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Lindsay Blanks <chess@xxxxxxxxx> asks:
>
> In trying to design a system one of the major
> problems that presents itself is how to determine
> the charcter of the market you are trying to trade.
> Obviously trending markets lend themselves to
> trend following systems and trading markets require
> other systems. What is the best way to measure the
> markets "trendiness"? I have considered the ADX
> but that has problems with lag. What methods are
> used by others?
>
An approach that works surprisingly well despite
its lack of sex appeal, is this:
1. Compute whether a 5 day channel breakout system
(reverse to long if price > highest high of last
5 days, reverse to short if price < lowest low
of last 5 days) is long or short. Set the
variable B5 = -1 if the 5 day channel breakout
system is short, and set B5 = +1 if the 5 day
channel breakout system is long.
2. Compute whether a 10 day channel breakout system
is long or short. Set B10 = -1 if short, +1 if long.
3. Compute whether a 15 day CBO is long or short.
Set B15 = -1 if short, +1 if long.
4. Compute whether a 20 day CBO is long or short.
Set B20 = -1 if short, +1 if long.
5. Compute whether a 25 day CBO is long or short.
Set B25 = -1 if short, +1 if long.
6. Compute whether a 30 day CBO is long or short.
Set B30 = -1 if short, +1 if long.
7. Add up the B variables. Set the variable
SUMM = B5 + B10 + B15 + B20 + B25 + B30
7. If SUMM > 3 then the market is trending (upwards).
If SUMM < -3 then the market is trending (downwards).
If -3 <= SUMM <= 3 then the market is nontrending.
I wouldn't DREAM of robbing you of the experience
of coding and debugging this in Easy Language. It's
an educational little etude.
Of course, you are free to set the CBO lengths to
any numbers that suit your own preferred trading
time-horizon. "5", "10", ..., "30" are just examples.
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