S&P Week Range Behaviour

A simple statistical exercise showing how S&P weekly trading range is closely related to and affected by its prior week’s trading range.

The Distribution

Following is a distribution chart of the weekly trading range represented in percentage terms of the prior week range. It includes data going all the way back to 1991.

It is a picture perfect t-distribution with several key properties.

The median is almost exactly landing at 100 percent. No mistakes here – exactly 50% of the time the trading week will be trading at 100% or less of the trading range established from the prior week, and the other 50% of the time the trading week will be trading at more than 100%. The highest percentage in record is about 550% of prior week`s range.

Those who have read STOPD will find it amusing that there is a spike in the distribution at the 150% and 200% levels.

And that none of the weeks print less than 20% of prior week’s range.

Applications

Knowing that the probability of a week going beyond 200% is pretty low, isn’t it better to lock in profit when it happens or reduce risk exposures by adjusting your stops accordingly?

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