Establishing Market Mode - Trend/Volatile Trading/Flat

hiyall,

ive been looking into the ideal ways to discern whether the market is in a trending mode, volatile trading range, or flat sideways and also to show the strength of the trend. id like to use different strategies and indicators for each different mode of the market in my system. ie use trading range indicators while market is volatile and whipsawing around, and then if/when a trend develops jump in with more positions and shift exit to suit the trend. this would accommodate the never miss the trend rule and still allow for nice smaller pops during trading range activity.

so far i have experimented with a number of indicators and possible ways to go about this. i noticed several members posting codes with trend ribbons based on price above or below long MA, a +- DMI and/or ADX, in relation to Signal/MACD, and numerous other methods. the ones i have looked at seem to have major shortcomings and are inaccurate to large degree.

so far the most novel and interesting indicator ive found for this application is David Sepiashvili's Trend Quality indicator as discussed in April 2004 TASC

see:

http://www.traders.com/documentation/feedbk_docs/archive/042004/Abstracts_new/Sepiashvili/sepia.html

http://www.traders.com/documentation/feedbk_docs/archive/042004/TradersTips/TradersTips.html

im currently making a trend filter combining several outputs using this indicator, one for current stock and also for a broad index such as Nasdaq to determine trend and strength. so far the experimental results look promising and will continue working with this concept.

im curious as to what other members of the forum are using to define trending modes and wondering if you have any further suggestions on ways to discern the various intricacies of the different market modes?

perhaps also further discussion about what types of indicators and strategies work best for each mode would be interesting topic.

cheers,

el_mago

P&F

Why
Because
it is a non linear and adaptive
can be symmetrical or unsymmetrical

non linear = it charts intrinsic time so it uncovers trend hidden by clock time
adaptive = changes it's time frame as the trends accelerate or slow

symmetrical gives equal weight to trend and reversal of trend
unsymmetrical puts a filter on trend reversal .

Has there ever been anything invented that is a better
trend detector or follower ?

Compare to all the indicators that are placed on bar charts
mov averages bollinger bands MACD You name it

They add very little to P&F type charts because

of the clarity they already have..

trend starts chart starts trend accelerates chart accelerates
trend pauses chart pauses .. volatility contracts chart congests

etc

If you had a P&F chart of eg every stock in the S&P 300
one quick look .. You see
what is moving , how it is moving and the speed it is moving

Probably nothing better to use as a mechanical trend following tool
( all those charts will unfold at different speeds )

You could even make all those charts relative strength charts

All that is simple obvious P&F

P&F is the name of an historic charting method
but it is a class of charts

I would expect that non linear adaptive indicators can be coded to reveal and follow trends in various charting programs

If you have the right eyes you can see things

If you are color blind You wont see colours

Try some P&F eyes
and You never look at trends the same

Every P&F chart has it's own trend constant

Any process can be a clock

P&F is a superior type of clock

Eg chart every stock as a 2%x3 P&F ( Use as well a relative strength chart)

The charts are a trading system and a charting method

stops and pyramiding built in.......

Use them as ever You want ... back testing and system building should be a cinch..

much more than just a chart with those X's and O's from all those years ago


some suggestions..plenty of possibilities
motorway

Trend-Quality Indicator

by David Sepiashvili



--------------------------------------------------------------------------------

Having trouble detecting trends, or estimating their duration when you do spot one? This indicator comes to the rescue.
Trend detection and estimation is one of the most important objectives of technical analysis. One common filtering technique that attempts to eliminate stock market noise and extract important trends is smoothing with the help of moving averages. When using moving averages (MAs) to detect a trend in a security's price, the main difficulty is determining the appropriate averaging period.
To determine the appropriate period can be challenging because different periods have advantages and disadvantages. A shorter averaging period, for instance, may give higher profits but involve high risk, owing to numerous random fluctuations that affect the trend. A longer moving average helps avoid many false reversals by lagging behind the security's current prices, but as a rule, less risk means less profit.

The trend-quality indicator (or Q-indicator) is a trend detection and estimation tool that is based on a two-step filtering technique. It measures cumulative price changes over term-oriented semicycles and relates them to "noise." The approach reveals congestion and trending periods of the price movement and focuses on the most important trends, evaluating their strength in the process. The indicator is presented in a centered oscillator and banded oscillator format.

Click to expand...

Exactly ...........That is already the intrinsic nature of P&F

P&F does all that automatically and since it is completely non optimised to time it does it better... As well as a lot of other things imo.

motorway

Even if you have tuned your moving average (MA) length, a new problem crops up: An optimized system gives good results on historical data but is vulnerable to significant market changes. This can mean disappointing results on new (future) data.

Click to expand...

Nonlinear and adaptive means invulnerability to future market changes
A good trend detector...Will adapt to these changes..because it is not optimized to time. But to those changes themselves..



motorway

Hi,

OK - after being totally bamboozled by all those X's and O's I decided to spend a bit more time on this topic.

I have been reading up on P&F and surprising found that I am fairly comfortable with identifying the various patterns/concepts... eg. double tops, double bottoms, triangles, support, resistance, etc.

