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>J.P. Oliver wrote:
>>
>> Paul Cote wrote:
>>
>> Realtraders:
>>
>> I would like to know if anyone has a method for determining
>> or
>> evaluating the choppiness of the market in order to
>> determine a
>> choppiness index. This will be to switch the trading system
>> from say a
>> volatility breakout to a trend following system when a
>> strong trend
>> comes underway.
>>
>> Dear Paul:
>>
>> Robert Barnes published a volatility index called "Directional
>> Relative Volatility" in his book Trading Choppy Markets,
>
>Isn't this just another attempt to find a holy grail indicator ?
>
>Say your indicator says the market is now "choppy". Is it also going to
>tell you what is going to happen next ? Will the market start to trend
>tomorrow? next 4 trading days ? If not it is not really of any practical
>use. By this I mean it does not "add" anything that you did not already
>know with respect to what "might" happen next.
>
>It may be a 3-5 day ABC correction or ABCDE or an x day sideways market.
>One just does not know.
>
>Any other thoughts ?
I tend to agree with Chris. Trying to find a "choppiness" indicator is just
like trying to find an indicator that says the market is in an uptrend or a
downtrend. Each market is different and each market changes over time.
I programmed a variety of strategies in Barnes' book and found that while
many of the ideas were interesting, they tended to break down over a very
large test period. Furthermore, he doesn't provide any parameters. For
example, Barnes may suggest buying a "choppy" market when the rate of
change in a X-day moving average becomes positive and to stop out at point
Y. Unfortunately, it is up to you to select X and Y. And guess what? No
single values for X and Y will hold up over the long term.
-Richard
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