How To Quantify Price Action?

[suby 10]

Hey Everyone,

 

I would like to start a discussion in regards to Quantifying Price Action. How can it be done? How do you do it (if you do it)?

 

Realizing that everyone here has there own specialty in what they trade I would like to note this is targeted towards equities; however, It is open to discussing other instruments like futures and forex as well.

 

The reason for this is because often intraday patterns in equities don't pan out like they do in the futures markets. Therefore, The Tape and Support/Resistance Are what really matter when day trading equities.

 

Feel free to argue otherwise if you disagree with my opinion but please keep in my the purpose of this discussion is to determine how to Quantify Price Action

 

Looking forward to hearing back from the community!

 

Suby

[bobcollett 10]

Hey Everyone,

 

I would like to start a discussion in regards to Quantifying Price Action. How can it be done? How do you do it (if you do it)?

 

Realizing that everyone here has there own specialty in what they trade I would like to note this is targeted towards equities; however, It is open to discussing other instruments like futures and forex as well.

 

The reason for this is because often intraday patterns in equities don't pan out like they do in the futures markets. Therefore, The Tape and Support/Resistance Are what really matter when day trading equities.

 

Feel free to argue otherwise if you disagree with my opinion but please keep in my the purpose of this discussion is to determine how to Quantify Price Action

 

Looking forward to hearing back from the community!

 

Suby

 

Hi Suby

"Quantify"...... to express something as a quantity

So you want to express price action as a quantity?

Sorry , but I dont understand what this means

And the fact you have had no replies tells me there's a lot more confused members

Perhaps PM zdo. He writes in " tongues ". (construct of trend )

He might be able to help

kind regards

bobc

[wrbtrader 10]

No answers because its all on the first search page of Google unless he meant something else. :doh:

 

Quantify Price Action

[Tradewinds 12]

I like to use the HL2 as a basic input in comparing price to other things. (High + Low) / 2

 

It's simple, it follows the price moves fairly accurately compared to other calculations. Then you can take the change in the HL2 from one bar to the next.

 

HL2 - HL2[1]

 

Then I like to compare what the price did to what other things did. For example: Did the HL2 price change go up more than the change in volume?

 

I'm constantly trying to determine whether the amount change in price seems justified compared to the change in other things.

 

What trading platform are you using?

[steve46 12]

Many ways to quantify price action, the simplest is to use binary values (on/off =1/0)

 

For example...I have a system that requires price to act in a specific way as it tests a distribution line...the following conditions apply

 

1. Pre-existing trend agreement one time frame higher

2. Price at or near a distribution line

3. Agreement from one additional market (for example, if I am trading the NQ, then I need to see similar movement from the DAX or ES)

 

If conditions are met as shown above, binary value is 1 (ON) and an entry setup is valid

 

If any one of the conditions above are not met, binary value is 0 (OFF) and the entry setup is invalid

Edited October 2, 2012 by steve46

[suby 10]

Many ways to quantify price action, the simplest is to use binary values (on/off =1/0)

 

For example...I have a system that requires price to act in a specific way as it tests a distribution line...the following conditions apply

 

1. Pre-existing trend agreement one time frame higher

2. Price at or near a distribution line

3. Agreement from one additional market (for example, if I am trading the NQ, then I need to see similar movement from the DAX or ES)

 

If conditions are met as shown above, binary value is 1 (ON) and an entry setup is valid

 

If any one of the conditions above are not met, binary value is 0 (OFF) and the entry setup is invalid

 

Hey Steve,

 

Thank you for your reply and insight to this. This body of knowledge is extremely appreciated.

 

I have a couple of questions pertaining to this system. My first question is in regards to "1. Pre-existing trend agreement one time frame higher" - does the distance between time frames matter? Assumning we are trading on the 3 minute should we be looking for a factor in say the 5 minute or 10 minute as opposed to the 1 hour or daily?

 

My second question. What type of data do you use to determine your distribution line? 1 minute, 3, 5, etc?

 

How do you quantify how/what interacts with a market. Suppose I trade a stock on the Nasdaq, I'm concerned about the over all correlation of this stock with the entire markets direction but how can I determine what may influence the nasdaq?

 

Finally, do you have this programmed so your program produces a signal that your looking for or is this all mental/discretionary to determine whether or not it is on/off=1/0

[suby 10]

I like to use the HL2 as a basic input in comparing price to other things. (High + Low) / 2

 

It's simple, it follows the price moves fairly accurately compared to other calculations. Then you can take the change in the HL2 from one bar to the next.

 

HL2 - HL2[1]

 

Then I like to compare what the price did to what other things did. For example: Did the HL2 price change go up more than the change in volume?

 

I'm constantly trying to determine whether the amount change in price seems justified compared to the change in other things.

 

What trading platform are you using?

 

Hey Trade Winds.

