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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: TraderAlan who wrote (13080)	5/28/2001 3:14:57 PM
From: catman	Read Replies (1) \| Respond to of 18137

Trader Alan... Do you have an opinion on mechanical trading systems such as eASCTrend? I would appreciate any input.

To: TraderAlan who wrote (13080)	5/28/2001 5:13:13 PM
From: KymarFye	Read Replies (1) \| Respond to of 18137

Alan, WS - I doubt very much that decimalization has much to do with the notable decline in the HV of Nasdaq stocks. The decline - or what really caused it and what it represents - may remain an important issue, however. Decimalization would be much more likely to impact the intraday volatility - actually, more the intra-hour or intra-minute volatility - of Nasdaq stocks than their historical volatility as typically measured (whether 100-day annualized or the 60-day period that WS seems to prefer). The kind of price swings measured by HV don't have much to do with whether and precisely how stocks are moving from, e.g., 63.22 to 63.46 rather than from 62 1/4 to 63 7/16. Even the short periods that are often plotted for comparison purposes (e.g., 5-day vs 100-day), aren't likely, in my opinion anyway, to be altered much as a result of decimalization. I think the more obvious and likely explanation is simply that, having been through an unprecedentedly maniacal bull run and an equally unprecedented two-wave crash, and further caught between multiple countervailing larger trends, the whole tech marketplace is just plum tired out. Starting in 1999 and accelerating throughout 2000 and 2001, HV measurements of Nasdaq stocks began to reach unprecedented levels - commensurate with (and contingent upon) the equally unprecedented high number of large 1-day percentage moves. The measurement is highly sensitive to such moves (such that it can becomes rather misleading until huge moves disappear from whatever lookback period), and it seemed to maintain relevance through the period only because it began to seem that these volatility levels had, indeed, become the norm. You don't need much math or a very advanced software package, however, to see from the daily charts of, say, VRSN or JNPR, that things have calmed down a lot. Along the same lines, options traders have also been suggesting that we may be embarking upon an epochal downshift to arguably saner levels (as reflected in lower premiums). Such a decline is not surprising at all, in my opinion, and I believe it would be very likely to have occured regardless of decimalization. It would likewise be unsurprising if volatility spiked up again from time to time - though probably at levels and frequencies more familiar from pre-99 or earlier periods. The more significant issue - which Alan has already addressed from a different perspective here and on his website - is the extent to which persistent declines in broad volatility and volume, perhaps alongside higher levels of "micro-volatility" (wider spreads, jerkier movements on the scalper's level) may impact formerly effective trading approaches, in some instances rendering them useless or worse. Those of us who use backtesting, for instance, to analyze and assess our strategies have to face the possibility that some potentially large portion of the data gathered from, say, 10-99 to 4-01, may in important ways represent market conditions that are unlikely to be repeated anytime soon, if ever. By the same token, popular trading strategies based on narrow range breakouts, for instance, may continue to be profitable, but may also have to be handled much more carefully. In my observation the frequency of aborted moves and of whipsaws back into the narrow range rather than back out the other side seems to have increased, making the (formerly) seemingly foolproof boxing tactic much less successful. In some cases, current conditions seem to call for longer holding periods, less dependence on unimpeded directional moves, more conservative price targets, and possibly for tighter stops - though it's difficult to generalize: Different strategies might require the opposite alterations. In any event, I think we've all noticed that things done changed. Only time will tell how much and how long.