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Here's a summary of what people told me about their adaptation of
indicators for intraday use, taking into account large differences between
the previous day's close and today's opening.
People seem to (1) "forward adjust" today's data to eliminate the gap, (2)
wait until there are enough bars to compute the indicator, (3) start an
exponential seeded with the opening tick or (4) use only as many bars as
are available today.
Bill Brower taught me the first technique. He measures the gap between the
close and the open and adjusts today's values with that amount. Then he
computes the indicator on the uninterupted stream from yesterday through
today. The indicator never sees the gap and performs normally.
Several people simply waited until there were enough bars available to
compute the indicator. However, being impatient they often shortened up the
bars. While their normal bar would have been ten minutes, they started the
day with one-minute bars! Naturally, the indicator was available sooner
than had they waited until the ten-minute bars had formed.
One person advocated using the exponential formulation to start computing
the values for the day's indicator. The first value would be the opening
price. The second value would be, say, 90% of the opening price + 10% of
the new price (adjust the ratios as you please). These revised "prices"
would be fed to the indicator.
A variant of this is to just use the bars available. On the second bar, you
compute the "2 bar" indicator. On the third bar, you compute a "3 bar"
indicator; on the fourth, a "4 bar" indicator; and so on.
One line of thought was that the gap should be kept and the indicator's
reaction to it as well. After all, it did occur. Had the price moved that
much during the day, the indicator would have performed just as it did.
It's only that we don't see the price movement between close and open that
upsets the indictor and us. In this view, the solution is to use the
rapidly approaching 24-hour trading to get price values around the clock
and plot the indicator around the clock.
Peter2150@xxxxxxx had the most innovative approach. He computes a surrogate
value for price from the ticks and uses that instead of price. His
experience is that this not only smooths over gaps but tracks well with
price. I'd never have thought of this but I certainly will try it now.
Thanks Peter!
Thanks to all who contacted me. It turned out there were too many to chat
with individually as I proposed. My apologies! I hope this summary
accurately reflects all the ideas people had. If your idea is missing, let
me know and I'll repost or you could send it directly to the list.
John
John Sweeney, Tech. Editor Technical Analysis of Stocks & Commodities
Technical Analysis, Inc. The Traders' Magazine
4757 California Ave. S.W. Phone: 206 938-0570 Fax: 206 938-1307
Seattle, WA 98116-4499 USA Web: http://www.traders.com/
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Contents may not reflect official opinion of Technical Analysis, Inc.
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