Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : TA Science Projects & Experimental Indicators -- Ignore unavailable to you. Want to Upgrade?

To: HeyRainier who wrote (158)	6/3/1998 9:21:00 PM
From: ftth	Read Replies (1) \| Respond to of 237

[Accumulation/Distribution thoughts] Introduction: Any measure of Accumulation/Distribution is an estimate. We do not have data on what portion of the day's volume was for opening positions, and what portion was for closing positions. We also don't have daily short position info. All we have is O-H-L-C and total volume to construct this indicator from. So the best we can do is try and find an estimator for A/D that has low bias and is also consistent. We can't quantify this bias or consistency in any meaningful way (because we don't have the "true" number to cross-correlate our estimate with). The best we can do is make qualitative arguments that estimator A is less biased than estimator B, or estimator C is more consistent than estimator D. Since no indicator is perfect, we can always make arguments or show cases where they won't work. This is a fact of life and we can only expect an indicator to work ON AVERAGE over a large number of trades. We circumvent this inherent limitation in the use of indicators through our money management practices. So, on top of needing a signal for entry, and a signal or method for "normal" exit, we also need a signal or method to say that there's a high probability that our original signal was false, and we should abandon the trade prematurely to preserve capital. Which A/D to use? If a person wants to use the standard A/D indicators, in my view they either have to pick ONE and stick with it, or they need a rigid decision rule for using/choosing one over the other for each case. To do the latter, they need to understand the strengths and weaknesses of each one. This understanding will drive the decision rule that picks one over the other. Picking one over the other by "gut feel" isn't acceptable when trying to develop a method, unless one can show that their gut feel performs better than a coin toss. In the next few posts, we'll break down these common A/D measures to get a feel for where they are weak. Then we'll take the best characteristics and construct a new one. As a second step, we'd also like a proxy for Open Interest, in addition to the A/D constructed from the joint total of purchases and sales (more on the value of that later). This will only be a second-level indicator because short information isn't available on a daily basis. dh