Initial Balance Range Statistics – Nifty Futures
When we talk about Market-generated information, especially about trading as per Auction Market Theory ; Initial Balance – The First hour range of the trading day is considered extremely important as the break of that on one side & failure or extension or break of that on both sides and failure or extension defines the Day type as well as provides opportunities for trade entries & exits combined with various other parameters. Though Market Profile has evolved a lot from its basic classical form when Peter Steidlmayer introduced it and the Pioneer of Market Profile – James Dalton no longer follows the Initial balance range from a trading perspective, nonetheless Initial Balance can be a part of our trading system in various other ways of system based as well as discretionary trading.
In the last post about Statistics, I had run a back test on the probabilities of the auction revisiting Volume Point of control of previous day based on the Open of the day and few days back I was running various back tests on Initial Balance range and found some amazing results and would like to share the same in next few posts. In this post I would like to start with just the Initial Balance Range in terms of points from IB low to IB high so that we can first find the highest probability of the range and later device a trading strategy based on that number.
As NSE trading hours start at 9:15 am its debatable issue whether we should use 9:15 am to 10:15 am as the First hour range or 9:00 am to 10:00 am as the 1st hour range where we consider the database start time at 9:00 am and use the first 45 minutes of trading range as the Initial balance range.
When in Doubt, Stay out. Sounds good but I would say ; When in doubt perform a Back Test to see the real picture 🙂
Keeping the debate of the timing in mind I did a back test based on both timings are the results are as follows.
The chart above shows the initial balance range in 2 point increments to the left & the number in the bracket shows the number of days when that particular range was established for a data of 1000 days. We can see that 70% of times the range is between 16 to 48 points with the highest probability of the range being between 26 to 28 points for 64 days, 28 to 30 points for 64 days , 20 to 22 points for 59 days, 32 to 34 points for 59 days, 36 to 38 points 53 days, 24 to 26 points for 51 days, 24 to 26 points for 43 days, 22 to 24 points for 41 days and 34 to 36 points for 38 days. So if we add up these days then we get a range between 20 to 38 points for a total of 472 days out of 1000 days with the mean being 26 points. You can have a look at this excel sheet for a more detailed break-up.
The chart above shows the initial balance range in 2 point increments to the left & the number in the bracket shows the number of days when that particular range was established for a data of 1000 days. We can see that 70% of times the range is between 14 to 50 points with the highest probability of the range being between 26 to 28 points for 63 days, 36 to 38 points for 60 days , 28 to 30 points for 55 days, 30 to 32 points for 51 days, 20 to 22 points 51 days, 32 to 34 points for 50 days, 24 to 26 points for 48 days, 34 to 36 points for 37 days and 22 to 24 points for 37 days. So if we add up these days then we get a range between 20 to 38 points for a total of 452 days out of 1000 days with the mean being 26 points. You can have a look at this excel sheet for a more detailed break-up.
Therefore, to conclude we get a difference of 20 days per thousand days for the same range of 20 to 38 points which is negligible & overall we still get 26 as mean with 70% probability changing 2 points either side if we take the different Initial Balance timing. Keeping this in mind, in the next post we will see how we can use initial balance break outs and what is the probability of the auction doing 1.5 x or 2 x range extension based on both the initial balance range timings, though I would prefer to stick to the 9:15 to 10:00 am timing as that is giving better results on various other back tests.
Hope you find this post useful & see you back again to read further into the Initial Balance statistics