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Elaborating a little further.
(ROC(C,1) with ROC(V,1))win/loss, as used in the code below, is a
simple and effective benchmarking method for rule based traders.
On its own it doesn't tell the whole story.
It needs to be compared to a standardised return that also includes
ave%Won/ave%Lost (PowerFactor).
The benchmark, for comparison in this example, is simply ROC(C,1) as
PowerFactor (since the market has an upward bias the result will be
slightly positive, reflecting a small expectancy each day we are in
the market).
ROC(Array,Periods), as PowerFactor (PoF), where Periods == the
average time in the market for the system tested, returns the quick
and easy measure of 'the market to beat" i.e. it measures the returns
on a 'dumbluck' investment.
(Sorry, PoF should have a superscripted "o" - can't do it here).
Someday, if time permits, I will post a fuller explanation.
Back to volume:
In my 2 years in the forum I haven't seen a compelling argument in
support of volume as an indicator.
Here is why I am not excited about it (as an EOD signal).
If a gazillion shares change hands in one day, and at the close the
price hasn't moved from the previous day, then all of the interest
has been soaked up (supply == demand).
Compared to that, if only 1000 shares changed hands for the day, with
no movement in price, do we know anything different about the
possible future price of the stock compared to the above scenario?
However, the situation could change suddenly and unpredictably if the
supply/demand balance shifts, for some reason.
Basically, volume is somehow interrelated to supply/demand, but is it
causal?
In my thinking so far, it seems that price movement is a more direct
measurement, of S/D imbalance, than price/volume.
So, my bias, at this stage, is to treat price momentum as a surrogate
for volume and not bother with the volume metric (one less to worry
about).
>From there I played around with my own S/D indicators (I know plenty
of others have done that in the past but I don't know the first thing
about their methods).
I used things like ATR/vol, range/vol, ROC%/vol etc to try to get a
metric of Supply/Demand imbalance i.e. how much is any unit of volume
actually affecting (moving) the price.
Understandably, SDI indicators are biased towards days with a small
movement (range and/or price moves) and we can already see that bias
from the charts, without the need for additonal indicators.
The problem I have with S/D indicators is that:
a) price is a small number/a very large volume number
b) %price change is small/a proportonally large % vol change
c) we don't know, on an EOD basis, where the volume is going
(millions of shares could change hands during the day, with no price
movement, and then the last share of the day sells for plus 2% == the
close.
That is where I left off the enquiry, short of going to intra-day
charts where the SDI (SupplyDemandIndicator) can be pinned to a time.
I would be happy to hear from anyone who can point out any weaknesses
in my theory that volume as a second rate EOD indicator.
brian_z
--- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@xxx> wrote:
>
> Anyone?
>
> Here is why I can't get past first base with volume indicators.
>
> I have made some quick and dirty changes to Tomasz's Price * Volume
> code.
>
> If it is plotted it tallies the number of times that a (vol + price)
> up day is followed by a win (another price upday).
>
> In some old DJI components data I find that the result starts to
> approach 50% quite quickly (approx 2600 data points).
>
> Given the inherent errors in such a quick and dirty method it is
> around what I expect for a no-win signal.
>
> (for the deep thinkers 50/50 is the binomial equivalent of the
golden
> mean).
>
> a) Insert the code into a new indicator pane.
> b) Scroll back to the beginning of a chart to see all of the plots
> and cross-check the outputs against the chart.
> c) Scroll to the end of the chart to get symbol by symbol totals.
> d) Use the keyboard arrow keys to scroll down the symbols list.
>
> //P_VolPriceSynchronization
> //adapted from code by Tomasz Janeczko
>
> //Lookback = Param("Change lookback", 1, 1, 100 );
>
> //ChgPrice = ROC( C, Lookback );
> //ChgVolume = ROC( V, Lookback );
>
> ChgPrice = ROC( C,1);
> ChgVolume = ROC( V,1);
>
> BothUp = IIf( ChgPrice > 0 AND ChgVolume > 0, 1,0);
>
> //Period = Param("Sum period", 25, 1, 100 );
>
> Plot( Sum( BothUp,1), "UpVolANdPrice", colorRed );
>
> Upday = ROC(C,1) > 0;
>
> Plot(Upday, "CloseUpday", colorBlue,2 );
>
> TotalUpdays = Cum(IIf(Upday,1,0));
>
> TotalBothUp = Cum(BothUp);
>
> Plot(TotalBothUp, "TotalBothUp", colorBlack);
>
> BothUpWin = Upday == 1 AND Ref(BothUp,-1) == 1;
>
> TotalBothUpWin = Cum(IIf(BothUpWin,1,0));
>
> Plot(TotalBothUpWin, "WinFollowsVPDay", colorGreen);
>
> If the raw signal is not significant can we improve on that by
using
> some form of mathematical conditioning?
>
> brian_z
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@> wrote:
> >
> > Jeremy,
> >
> > Thks for posting the link.
> >
> > Since I haven't found any use for Vol so far (limited to EOD
equity
> > trading) and you have had some success with VPCI:
> >
> > Have you done much work with V indicators?
> > If so, what is your pick as the top three?
> >
> > Any hints on how to use VPCI or should I just follow Dormeiers
> > recommendations?
> >
> > brian_z
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "jeremy7827110028"
> > <jberkovits1@> wrote:
> > >
> > > kethek,
> > >
> > > I dont know if you are familiar with the VPCI indicator. It
was
> > > created by Buff Dormeier CMT of Wachovia Securities. Buff
> recived
> > the
> > > Charls Dow award for his orignal research. I have tested the
> VPCI
> > > extensivly and it has a stitastiaclly signifigant positive
impact
> > on a
> > > wide vierity of systems. You might find it of value. here is
a
> > link
> > > to the code and a TSC article from July 2007.
> > >
> > > Regards,
> > >
> > > jeremy
> > >
> > >
> >
>
http://www.traders.com/Documentation/FEEDbk_docs/Archive/072007/Trader
> > sT
> > > ips/TradersTips.html#amibroker
> > >
> >
>
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