As I discussed in Thursday’s blog, the average true range percent in the Dow over the last 30 trading days has been over 6%. That’s not to say that Thursday’s reversal bar isn’t a positive one. Things to look for generally include a strong move higher, strong volume, and strong breadth. Thursday qualified in all areas. Against the current backdrop I've been looking for a bit more confirmation. Tests have been mixed.
Monday, November 17, 2008
A Past Study That's Struggling In The Current Environment
An astute reader of the blog pointed out a study from March that suggested a bullish bias when there was two 3.5% up days within a 10-day period. The bullish bias did play out in March as the market rallied over the ensuing weeks. Since then the setup has triggered on 9/19, 10/13, and 10/28 – all of which have been miserable failures. One issue when considering this study in the current environment is that 3.5% isn’t a substantial move.
As I discussed in Thursday’s blog, the average true range percent in the Dow over the last 30 trading days has been over 6%. That’s not to say that Thursday’s reversal bar isn’t a positive one. Things to look for generally include a strong move higher, strong volume, and strong breadth. Thursday qualified in all areas. Against the current backdrop I've been looking for a bit more confirmation. Tests have been mixed.
As I discussed in Thursday’s blog, the average true range percent in the Dow over the last 30 trading days has been over 6%. That’s not to say that Thursday’s reversal bar isn’t a positive one. Things to look for generally include a strong move higher, strong volume, and strong breadth. Thursday qualified in all areas. Against the current backdrop I've been looking for a bit more confirmation. Tests have been mixed.
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2 comments:
Another thing to be learnt is that from now on (well actuelly ALWAYS) is that it is better to use relative moves for all studies.
So instead of ie 3% move, one could use a ratio of the 20 day ATR or something like that
Johan,
ATR is a nice tool, but I don't completely agree. In periods of low volatility you can get signals when you don't want them.
Needless to say, the volatility of the last two months is a going to skew results for many systems for years to come.
I have some more detailed thoughts on how I plan to make some adjustments going forward which I'll post in the near future. Last week's volatility studies were posted as a lead-up to these ideas.
Rob
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