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Let me clarify,
(from memory, as it has been a while since I worked on the idea)
UpVol = StDev(max(0,ROC(1))
DnVol = StDev(min(0,ROC(1))
eg
a string of ROCs
-1,+1,+2,-1,-1,+4,-2,-1,+2,+1,
we would be taking 2 Sdev measurements, one of the sequence
0,+1,+2,0,0,+4,0,0,+2,+1
and one of
-1,0,0,-1,-1,0,-2,-1,0,0
sure there is a problem calculating stdev with a lot of zeros because of the
distorted (read clipped)
normal distribution that results, but we are just trying to INDICATE
something right?
And now for the strategy...........
Remember I said that I would be using this strategy in a 'quiet market'
(measured by SDEV(ROC(1),30)
looking for a BREAKOUT. Therefore I am placing buy stops above and sell
stops below about
2 SDs (optimise this number if you must) from the market.
Now I never said that this method was not going to get me on the wrong side
of a false breakout.
If I'm wrong, I wear it!
But by only entering in a low SD market I have lower risk when I'm wrong. So
I position size, based on SD, to my risk tolerance level.
In fact on the successful breakout I would increase my position size
(because then I know I'm right).
This is what I call the "Polish Two Step" :)
Briefly explained :
Place an order for half of the position you really want.
If you are stopped out - great it only cost you half to be wrong.
If you are right, order the remainder and you are only set at a slightly
worse price.
Of course, you then move your stop towards the market.
A great advantage of this is that it helps you pull the trigger - slowwwwly
You get to participate in the trade with less gut twisting.
Hopefully this has helped, Or have I opened another can or worms?
Michael Samerski
Metronome Trading Systems Pty Limited
email : michael@xxxxxxxxxxxxxxxxxxxxxxxx
www : http://www.metronome-trading.com.au
<http://www.metronome-trading.com.au> <http://www.adtrader.com/> The
Financial Ad Trader
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