Knowing when to expect the unexpected.

 Since the recent news that the SPI will soon be shut down for all time because its so friggin boring I have been focusing on an old mistress that has at times treated me well at others like a whipping boy. The HSI. The first thing you need to do when focusing on a new market is to know some basic stats about how it behaves. Forget about TA and classical patterns. Start at what does happen. Not what some dude back in 1952 was putting in a book to sell to the punters.

So I started with the most basic. Average daily range. Pretty simple but I'm always surprised at how many people trade a market and don't have a clue as to expected range. This is what I got,

 

Rather impressive daily range. Nearly 500 ticks from High to Low each day. Now that's a market!! But how can this be of use? Its already been a huge help in adjusting to a new market. I have a bias to fade just about everything. But that can be dangerous, especially if I move from the SPI with a 60 tick range to the HSI with the 500 tick range. If we are stuck in a relative tight range bound move of say 150 ticks I know to be cautious as time goes on because the previous stats suggest that there is a lot more to come. If I take my previous SPI approach to the HSI I'm going to get into trouble. I'm going to be fading breaks out of ranges that could well have another 400 ticks to run!

But there is more to know how a market should act based on how it has previously performed. What about when its not performing to expectations? Well if you can recognise early that the market is "different" that too can be a huge edge. Yesterdays morning session of the HSI had an unusually small range of 122 ticks. Anyone who was trading breaks would of been very frustrated trying to get trades to move out of the range and anyone fading the edges would of been pretty happy with their efforts. But there was signs that things were about to change. The morning session had about average volume so the lack of movement wasn't due to lack of participation it was accumulation. While the HSI was closed for lunch most other Asian indexes made or tested their highs. When the HSI open the result was explosive. Anyone taking the same play from the morning session to the arvo open got into serious trouble.

 

Comments

[John Smith]

Are they actually going to officially close the SPI??

[THT]

Nah mate. joke :p