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Just some observations regarding this topic....
Some time ago (before TS and before Windows), I wrote a program in Symphony
based on John Hurst's Book about cycles, and used curvilinear regression
that I picked up out of a Lotus Magazine. I still have it somewhere, and
keep promising myself to re-write it for TS. Based on this, my
observations are as follows:
(1) No one can predict with consistency the tops or bottoms of markets...
not me, not Tom DeMark, not Larry Williams....none of us. They cannot be
predicted by fundamentals, TA, astrology, Fib or Gann. Those who try and
bet money on it will lose. (BTW, DeMark and Williams will both readily
tell you that they can't predict tops and bottoms.)
(2) What CAN be predicted, with pretty good accuracy, is the change in
volatility of the markets. I'm defining volatility here as simply a
noticeable increase/decrease in price range and volume, not the convoluted
definition of volatility used by the academics. (Speaking of which, did
you know that the famed Black & Scholes model is an adaptation of a
chemical formula used for measuring heat transferrance?)
(3) One thing is sure... non-volatile markets will follow volatile ones,
and vice-versa. Rarely (almost never) do you see a violent move upward
followed by a violent move downward with out an interlude of quiet... of
non-volatility. Conversely, if you are in a period of non-volatility, you
can be sure that the next phase will be a volatile one. Note that when
this next volatile phase comes, prices will not necessarily reverse their
trend.... they can just as easily continue in the same direction. But of
course, all breakout systems are designed with the idea that from the
present condition of side-ways, nonvolatile markets, prices WILL break out,
either way.
(4) A recent thought.... can we not consider a sideways market to be
trending? Today, for example (3/16), most of the day we saw prices caught
in a 2 point trading range.... going absolutely nowhere; but since they
were not oscillating to any significant degree, and since they were not
"choppy" (whatever that means), they must be trending... trending SIDEWAYS.
With the above in mind, I think that predicting a change in market type
(trending vs oscillating) can be done, and I did it, to a reasonable degree
of accuracy. This is only half the battle, of course. We still don't know
which way the market is going to go... only that it is going to change from
its present state to an opposite one.
Just a few passing thoughts.
Dave
"Come let us reason together" - Solomon (Ecclesiastes)
At 11:32 PM 3/16/98 -0800, you wrote:
>
>> Ron Augustine wrote:
>> Ideally, your basic assumption that it is necessary to know when to
>switch
>> between a trending and a oscillating analysis platform would appear to be
>> correct--
>>
>> A deeper assumption that it is possible to develop a mechanical system
>that
>> will consistently produce profits may be fundamentally flawed... :)
>
>
>Hi Ron -
>
>I was testing some of the new code from the list this evening and found
>myself starting to get sucked into the same traps as I had in the past. I
>saw your statement and it inspired me to add my thoughts.
>
<snip>
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