Odds calculation on the S&P 500
It is important to be able to gather data yourself without relying on sources. My good friend going by the name “Turtle” once told me that I am basically a one trick pony as I thoroughly focus on technical analysis provided by third parties. What happens if I don’t have access?
This made me think and ultimately made me enroll in a program with the Institute of Trading and portfolio management. I’ve been taught on how to make a distribution and odds calculation paired with creating my own volatility assessment of any asset class as a result.
I have taken thirty years worth of data of the S&P 500. In this case I was most interested in the open and close price each day. Why did I want to do this? Well, I wanted to know if day trading the market (commonly referred to as the S&P 500) is statistically viable.
Being a swing-trader myself, I make use of a longer timeframe to increase my odds of success and to be able to minimize the effect algorithms and quants have on my trades.
Now I’m able to tell you that the S&P 500 has a 27.57% chance to have a 0.0% to 0.5% green day. This has happened (over the span of 30 years) at a total of 2084 times.
On the contrary, a down day of -0.5% to 0.0% has a 24.01% chance of occurring. This would make sense as the market has been on an uptrend for the past thirty years.
Under here the complete breakdown of the distribution of the odds calculation. On top of that, I have also added the probability and cumulative probabilities below.
