an indication that outside bars might have some potential for setting up long trades, as well as a favorable balance between reward and risk. By day 10, for example, the median LUM is never less than .0180 points, and the median LDM never exceeds .0150 points.

It buttresses this bullish perspective by showing the probabilities of gains for days 1 through 10 after outside bars in the Euro. In this case, the price moves are measured from close to close (i.e., from the close of the outside bar to the close on day 1, day 2, etc.). The odds of a higher close are never less than 51 percent and rise to nearly 64 percent by day 10.