trendie
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A step towards enlightenment?
On the “Tick Charts v Bar charts” thread, I was curious to see if tick charts (where the bar is comprised of set number of trades) were better than normal bar charts (where the bar is comprised of a time interval).
The reason was that slow activity would be compressed by a tick chart into fewer bars, and faster activity stretched into more bars, when compared to conventional time-bars.
My reasoning was to establish whether this would assist my Moving-Averages to react “better”.
The consensus seemed to be it wasn’t worth it. My response was , ”oh well, I guess I will just ignore my trusty MAs and switch to breakout mode when the market is flat.”.
A penny dropped and I have been musing over it.
Why do I need MAs? I use them to tell me the trend. But they only work when the action is moving, right? But, cant I see the action anyway? By then, isn’t it too late?
Then, it dawned on me. it’s the breakout that is the start of the trend! But haven’t the Turtles been doing this for years? They essentially trade the breakout of X days range. How come I missed this simplicity for all these years?
If the market is moving neatly, MAs act fine. But if the market starts to go sideways, the MAs could signal a reversal, depending on how long the sideways action is. This is a function of the way the MA is calculated. it’s the average price of x-bars.
So, if a rangey bit lasted 5 bars, the MA may trigger a continuation.
But, if the rangey bit lasted 10 bars, the MA calculation may catch up and erroneously signal a reversal.
But, surely, the trend doesn’t change until the price changes direction. And an arbitrary number of bars in a range is no indicator of reversal or continuation.
A set of indicators on one set of parameters might trigger sell, but the same indicators on a different set of parameters may signal a buy. This would be a function of the indicator settings, not the chart price.
Following from this, perhaps I should look at the market in terms of congestion, and monitor whether price breaks out above or below narrow-ranges. This way, my actions are congruent to the price action, and not arbitrary indicator values.
The only function I would need to be aware of is the size of the range to qualify as congestion. But this can be determined by prices not rising or falling from recent notable highs/lows for a defined time period.
There will still be spikes. Price may breakout out in one direction, and suddenly reverse. But this happens with MAs, and I take the hit anyway.
Might need to also see whether the price movement from previous congestion/range is of same distance before congesting. That is, if previous move between ranges was 120 pips, and recent one was only 50, maybe the move is weakening? Maybe I will get that complex later.
To some degree I do monitor small-bar at extremes as potential profit-targets, so I am not new to it. (esp when combined with Boll-bands)
Cant believe I am writing this. I am making an argument to ditch MAs. I know many other traders have written about price action before, but it didn’t stick. Then, thinking about how I ignore MAs in tight ranges and switch to breakout mode led me to the realisation myself.
I shall be monitoring future charts and see how price breaks out and the ensuing action.
As an aside, I can see the price action aspect from the market participants as well.
If you by a share for £10, it cost you £10. If the price goes up to £11, then £12, then £13, then £14.
If the price then stays at £14 for 5 days, you have made £4 profit..
If the price stays at £14 for 20 days, you have still made £4 profit.
But a moving average would suggest that if the price was £14 on day 5, keep it or even buy more.
But if the price was still £14 on day 20, an indicator may say sell it!! This cant be right, since your reaction is to what the price IS, not how long you have kept it for.
You may react by quickly taking profit if it fell to £13.50, whatever day it happened on.
Perhaps, I have started on the road to reading the chart, rather than indicators.
I’m not giving them up just yet, but I have new eyes with which to see the charts unfold.
My only concern is I am going to have nightmares about twig-birds!
Have a good weekend. I know I will.
On the “Tick Charts v Bar charts” thread, I was curious to see if tick charts (where the bar is comprised of set number of trades) were better than normal bar charts (where the bar is comprised of a time interval).
The reason was that slow activity would be compressed by a tick chart into fewer bars, and faster activity stretched into more bars, when compared to conventional time-bars.
My reasoning was to establish whether this would assist my Moving-Averages to react “better”.
The consensus seemed to be it wasn’t worth it. My response was , ”oh well, I guess I will just ignore my trusty MAs and switch to breakout mode when the market is flat.”.
A penny dropped and I have been musing over it.
Why do I need MAs? I use them to tell me the trend. But they only work when the action is moving, right? But, cant I see the action anyway? By then, isn’t it too late?
Then, it dawned on me. it’s the breakout that is the start of the trend! But haven’t the Turtles been doing this for years? They essentially trade the breakout of X days range. How come I missed this simplicity for all these years?
If the market is moving neatly, MAs act fine. But if the market starts to go sideways, the MAs could signal a reversal, depending on how long the sideways action is. This is a function of the way the MA is calculated. it’s the average price of x-bars.
So, if a rangey bit lasted 5 bars, the MA may trigger a continuation.
But, if the rangey bit lasted 10 bars, the MA calculation may catch up and erroneously signal a reversal.
But, surely, the trend doesn’t change until the price changes direction. And an arbitrary number of bars in a range is no indicator of reversal or continuation.
A set of indicators on one set of parameters might trigger sell, but the same indicators on a different set of parameters may signal a buy. This would be a function of the indicator settings, not the chart price.
Following from this, perhaps I should look at the market in terms of congestion, and monitor whether price breaks out above or below narrow-ranges. This way, my actions are congruent to the price action, and not arbitrary indicator values.
The only function I would need to be aware of is the size of the range to qualify as congestion. But this can be determined by prices not rising or falling from recent notable highs/lows for a defined time period.
There will still be spikes. Price may breakout out in one direction, and suddenly reverse. But this happens with MAs, and I take the hit anyway.
Might need to also see whether the price movement from previous congestion/range is of same distance before congesting. That is, if previous move between ranges was 120 pips, and recent one was only 50, maybe the move is weakening? Maybe I will get that complex later.
To some degree I do monitor small-bar at extremes as potential profit-targets, so I am not new to it. (esp when combined with Boll-bands)
Cant believe I am writing this. I am making an argument to ditch MAs. I know many other traders have written about price action before, but it didn’t stick. Then, thinking about how I ignore MAs in tight ranges and switch to breakout mode led me to the realisation myself.
I shall be monitoring future charts and see how price breaks out and the ensuing action.
As an aside, I can see the price action aspect from the market participants as well.
If you by a share for £10, it cost you £10. If the price goes up to £11, then £12, then £13, then £14.
If the price then stays at £14 for 5 days, you have made £4 profit..
If the price stays at £14 for 20 days, you have still made £4 profit.
But a moving average would suggest that if the price was £14 on day 5, keep it or even buy more.
But if the price was still £14 on day 20, an indicator may say sell it!! This cant be right, since your reaction is to what the price IS, not how long you have kept it for.
You may react by quickly taking profit if it fell to £13.50, whatever day it happened on.
Perhaps, I have started on the road to reading the chart, rather than indicators.
I’m not giving them up just yet, but I have new eyes with which to see the charts unfold.
My only concern is I am going to have nightmares about twig-birds!
Have a good weekend. I know I will.
