I to a greater extent than oftentimes than non discovery that traditional ways of viewing traditional marketplace indicators as well as charts are non the most informative. Years ago, a developer of trading software lamented inward a conversation that he wanted to educate customers inward the role of his product, but he flora that the vast bulk of users never fifty-fifty tried to vary the software’s preset levels. Traders wanted answers from the software, non novel data that could Pb to novel questions as well as answers.
In the spirit of looking at quondam things inward novel ways as well as extracting data that others miss, hither are a few variations I’ve flora helpful during 2014:
* Change the Charts – Who says that arraying cost on the y-axis as well as fourth dimension on the x-axis is the best or most informative agency of gleaning data almost markets? When nosotros create bars based on mass rather than fourth dimension as well as generate indicators from the mass bars, intraday as well as multi-day changes inward volatility are greatly attenuated as well as patterns perish to a greater extent than stable. Market Delta charts include, inside the bar, of import data almost the distribution of mass at the bid vs. offer, revealing short-term shifts inward need as well as supply. WindoTrader charts display bars inside bars as well as hence that y’all tin visualize cost activeness across fourth dimension frames inward a unmarried view. Charts from e-Signal display the per centum of stocks trading at novel highs vs. novel lows for the 24-hour interval session, capturing short-term shifts inward breadth.
* Change the Indicators – Tracking internet upticks vs. downticks inward the marketplace (NYSE TICK) is useful, but my greatest advance inward 2014 came from separating upticks (buying pressure) from downticks (selling pressure) as well as treating those every bit divide variables, tracking the demeanour of divide marketplace participants. (See above). Strong or weak buying tin give off inside the context of potent or weak selling–it’s a divergence that makes a difference. We normally expect at marketplace indicators for the stock or index we’re trading. StockCharts displays the issue of stocks giving purchase vs. sell signals for a multifariousness of indicators, turning traditional indicators such every bit Wilder’s Parabolic SAR into sensitive breadth measures. Everyone asks almost the trend, but sometimes the basis is non linear. StockSpotter has built an impressive rails tape past times basing purchase as well as sell signals on the cycle-based demeanour of stocks.
* Change the Interpretation – I’ve been tracking the issue of stocks giving purchase as well as sell signals via Bollinger Bands as well as flora something interesting. The best predictor of marketplace forcefulness inward the brusk run has been the issue of sell signals. Since May, when the issue of sell signals has been high (top one-half of distribution), the side past times side v days inward SPY stimulate got averaged a loss of -.06%. When the issue of sell signals has been low, the side past times side v days inward SPY stimulate got averaged a gain of +.70%. This has led me to position the absence of weakness–not exactly the presence of strength–as a predictor of upside momentum. The Pure Volatility measure that I of late shared takes mass out of volatility as well as displays informative dynamics at marketplace turns. David Aronson has published a worthwhile newspaper on the purification of the VIX measure. It turns out a issue of indicators tin travel improved through purification: eliminating their overlap amongst other measures. Aronson as well as Masters offer a mass as well as software for traders interested inward looking at purer versions of marketplace measures.
Show me what a trader looks at during the 24-hour interval as well as I’ll present y’all how successful he or she is. If nosotros procedure quondam data inward traditional ways, we’re non probable to accomplish unique, standout returns. The best traders I know display a passion for agreement markets, non exactly trading them.
Further Reading: Turning Innovation Into a Habit