This statistical indicator (Pivot Probabilities) finds the historical likelihood of any week or month closing between two given pivot points.
NFLX is particularly interesting. We have been range bound between $555.88 and $477.58 since June - July of 2020.
Using a linear regression of the last 3 months (excluding the current month's data), if price reached mean this week it would be at the prices $484 - $480 based on time.
Using Pivot Probabilities, looking back 19 years (the entire time series) the 29th Week of the year has a 26.32% historical probability of closing below $488.57 (S3).
I find it unlikely that we will make this move, but being aware of the likelihood that these events could occur is a massive advantage to risk management strategy.
If I were to bias my trade bullish or bearish blindly, lets say by flipping a coin, I could look and see that 78.95% of all closes for this week are below the Central Pivot, currently at $538.30.
Just because there is close to an 80% likelihood of profitability in a trade, does not mean it will be profitable. You must make contingency plans for that remaining 20% risk. By taking care of your risk, your profit potential will take care of itself. For example, there's a 15.79% historical probability that we close above $580.04 (R3) by the end of this week. You must be prepared for that R3 outcome as well as you prepare for the S3 outcome.
Be safe out there and best of luck!
NFLX is particularly interesting. We have been range bound between $555.88 and $477.58 since June - July of 2020.
Using a linear regression of the last 3 months (excluding the current month's data), if price reached mean this week it would be at the prices $484 - $480 based on time.
Using Pivot Probabilities, looking back 19 years (the entire time series) the 29th Week of the year has a 26.32% historical probability of closing below $488.57 (S3).
I find it unlikely that we will make this move, but being aware of the likelihood that these events could occur is a massive advantage to risk management strategy.
If I were to bias my trade bullish or bearish blindly, lets say by flipping a coin, I could look and see that 78.95% of all closes for this week are below the Central Pivot, currently at $538.30.
Just because there is close to an 80% likelihood of profitability in a trade, does not mean it will be profitable. You must make contingency plans for that remaining 20% risk. By taking care of your risk, your profit potential will take care of itself. For example, there's a 15.79% historical probability that we close above $580.04 (R3) by the end of this week. You must be prepared for that R3 outcome as well as you prepare for the S3 outcome.
Be safe out there and best of luck!
Trade closed manually:
There's a pretty high likelihood (55%) that we bottom out here between $494.86 (S1) and $515.49 (CP) this month. From a risk management perspective, it would be ideal to take profit here; or manage the trade into next month to hit the original target at the bottom of the range around $480 - $485.
An exit here at $511 is ideal for short term traders. However, for intermediate term traders it would be ideal to be cautious going into next month. A bounce could easily come from here based on the low probabilities, and we can use the high probabilities for next month to identify where we could go.
The range between $508.69 (M2) and $544.34 (R1) holds ~68% of August highs for the last 19 years. It would make sense if a trader was targeting the $480s that they find a new short in this price range.
There's a pretty high likelihood (55%) that we bottom out here between $494.86 (S1) and $515.49 (CP) this month. From a risk management perspective, it would be ideal to take profit here; or manage the trade into next month to hit the original target at the bottom of the range around $480 - $485.
An exit here at $511 is ideal for short term traders. However, for intermediate term traders it would be ideal to be cautious going into next month. A bounce could easily come from here based on the low probabilities, and we can use the high probabilities for next month to identify where we could go.
The range between $508.69 (M2) and $544.34 (R1) holds ~68% of August highs for the last 19 years. It would make sense if a trader was targeting the $480s that they find a new short in this price range.
Joe Baus, bausbenchmarks.com