According to BPA, a breakout of an 18 bar range has a 20% chance of breaking out of the
other side [of the range] before EOD. There's a probability like this associated with every bar of the day. Bar
18 became famous simply for occuring around the time when this probability becomes enticing enough in a
day to act upon. This study attempts to confirm this and also to calculate the exact probabilities for all 81
bars of the day. All code and some sample historical data is provided for replication. Feedback and
collaboration are
welcome!
“There is nothing magical about 18 bars. I could have picked 16
or 23. The idea is
that
if the market has been in
a range for about 20 bars and it breaks out, there is only a 20% chance that there will be a breakout of
the
opposite side of the range by the end of the day. Also, if the range is about half of the average recent
daily
ranges, traders will look for the day’s range to approximately double.”
For each of the 81 bars of every day the code records whether HOD or
LOD up to that bar's range was broken before EOD. If both HOD and LOD for that bar's range were broken it
records that case as a failure. If at least one held to EOD then it records that as success. Processing all the
historical data creates a record of all the days where Bar 1 failed or succeeded at keeping HOD or LOD, same for
Bar 2, Bar 3 ... up to Bar 81. All bar results from all the days are then grouped by bar index and statistics
are
calculated to arrive at the final
probability
of having seen either HOD or LOD by Bar X before EOD.
But what is the exact probability?
Results
The following chart is based on historical data range from Sep 27, 2005 - Oct 14, 2022 or 4410 days. Those with
programming knowledge are encouraged to replicate these results. All the code is freely available on
GitHub.
According to this, the chance of having seen HOD/LOD by bar 18 comes out close to 81%.
Risk Disclosures
CFTC Rule 4.41: Hypothetical or Simulated performance results have certain limitations,
unlike an actual performance record, simulated results do not represent actual trading. Also, since the
trades have not been executed, the results may have under-or-over compensated for the impact, if any, of
certain market factors, such as lack of liquidity. Simulated trading programs in general are also
subject to the fact that they are designed with the benefit of hindsight. No representation is being
made that any account will or is likely to achieve profit or losses similar to those shown.
Risk Disclosure: Futures and forex trading contains substantial risk and is not for
every investor. An investor could potentially lose all or more than the initial investment. Risk capital
is money that can be lost without jeopardizing financial security or lifestyle. Only risk capital should
be used for trading and only those with sufficient risk capital should consider trading. Past
performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure: Hypothetical performance results have many inherent
limitations, some of which are described herein. No representation is being made that any account will
or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp
differences between hypothetical performance results and the actual results subsequently achieved by any
particular trading program. One of the limitations of hypothetical performance results is that they are
generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve
financial risk, and no hypothetical trading record can completely account for the impact of financial
risk of actual trading. For example, the ability to withstand losses or to adhere to a particular
trading program in spite of trading losses are material points which can also adversely affect actual
trading results. There are numerous other factors related to the markets in general or to the
implementation of any specific trading program which cannot be fully accounted for in the preparation of
hypothetical performance results and all which can adversely affect trading results.
Trade Results Disclosure: Any trades presented may not have been traded in a live
account and should be considered hypothetical.
Trade/Chatroom Disclosure: Presentations are for educational purposes only and the
opinions expressed are those of the presenters only. All trades presented should be considered
hypothetical and should not be expected to be replicated in a live trading account.
Testimonial Disclosure: Testimonials appearing on this website may not be representative
of other clients or customers. Testimonials are not a guarantee of future performance or success.
futures.io webinar: Trading Opening Breakouts and
Reversals Slide
3
But what is the exact probability?
