Using Market Probabilities
In this Track 'n Trade Trading Training video, I want to talk to you just a little bit about the Market Probabilities Indicator, which is part of the Seasonals Indicator.
Now, the Seasonals Indicator is a data cube that goes back and actually concatenates as much history as Gecko Software, or Track 'n Trade has accumulated in it's database. Most of that data is over 20 years back in history. So, we have about 20 years of history of most markets.
So, the Settings on this Indicator give us the ability to come in and set us back to 20 years. What we do, then is we go and analyze this data cube, or the data in the particular commodity for 20 years. Then, we find the largest portion of that probability statement within those 20 years. You can see here, within, state that at 14 years. So, 14 is the furthest back, that this has found anything that's relative to any change, within the market. So, that's why we set this at 14. You'll see 14 here, even though the Indicator is set at 20 years. Nothing has actually been consistent over the last 20 years. But we have had some consistencies over the last 14 years. So, that's why we reach out to the highest consistency level.
Now, the high's consistency level meaning of course that we're looking for extremes in the market. So, we're looking for an area where this market is reaching up into extremes or down into extremes. So, these are going to be, basically turning points, or areas in which we can anticipate a market having a turning point; or where the market is going to close higher than the previous day or close lower than the previous day. That's basically what this is telling you.
The one way you can use this is by looking for the probabilities. Let's say we come in here and let's say, and because we're in Track 'n Trade and this is a historical simulator, you'll notice that this thing shoots out into the future. Now, this will do this in the current markets as well as the simulator. As the market comes across, you can see, because this is a historical view of the data, we have this data from previous years. Therefore we could shoot it out into the future, and you can look at, and anticipate turning points, or areas in which the market has a tendency to do certain things.
Now, it's not to say that the market is going to repeat itself every single year, it obviously does not. But it just says that over the last certain number of years, it's had probability of doing so. It's had a high probability of making a reversal point, here. Or having a market situation where the market is actually changing directions, or has a high probability of being higher or closing higher than the previous days close.
So, we're going to be looking for opportunities for the market to reverse or have some type of a situation where we could take advantage of this information.
So, let's come in here and just do a quick trade simulation. We're going to come in here, and we're going to go short the market. We're going to Sell 1, on a Stop. If this market continues to drop. Since this is a Sell signal, coming up for the Bulls 'n Bears. We're going to say, let's just go in with 1 contract. We're going to step the market forward, and of course, we're going to have a margin call. So, let's come in here, say that we opened up our account back on May 1st, with $5,000.00. We're going to go, Okay. Now, as that market moves forward, of course, we need to move our Stop in there. Also, Where we are going to place our Stop. We're going to Buy 1, on a Stop if the market bounces back above the red price bars.
So, as this market continues to drop forward, now there's obviously a number of ways that we talk about and teach how to follow and trail your Stops using areas of support and resistance; or mathematically calculated Stops. One thing that we can watch for, is we can watch for a reversal time frame, based on the market probabilities.
Now, here's a probability of a market having a tendency to rise in price; be higher than the previous days. You see a couple of those in a row in an extreme. So, this would tell us that right around this time frame, we should be looking for the market to maybe rebound or reversal. If that's the case, what we'll want to do, is use that information in our favor. Just say, okay I'm coming up on a high probability of a reversal time, in here. Maybe I want to tighten my Stop in. How close do I want to hold my Stop. If this market reverses and turns around on this time frame, or during this time frame, maybe I don't want to have my stop back so far. Simply because I'm risking more more money. So, I'm risking at this point, what roughly $681.00 per contract. Maybe because of I've got a high probability area that this market is going to turn around and come back against me. I've even got a rally, kind of looking in here. Then, maybe what I want to do is, tighten my Stops up in here, just in case that thing pops back up against me.
So, we have one more day, and just as it indicated in the, in the, in the probabilities indicator, we did have a reversal on this. The market started to rally during this time frame. So, we use this information for us to actually tighten in our Stops, and take some profits. Also, to have a little bit of foresight into what the market might have a tendency to do. That's just what the Market Probabilities was designed for.