Unlike many of my other studies that use the opening price, the following table looks at the next day’s performance of IWM based on the closing position in the (prior) day’s range. It displays the percentage of times a particular price point was crossed, given the prior day’s closing position in the prior day’s range. If the price closed at the bottom of the range, you would use the 0 row. If the (closing price – low ) / (high – low) was greater than 0 but less than or equal to .1, you would use the .1 row. The 0 column is the percentage that low of the prior day was crossed, the 1 column is the percentage the high of the prior day was crossed. The other columns are the low of the prior day price +/ the percent of the range (.2 = low of the prior day + 20% of the prior day’s range).
-0.4 | -0.2 | 0 prior day low | 0.2 | 0.4 | 0.6 | 0.8 | 1 prior day high | 1.2 | 1.4 | 1.6 | |
0 | 49% | 65% | 78% | 67% | 41% | 33% | 18% | 10% | 10% | 6% | 4% |
0.1 | 47% | 62% | 76% | 71% | 58% | 42% | 28% | 17% | 11% | 5% | 3% |
0.2 | 38% | 57% | 68% | 75% | 69% | 53% | 36% | 23% | 17% | 11% | 8% |
0.3 | 32% | 46% | 56% | 61% | 68% | 56% | 43% | 30% | 24% | 18% | 11% |
0.4 | 28% | 40% | 59% | 69% | 72% | 64% | 57% | 40% | 33% | 24% | 19% |
0.5 | 29% | 35% | 49% | 61% | 69% | 75% | 67% | 48% | 35% | 27% | 17% |
0.6 | 29% | 39% | 49% | 58% | 67% | 72% | 65% | 50% | 33% | 25% | 17% |
0.7 | 19% | 22% | 35% | 48% | 63% | 75% | 75% | 65% | 48% | 35% | 21% |
0.8 | 20% | 31% | 40% | 49% | 56% | 67% | 69% | 60% | 46% | 36% | 22% |
0.9 | 15% | 19% | 23% | 35% | 51% | 70% | 76% | 69% | 53% | 34% | 25% |
1 | 9% | 11% | 16% | 23% | 37% | 50% | 65% | 76% | 63% | 43% | 26% |
What this indicates is there is some ‘follow through’, meaning if the closing price is near the high of the day, then the next day will likely have a higher high (looking at the percentages of the 1 column – the percentage of time the high was crossed the next day). Actually the likelihood of having a higher high is greater than the table indicates as this table records the percentage of times the high is crossed, so if you had a gap higher that never crossed the high of the prior day (‘unfilled gap’), then it would not be included in the cross 1 calculation, but you should include it in a higher high calculation.
Similarly, if the price closes near the low of the day, it is likely to have a lower low the next day. This does NOT mean the closing price will be higher / lower.
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