The recent post introduced a stair out of marketplace forcefulness based upon the market's might to hitting volatility-adjusted toll targets. A fundamental persuasion from the prior post inward the serial is that momentum tends to precede price: nosotros volition come across to a greater extent than or less moderation of toll rises/declines equally markets top/bottom. The Strength stair out is promising, because it assesses the significance of the market's displace from opened upward to closed based upon the overall volatility occurring at the time. Thus, the odds of the marketplace making a big +4 ascension or -4 turn down are the same inward a depression VIX environs in addition to a high one.
Above is a five-day moving average of Strength (pink line) plotted against daily SPY closes for 2009. We tin come across how Strength bottomed ahead of toll before this year; too nosotros tin come across how the market's electrical flow ascension has been sustaining strength, but waning over time.
If volatility is expanding equally markets displace directionally, nosotros volition instruct really high Strength readings. If markets are moving directionally but on waning volatility, the Strength readings volition moderate. As falling markets attract buyers in addition to rising markets attract sellers, it becomes hard to sustain those moves to R2/S2 in addition to R3/S3. In upcoming posts inward this series, I volition farther refine the ways nosotros tin exploit this relationship.
I volition too endure posting 5-day forcefulness readings equally role of my preopening Twitter briefings, which summarize daily readings for the indicators I follow nigh closely, including novel 20-day highs/lows; Demand/Supply; in addition to the release of stocks inward my handbasket that are uptrending, neutral, in addition to downtrending. Subscription to the Twitter feed is gratis of charge or yous tin option off the concluding 5 tweets on the spider web log page nether "Twitter Trader".
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