| eSignal is a remarkable charting program, but users often overlook its powerful intraday exporting feature. In a previous article published on eSignalLearning.com in March 2006, I wrote of a noticeable performance difference when trading the cues after separating the overnight from the regular trading session. Once you realize the importance of tracking the results of these two sessions, you may begin thinking about splitting them into smaller components.
With just a few simple keystrokes, you can download intraday prices instantly from eSignal into an Excel spreadsheet. In this article, we will focus our attention on the overnight trading session.
From September 12, 2005 to March 17, 2006, the cues (SYMBOL: QQQQ) had an uplifting ride, rising $1.83 with a closing price of $41.45. During this period, however, the overnight session performance was impressive -- rising $3.527 in 130 days.
In my opinion, such a remarkable occurrence is not uncommon. However, these opportunities don’t stick around forever; you must constantly be aware of emerging patterns of success or failure.
Most financial newspapers provide market statistics by giving us results of the late-session snapshot. Because eSignal provides pre-market, as well as after-market, pricing, we can revise our definition of overnight trading (previous day’s last trade, before 6:30 p.m.) - (today’s first trade after 7:00 a.m.).
The following chart illustrates how the overnight session was able to offer us the best opportunity for success. When we look at a 1,000-share long position, we see that the overnight trading session (OVS) gave us a return of $3,527. Viewed from this perspective, you can see how important it is to monitor the performance of the OVS.
The OVS chart is a running summary of the previous 130 trading days. The R2 score is the square of the correlation between the dependent variable (cumulative running sum of the overnight session) and the independent variable (September 12, 2005 to March 17, 2006). It is the proportion of variance of the dependent variable accounted for by the independent variable. Because R2 is a percentage score, it always falls within a range of .00 - 1.00; consequently, it represents the strength (.00 being no relation) of the association between the two variables.
The slope of the linear regression line is flat when R2 has a low score and is either trending upward (positive correlation) or downward (negative correlation) as this statistic increases in strength.
In the OVS chart, the linear regression line is strongly trending upward, showing an R2 score of .833. As you can see, the cues had a long run, with the summary price resting above this red line. But, on January 17, its price fell sharply below the regression line, which generally indicates a dampening of an upward trending pattern.
Shortly after this dramatic decline (falling $1.11 in 12 trading days), it began an impressive recovery as the running price continued on its upward journey. Finally, on March 9, the cues began a 4-day gain of 79 cents, forcefully piercing the regression line.
The running price allows us to monitor the performance of the OVS. When the running price is at its crossroads, it’s important to apply technical skills to make our trading decision. We can react to the price as it either rises above or falls below the regression line, or we can simply follow existing patterns of success or failure. Either way, you will benefit by establishing an awareness of such a trading opportunity, and, then, it’s simply best to just “go with the flow.”`
For information on trading or for a complete listing of the 100 companies in the cues, visit:
www.nasdaq.com
www.nasdaq-100.com
*Reprinted (and modified) with permission from Anthony Trongone, Ph.D., CFP, CTA, Director of Executive MBA Programs in China at Centenary College in Hackettstown, New Jersey
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