Heng Seng Index (HSI) Basic Daily Statistical Biases for Effective Day Trading
By Lawrence
The Heng Seng Index (HSI) has been a tradable instrument for a long time similar to the S&P500 index future. Long time ago, it was also the darling of hedge funds before the 21st century. Majority of retail traders, however, choose to stay away from it due to its reputation of wide spread and illiquid nature. Even nowadays the Heng Seng mini contract is still having similar issues. I am going to explain how one can approach this index from a different angle to improve the odds in making money trading this market.
Data Used for Generating the Statistics
Data used to compile the statistics on HSI starts from the beginning of year 2009 to the end of November 2015. I use 1-minute HSI cash index data with trading days starting from 9:30 am to 4:05 pm. I included extra 5 minutes at the end of the trading day to capture the settlement prices as well.
The HSI index futures, however, start their trading day from 9:15 am and end the regular trading session at 4:15 pm. The extra 15 minutes before and after the stock market open hours allow traders to participate while opening adjustments of the opening bid / ask levels are made to the underlying components. Traders equipped with pre-open price quotes on the components can choose to trade the index based on the anticipated changes.
Lunch Break
HSI index futures regular trading session, similar to other Asian markets, has a lunch break during the trading day. It is very different from the European and American markets that stay open through the lunch hours. I am in no position to say whether it is a good practice or not to have lunch break but I know one thing for sure is that the practice messes up price actions. Due to the fact that any opening process in an auction market is designed in favour of market makers, having two opening process everyday is definitely not a good thing for retail traders.
Overall Statistics
To understand the structural behaviour of Heng Seng Index, it is important to have an overall knowledge of its basic statistical behaviour. Following is the basic weekly statistics of HSI.
Monday and Friday standout from the rest of the weekdays in terms of being the high of the week and the low of the week.
This tells us that we should pay close attention to the chart patterns on Monday. If it produces a swing low on higher timeframes, it is more likely to give us the low of the week and that higher prices for the rest of the week is also likely. Even more interesting, Monday and Tuesday in combination already accounted for 46% of the week low price print.
Hence, if you have a good handle on the the higher timeframe direction, Monday / Tuesday will be your anchor for jumping in that direction with continuation setups in your primary timeframe.
Weekly Biases
Here is the breakdown of the weekly distributions of week high and low given Monday being one side of the extremes.
From the table, when Monday produces the high of a week, there is a 41.9% chance of Friday printing the low of the week. If you take into account Thursday, we are talking about 66.6% chance.
When Monday produces the low of a week, there is a 47.7% chance of Friday being the high of the week. If we consider Thursday as well, there is a whopping 78.5% chance of week high happening within that last two days of the week.
These two weekly biases give you the exit strategy to pair with the Monday / Tuesday entry setups.
Summary
The weekly biases presented here are similar to the ones with Emini S&P but not exactly the same. There are subtle differences which I will discuss in another article. One main theme with Asian index markets is their sudden turn after the midday lunch break which, on the surface, feels like it is something unique to these markets. The truth, however, is more interesting and can be explained by STOPD quite easily.
As a summary, day traders often focus too much on the timeframe they trade. It is fine when the market is moving quickly (i.e. strong momentum) because reactionary moves are more predictable in such conditions. But we do not get this type of trading environment all the time. By knowing how the higher timeframes behave, you can lean on their directional biases to grab part of their moves in your own primary timeframe. For an instrument like the Heng Seng Index, which gaps very often, using higher timeframe context is very important for maintaining a balanced approach in day trading on day-in day-out basis.
