Quest for a NEW Predictive BUY Signal Indicator

[Rusty99 10]

Have you noticed that most of the technical indicators are very old, most being developed more than 20 years ago, and many 50 years ago, well before the age of computers.

 

There are two issues here: 1. computers provide a fundamental shift in the way indicators can be developed. 2. Computers have fundamentally changed the way the entire market functions and behaves because computers provide instant information.

 

If you look at the details of the derivation of the indicators that all of us use you will see that most are very primitive and simplistic, despite heir widespread use.

 

I have been looking for new modern indicators that provide better predictive power. My idea is to focus on parameters that change just before a stock starts a new surge. Sure there are many sudden announcements etc. that are unpredictable. But often there will be signals in the few days prior to a rise that are partially due to the way that the market behaves and the effect of some new activity or interest in the stock. I have been focusing on the following parameters used to provide a buy signal:

 

Increase/decrease in Volume

Close in the top half of the daily range

The size of the daily range

Gaps i.e. sudden increase in mean daily price compared with yesterday’s mean.

 

I have been developing an index that uses a combination of these parameters. So far the results look promising and the index gives a signal one to four days before the price surges.

 

I would be interested on your comments about these and other signal parameters and new indicator methods that attempt to do the same thing.

[Eiger 10]

Thanks for re-posting here where it is more appropriate (VSA does not use indicators) and others interested in your topic are more likely to find it. Just so you know, I deleted the post in the VSA forum.

 

Eiger

[BlowFish 10]

Here are of the things that have piqued my interest recently. I am a 'no indicator' sort of trader however every now and then something comes along that is novel and seems to make sense.

 

VWAP PVP and Scew as presented by JPerl on this forum. Provides a set of lines to trade against that whilst curved are not really squiggly. His work is appealing on several levels.

 

Polarised Fractal Efficiency. Not looked at this yet but 'makes sense' to me.

 

Market Delta type stuff. (Volume @ bid vs Volunw @ ask). Certainly provides a different perspective of volume traded. I am not sure its a good proxy for order flow. I find it a bit of a 'can't see the forest for the trees' indicator. Using the smoothed delta like a traditional oscillator and absolute delta to confirm conditions for trend seem interesting too.

 

Urma Blume (posting here) provided a couple of interesting twists on volume too. Trade intensity springs to mind.

 

Order book analysis price often moves towards the heaviest side of the order book. One of these days I will get round to an 'indicator' that shows orders pulled vs orders filled.

 

Having said that I am not sure that indicators can be 'predictive' though the neural net and astro guys might disagree.

[Rusty99 10]

Thanks blowfish for your details reply. I'll have a look at all the indicators you have mentioned.

 

Thanks again.

 

Cheers

 

 

PS. I love the names !!!

[Rusty99 10]

“Predictive” – Possible???

 

My use of the term relates to the idea that in many cases there will be signs in the data prior to the surge, that the stock is about to surge. This is apart from the unexpected changes due to announcements etc, etc and the general chaos.

 

To quote from Incredible Charts

 

"Twiggs Money Flow warns of breakouts and provides useful trend confirmation. It is based on the observation that buying support is normally signaled by:

• increased volume and

• frequent closes in the top half of the daily range."

 

But do these parameters signify more than a trend confirmation???

 

 

Note: The image is an ideal selection to illustrate the concept - not an ideal buy signal.

 

Referring to the image the closing price occurs in the lower half of the range as the stock price falls, but in the three days prior to the surge the closing price moves up the range.

 

There are also changes in the relative volume (not shown) and in the total range / spread (the relative size of the bar).

 

My draft indicator picks up the trend in these parameters and surges upward for 3 days prior to the price increase.

 

(Of course nothing is perfect blah, blah and you would use other info etc.).

 

The dream is that this is a general pattern that reflects modern market behaviour and patterns. (VSA looks at similar patterns, though I have little experience with VSA).

 

An indicator that detects signals of a price rise in the days prior to the surge is “predictive” or that is the dream anyway.

[UrmaBlume 10]

Have you noticed that most of the technical indicators are very old, most being developed more than 20 years ago, and many 50 years ago, well before the age of computers.

 

Increase/decrease in Volume

Close in the top half of the daily range

The size of the daily range

Gaps i.e. sudden increase in mean daily price compared with yesterday’s mean.

 

I would be interested on your comments about these and other signal parameters and new indicator methods that attempt to do the same thing.

 

I couldn't agree more. It is shocking that with data processing technologies smart enough to track a missile in three dimensions at Mach 2, that there is the slightest problem, for all but a select few, in predicting the price of the S&P a few minutes from now.

 

Almost all of our work is starts with your premise that there is a huge gap between the state of mainstream technical analysis today and what it could be today if its practicioners availed themselves of the benefits of modern, intelligent, predictive data processing technologies.

 

My first forray in to this area was almost thirty years ago and based on an indicator derrived from the advances and declines and the up and down volume on the NYSE. The "Moving Balance Indicator" is fully disclosed in a book by Humphrey Lloyd called "The Moving Balance System."