One concept that is not so obvious to me at the moment is determining where to place your stop loss from looking at the P&F charts, both on entry and as a trailing stop. Is it best to pick a generic technique such as an ATR multiple or are there some P&F techniques re: stop loss placement.

Also - any recommended Websites to look at re: P&F concepts ?

Thanks

Ace

Ace,

A starting point would be...

http://stockcharts.com/help/doku.php?id=support:understanding_pnf_charts

It has information on box sizes, scaling etc.. If not, just go to google and enter the following in the search control...

stocks point and figure charts

Cheers,
Tim

PS. Prolly (?) a better reference is

http://www.investorsintelligence.com/x/using_point_and_figure_charts.html

http://www.archeranalysis.com/beb/index.html

Click on P&F on left Menu



http://www.pointandfigure.net/component/option,com_frontpage/Itemid,1/

Good description of set-ups

To me it looks like when you buy on a break out to the upside on a P&F. Its just like a Fractal Hi Buy on normal chart

Bull's-Eye Broker, as onemore posted,

http://www.archeranalysis.com/beb/index.html

is recommended by quite a few posters on the SMI (Wyckoff) yahoo mailing list.

Thanks for your replies...much appreciated.

onemore said:

To me it looks like when you buy on a break out to the upside on a P&F. Its just like a Fractal Hi Buy on normal chart

Click to expand...

P&F reveals among other things support and resistance with very high clarity.

How You take advantage of that is entirely up to the individual..

There is no reason why You can not buy at support and sell at resistance
ie: Taking indications from the underside of the patterns on the chart..

There is no need to look at the weekly or the monthly and the daily as You do with bar charts... the P&F chart is all time frames. It is whatever time frame the fluctuations unfold at. The limiting factor is the data If you are using hi low or close end of day.. Then Your chart is adaptive from a daily time frame up.. If You have course of sale data Your chart can be adaptive from individual tics..

The Wyckoff/SMI course contains within it a course on P&F

It is in these horizontal formations, or congestion areas, on the
figure chart that we find the greatest aid: (a) in determining how
far a stock should go; (b) when it meets opposition, viz., when it
has about reached the end of its move; and with the help of the
vertical chart (c) determining the trend, and (d) when a stock is on
the springboard.......................................................................

On the other hand, the figure chart may show many fluctuations on the
full figures, while the verticals are unchanged. For example, if the
high full figure of a stock on a certain day were 45 and the low 40,
there might be several fluctuations back and forth between 42 and 43
on the figure chart, but no indication of this would appear on the
vertical chart. For these reasons it is vital to keep both forms of
charts.

Click to expand...

The second paragraph brings out the adaptive nature of P&F
Even P&F based on EOD is a powerful tool ( It just will not be able to be as sensitive )

P&F reveals very clearly that what matters is identifying trading ranges
ie: support and resistance and that stocks are always in a trading range on some scale of magnitude ( P&F deals in scales of magnitude not time frames as such ) and in trends on very particular scales of magnitudes

As to P& F only being a breakout methodology

Some people regard a stock (or the market) in this (springboard)
position only when it breaks through an old line of resistance or
support into a higher or lower field. I claim that the beginning of
the springboard move is at the bottom of a range of accumulation, or
in the upper levels of a range of distribution.

Richard D. Wyckoff

Click to expand...

motorway

ace said:

Hi,

OK - after being totally bamboozled by all those X's and O's I decided to spend a bit more time on this topic.

I have been reading up on P&F and surprising found that I am fairly comfortable with identifying the various patterns/concepts... eg. double tops, double bottoms, triangles, support, resistance, etc.

One concept that is not so obvious to me at the moment is determining where to place your stop loss from looking at the P&F charts, both on entry and as a trailing stop. Is it best to pick a generic technique such as an ATR multiple or are there some P&F techniques re: stop loss placement.

Also - any recommended Websites to look at re: P&F concepts ?

Thanks

Ace

Click to expand...

A P&F chart charts a price continuation Vs a price reversal ..

Price behaviour of two different kinds make up the x and y axis..

So it is not Price vs time

price continuation is in a sense RETURN
price reversal is in a sense RISK

A stockholder utopia is a stock that goes up with no reversals ( no risk )
A stockholders nightmare is a stock that goes down with no reversal ( a great short )

A stockbrokers utopia is a stock that constantly reverses (Lot's of brokerage earned from both sides )

P&F charts were used as a stop chart

45 degree trend line means that 1 unit of return is being earned for each unit of risk..

When the 45 degree line fails to hold when the chart moves sideways
when reversals start to outnumber continuations

The risk reward relationship is changing..New conditions have arisen..

Stop methods are intrinsic to P&F charting

A point on the above utopias... utopias often end in tears...because risk ( the other side ) is on the sidelines...So the first reversals after such moves are often significant ..

demand meeting supply and overcoming supply...confidence
demand can not find supply.. wariness..it will show up sooner or later..

45 dergees is the happy medium


motorway