I performed an interesting footling practice amongst information for the S&P 500 e-mini (ES) futures this morning. I looked at 3-minute bars as well as calculated a ratio: the absolute value of the stimulate from opened upward to around the full stimulate from the bar high to the bar close.
Think nigh this for a minute: What we're looking at is the ratio of directional stimulate per three-minute menstruation to full movement.
The median ratio yesterday was .50. The ratio did non modify afterward the Fed announcement. Total stimulate increased every bit book increased, simply directional stimulate stayed every bit nigh one-half of full movement.
If you're to a greater extent than visual, mean value of a candlestick bar on a chart. On average, one-half of that bar volition survive filled in; the other one-half volition survive "tails" higher upward as well as below.
When traders purchase into forcefulness as well as sell into weakness, they tend to function into positions inwards those tail regions. Much of their merchandise is occurring during the one-half of cost stimulate that is non directional. How much P/L does that cost them over time, chasing forcefulness as well as and thence chasing weakness? So often, traders who are afraid of missing moves terminate upward seeing those moves reverse.
It's the most mutual trading work I'm seeing active traders make.
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