 

At that time the equity options on the CBOE were relatively new and the S&Ps were yet to come. I traded a crossover of the MBI and its five day simple moving average by buying puts and calls on high beta stocks whose options were being traded on the CBOE. I was young, living in the mountains and learning to trade. The work gave me the jump on the huge bull market in the early 80's and bought me my first yacht - pic below.

 

Good luck in your quest. You can see other such non-traditional indicators in some of my previous posts to this board.

 

 

[UrmaBlume 10]

“Predictive” – Possible???

My use of the term relates to the idea that in many cases there will be signs in the data prior to the surge, that the stock is about to surge. This is apart from the unexpected changes due to announcements etc, etc and the general chaos.

 

 

 

 

In the ultra short-term we find a very high correlation between price and the short term surges in buying and selling as reflected in the pie charts on the application below. Below is a shot of our Market Heads Up Display - HUD which we belive is indicative of the non candle, non bar, non profile future of trade decision support processing and presentation.

 

This application is written in C++ and is driven by data exported from Trade Station via easy language and our own dll.

 

 

 

 

 

 

 

Below are some screenshots of indicators that often lead price. They are all calculated from different methods of volume analysis and price is no part of their calculation.

 

While the charts below demonstrate their efficacy as trading indicators we believe their optimal application will be as inputs to high-frequency automated trading system driven by logic developed by a cascade of technologies such as neural networks, polynomial generators, genetic optimization routines and trade rule generators.

 

While my younger traders use a more robust setup w/8 screens this is the setup I use for my personal trading:

 

 

 

 

This first chart is a calculation that when run on constant volume structures produces a "Harmonic" of buying and selling power. The chart demonstrates that oftentimes turns in the volume graph precede the turn in price.

 

 

 

 

 

This charts shows how we calculated net new trade this session by commercial traders. The object of the indicator is project accumulation or distribution, which we consider to be the same as money flow. Here you can see the accumulation under flat price movement prior to a fed announcement.

 

 

 

You may also take interest in the indicators of trade intensity which sparked some discussion on this board.

 

Keep at it Rusty - you can't be ahead of the pack if you are following it and the pack never makes it - only those ahead of it.

 

cheers

[Tams 20]

Look no further... LOL

try the moving average with extension.

 

 

http://www.traderslaboratory.com/forums/f46/moving-average-with-extension-5642.html

 

[michaltrade 10]

UrmaBlume,

Your name was sophisticated like a GURU.

I thought you was banned for some of your "spam ideas" per some reviewers. Thanks to Soultrader to keep you on this forum.

 

"I traded a crossover of the MBI and its five day simple moving average by buying puts and calls on high beta stocks whose options were being traded on the CBOE. I was young, living in the mountains and learning to trade. The work gave me the jump on the huge bull market in the early 80's and bought me my first yacht."

 

Could you share your MBI and ideas how to use it? I would like to buy my "first boat".

[UrmaBlume 10]

UrmaBlume,

"I traded a crossover of the MBI and its five day simple moving average by buying puts and calls on high beta stocks whose options were being traded on the CBOE. I was young, living in the mountains and learning to trade. The work gave me the jump on the huge bull market in the early 80's and bought me my first yacht."

 

Could you share your MBI and ideas how to use it? I would like to buy my "first boat".

 

Thanks Michal,

 

From my post you can see that I used that indicator almost 30 years ago. It is dated and with today's volume numbers would need to be re-engineered. However, if you are still interested in the MBI it is, as explained in my post, fully disclosed in Humphrey Lloyd's book - "The Moving Balance System."

 

Today we use the indicators and others that I have demonstrated in other posts to this board and we trade in micro trime frames which was not possible for off-the-floor traders 30 years ago.

 

In those days there was no real-time volume information, execution was by phone and very slow, there was no real-time online accounting and even discounted commissions were several times what they are today.

 

Today we have complete online data, electornic execution, member rates for commissions and a plethora of state of the art data mining technologies for analysis. With all of that some of my more aggressive young traders get up to 150 round trips per session in the S&P.

 

That picture was taken over 20 years ago in a marina in Hawaii after a 17 day crossing from San Diego.

 

Good Luck with your trading.

 

cheers

 

UrmaBlume

[michaltrade 10]

Hi UrmaBlume,

Thank you for your informations. If you have time, please share some more of your trading knowledges.

Thanks again.

[UrmaBlume 10]

Hi UrmaBlume,

Thank you for your informations. If you have time, please share some more of your trading knowledges.

Thanks again.

 

Michal,

 

Thanks for the kind words. We are a small private group of traders, programmers and poker players from the US and the EU. I am the old man of the group, 65, the rest are mostly in their late 20's. We each bring different points of value to the group - technical skills, market experience, trading skills and/or poker skills that we find to be most useful in today's hi-frequency enviornment.

 

In spite of a busy schedule running our company, trading and writing, I do plan on making more posts to this board and I hope that you will continue to find them to be of value.

 

cheers

 

UrmaBlume