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Strategies & Market Trends : NetCurrents NTCS -- Ignore unavailable to you. Want to Upgrade?

To: Teresa Lo who wrote (5485)	2/5/2001 10:08:46 PM
From: Teresa Lo	Read Replies (2) \| Respond to of 8925

<font color=blue>The Need for Speed, Cont'd: More from the eGroups thread: groups.yahoo.com "Teresa and all iSpec members: I'm an S and P day trader who's come up with a way of measuring the speed of a market in a way that may be of interest. I trade off 15-120 minute charts normally, but about 5-10% of the time, the S and Ps are in what I call a fast market ---- and under those circumstances the 5-minute chart is the only one that matters. I needed a way of measuring the genuine speed of the market to differentiate between 1) mere market noise ---- random buying and selling which may appear, erroneously, to be the speedy beginning of a new move and 2) the beginning of a genuine sharp trending move. An excellent way of doing that is to take Perry Kaufmann's ADAPTIVE MOVUNG AVERAGES ---- they have a built-in efficiency ratio which ---- almost miraculously ---- keeps the moving averages flat during periods of market noise and yet allows them to take off almost instantly when a real trend is beginning. The measurement of the market speed is fairly easy ----- I always keep 3 simultaneous Adaptive Moving Averages on a 5 minute chart ---- 3-period, 5-period and 10-period ---- Beneath the chart I plot this indicator ------- AMAF_DIFF Net which is (AMAF_DIFF3 + AMAF_DIFF5 + AMAF_DIFF10)*20 ----- each of those AMAF_DIFFs (3,5,and 10) is the current Adaptive MOving Average subtracted from an average of each AMAF over three periods ----- as in: AMAF_DIFF3 = (AMA(3))-(Average(AMA(3),3). The speed of the market is simply the net deviation from 0 of the combined Adaptive Moving Average differences. (The multiplication by 20 is to give sharpness and definition to the numbers) In a range-bound market, the AMAF_DIFF Net is always between + 10 and - 10. Once it leaves those parameters, the market is beginning to move ----- the faster the move the greater the number plus or minus. At a certain threshold, I close out any position on the wrong side of the market, and beyond a second threshold will reverse. You ask where to measure the beginning of the move from ----- If it's a breakout from a narrow trading range, the quantative measurement of the speed is simply the degree of the movement from 0 ----- the midpoint of all Adaptive Moving Averages where the Averages = Price. If it's a swing move ---- a reversal from up to down or vice versa ----I judge the speed of the move by the net difference per each 5-minute close ---- a standard move might be 20-40 points per 5 minute period (which may or may not keep going at that speed ---- and I duly note all slowdowns and speedups from its initial rate) --- others, such as the now infamous Greenspan trade on January 3rd (surprise lowering of rates) moved 760 AMAF_DIFF points in just 4 minutes ------ an all-time record in my experience! Adaptive Moving Averages are truly superior indicators ----- formulas can be found in Kaufman's book Smarter Trading ----- also in several back issues of Technical Analysis of Stocks and Commodities and finally, some versions of AMAs are included in functions on Trade Station. I wouldn't trade without them because they are an answer to a day trader's prayer ----- not being faked out by noise masquerading as a reversal while getting on board new genuine breakouts almost instantaneously. And, of course, they allow a quantifable answer to your question of just what the speed of a market really is ---- so you can measure the speed of moves relative to one another, as well as track the precise acceleration and deceleration of any move in real time. Hope this might be of interest, armaniman