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Hi George,
Sorry, I am quite late in replying to the responses to my post on the
“trend determining methodology”. I'm answering your questions in the
order you put them.
Yes, even I take interday positions in large liquid equities, and I use
the movement of local bechmark index—the Bombay Stock Exchange Sensitive
Index, popularly known as the BSE Sensex—as confirmation. For me, my
desired price level matters more than any particular time of day. The
time of day matters only on the day of the settlement. Generally, on the
settlement day, wide price fluctuations take place because of the
expected contango charges.
As for using certain indicators as filters, I use some short-term
overbought-oversold indicators like stochastics or some variation of
Williams'’%R. This variation of Williams'’%R is written in Metastock
6.52. I’m providing that on a separate post to the list. In range bound
situations, I use the extremes of overbought-oversold readings in the
oscillators, and when the price gives the signal the trade is taken.
ADX does not give the direction of the next move, neither does RAVI,
Tushar Chande’s Range Action Verifying Index. Both can be used to
identify set ups. Actually, ADX when used in conjunction with +DI and
–DI can indicate the build-up of large sustained swings. If the ADX
indicator languishes below both +DI and –DI for a long period (say more
than a couple of months), a sustained swing is likely.
Crossovers in Variable Moving Averages (VMA) does have predictive value.
I normally use 8 and 21-period VMAs on the daily chart. Bullish and
bearish crossovers have intermediate-term implications. Normally, the
bullish (short-term piercing the long-term from below and vice versa)
and bearish crossovers confirm the change of momentum. However, the real
efficacy of this type of moving average comes from its changing
direction upward or downward when the market in question has a direction
or else it remains flat.
The Standard Error Bands (SEB) and the r-squared indicators have
discussed in detail in an article by Jon Anderson in Technical Analysis
of Stocks and Commodities (Vol. 14 issue #9—pp.375 – 378). If you don’t
get a copy of the article, I can provide a summary of that. However,
these indicators do not have anything to do with Gann time theory. Both
these indicators are found in MetaStock 6.0 or higher, and the help
provided does give some idea of those indicators.
So far as choosing Fibonacci retracement levels are concerned I draw
several of them taking several tops and bottoms. I have not been able to
reduce it to a common methodology that can be used in all circumstances
irrespective of securities. I have by now developed a personal feel as
to which ones would be the most suitable.
I am completely in agreement with your observations on Fibs of the last
leg and the whole move. The Fib retracement of the last leg of any bull
or bear run can be used to project the length of the next bear or bull
move. This is done by multiplying the length of the last leg by Fib
ratios 1.618, 2.618 and 4.236 or even higher.
Stochastic pops do give a confirmation that a strong trend is place.
When you find both ADX and smoothed r-squared are rising, stochastic
pops in the overbought or oversold zones do confirm that further higher
or lower prices (as the case may be) ahead and one can take trades in
direction of the trend.
For volatility, I primarily use Tushar Chande’s volatility based short
and long stop bands and along with that the historical volatility
formula developed by Laurence Connors & Linda Raschke in an article
published in Technical Analysis of Stocks and Commodities (Vol. 14 issue
#8, pp 338 – 341).
Well, it may appear that I overanalyze. Maybe, I am. However, the whole
things is very simple since I have developed several templates in
MetaStock which do job. And I am quite comfortable with the whole thing.
The two observations of BOTTrader are quite valid.
Given below are the MetaStock formula for RAVI (asked by BOTTrader)
Prd1:= Input("Short Term MA Period", 3, 13, 7);
Prd2:= Input("Long Term MA Period", 34, 200, 65);
Abs(100*(Mov(C,Prd1,S)-Mov(C,Prd2,S))/Mov(C,Prd2,S))
Please feel free to seek more clarifications if you so require.
Thank you for your patience to read such a lengthy post.
Rajat K Bose
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