P(Up D+1) — Win Probability Parameter
What is P(Up D+1)?
P(Up D+1) — also referred to as P_win in the QDSF Engine — is the probability that the stock will close higher tomorrow (Day+1) than it does at today’s close, based on the analysis of Historical Twins.
This is not a generic market probability — it is calculated specifically for each ticker, for its current drawdown cycle stage (DD), using only the historical cases where this exact stock was in the same situation.
Formula
At its core, P(Up D+1) is calculated as:
P(Up D+1) = Number of Historical Twins where Close(D+1) > Close(D) / Total Historical Twins for this DD stage
For example, if LYondellBasell (LYB) has a DD=5 and there are 2 historical twins (same DD=5 for LYB in historical data), and both times the stock was higher by Day+1, then P(Up D+1) = 100%.
TP_year P_win: Annual Win Rate
A related parameter is TP_year P_win — the annual win rate for TP_year (the take-profit target derived from annual historical data). This represents how often the stock reached its annual take-profit target level in comparable historical situations.
Interpreting P(Up) Values
- P(Up) ≥ 60% — Strong positive edge. Historical data significantly favors a next-day recovery.
- P(Up) = 50–60% — Moderate edge. Acceptable when combined with favorable R/R ratio.
- P(Up) = 50% — Neutral. No statistical edge in either direction.
- P(Up) < 50% — Negative edge. Historical data suggests the stock is more likely to continue declining.
P(Up) and the Kelly Criterion
P(Up) is one of the two key inputs into Kelly Criterion position sizing used in the DCMM framework. Along with the R/R Ratio, it determines the optimal capital allocation for each trade:
Kelly % = P_win - (1 - P_win) / (TP/SL)
Where TP/SL is the reward-to-risk ratio (equivalent to the R/R Ratio). A higher P(Up) directly increases the Kelly-optimal position size, reflecting the greater statistical confidence in the setup.
P(Up) Across Multiple Timeframes
DCMM calculates P(Up) not just for Day+1, but implicitly across the full probability matrix (ΣH+1 through ΣH+5). A stock might have a P(Up D+1) of 55%, but ΣH+3 (≥1%) of 80% — meaning the setup becomes more reliable over 3 sessions than just 1. This multi-day probability structure helps traders decide on holding periods and exit strategies.
Practical Use
In the DCMM workflow:
- Filter by DD (primary setup filter)
- Check P(Up D+1) — prefer ≥55% for entries
- Combine with Exp Score to prioritize among multiple setups
- Use P(Up) in Kelly formula for position sizing