 

Sounds very interesting.

 

I'm using Think or Swim

 

When you say the high and the low your referring to the high and the low from bar to bar correct? (what kind of candles are you looking at?) Not the high ad the low from the previous day?

 

Also in regards to comparing the high and the low bar to bar to volume, are you looking to see if the change in price correlated to the change in volume +/-?

 

Where did you learn/develop this approach ?

[suby 10]

No answers because its all on the first search page of Google unless he meant something else. :doh:

 

Quantify Price Action

 

Price Action Lab Blog | Quantifying Market Price Action lol?

 

His system looks and sounds really on point but i'm sure theres an easier way to just use mental math

 

do you use his system ?

[suby 10]

Hi Suby

"Quantify"...... to express something as a quantity

So you want to express price action as a quantity?

Sorry , but I dont understand what this means

And the fact you have had no replies tells me there's a lot more confused members

Perhaps PM zdo. He writes in " tongues ". (construct of trend )

He might be able to help

kind regards

bobc

 

Hey Bobcollett when I say quantify I'm refering to trade in a sense that is as scientific as possible.

 

What sparked this interest was when I stumbled across Price Action Lab Blog | Quantifying Market Price Action - However, I have 0 desire in paying absorbant amounts for a system. I want to understand price action better with the use of math

[steve46 12]

Hey Steve,

 

Thank you for your reply and insight to this. This body of knowledge is extremely appreciated.

 

I have a couple of questions pertaining to this system. My first question is in regards to "1. Pre-existing trend agreement one time frame higher" - does the distance between time frames matter? Assumning we are trading on the 3 minute should we be looking for a factor in say the 5 minute or 10 minute as opposed to the 1 hour or daily?

 

My second question. What type of data do you use to determine your distribution line? 1 minute, 3, 5, etc?

 

How do you quantify how/what interacts with a market. Suppose I trade a stock on the Nasdaq, I'm concerned about the over all correlation of this stock with the entire markets direction but how can I determine what may influence the nasdaq?

 

Finally, do you have this programmed so your program produces a signal that your looking for or is this all mental/discretionary to determine whether or not it is on/off=1/0

 

Regarding trend confirmation....I want to get on the same page as the big players who have the capital (and the interest) necessary to move markets....a couple of ways to do this...you can simply use a daily chart and "look back" at the previous 5-20 days action...on a shorter time frame you might simply look at the previous couple of days action using 30 minute candles......

 

Sorry I can't go into all the detail (its very time consuming) to create my distributions, but I can say that I use daily bars as well as volatility measures taken from the options markets...and of course there are several methods for creating distributions...its not rocket science....if you decide you want to explore that method (and you have basic math skills) its not that difficult to learn.

 

As for corellation, I don't have information about equities and the effects that other markets may have on them, sorry...I trade futures only.....

 

"Programmed"?.....did you really understand what I wrote?....there are only two possible conditions...either a "1"...meaning you have a valid setup.....or a zero ("0")....meaning you don't have a valid setup...if you find that math challenging, this may not be the right system for you..

[suby 10]

 

"Programmed"?.....did you really understand what I wrote?....there are only two possible conditions...either a "1"...meaning you have a valid setup.....or a zero ("0")....meaning you don't have a valid setup...if you find that math challenging, this may not be the right system for you..

 

Lol, I don't find that math challenging nor the system complex I was just wondering if you used an algo to determine these inputs to produce and 1 or a 0

 

Regardless, Steve, I thank you once again. Your advice and insight is extremely appreciated!

[steve46 12]

Lol, I don't find that math challenging nor the system complex I was just wondering if you used an algo to determine these inputs to produce and 1 or a 0

 

Regardless, Steve, I thank you once again. Your advice and insight is extremely appreciated!

 

Just teasing kind sir, and you are very patient to put up with it....Hope you find what you are looking for..

 

Best of luck to you

[Tradewinds 12]

When you say the high and the low your referring to the high and the low from bar to bar correct? (what kind of candles are you looking at?) Not the high ad the low from the previous day?

 

The HL2 is from the same bar. The high of this bar, and the low of this bar. Add the two values together, and divide by two, and that is the center of the bar. So if the HL2 was on your chart as an indicator line, it would go right through the center of each bar.

 

The change in the HL2 is calculated from this bar compared to the last bar. Some people speak in terms of 'Slope', how steep the line is.

 

I just use regular candlestick bars.

 

I don't read trading books. I don't study other peoples strategies. I do read about what people are doing, looking for information or ideas, but have always worked on my own strategy. The bottom line is trying to validate what works and what doesn't work.

 

I try to break the data down in different ways, looking for some kind of correlation. I do a lot of programing, and am constantly tweaking my indicators, looking for some kind of an 'edge'.

 

I like indicators that are oscillators. I do pay attention to Floor Trader Pivots, and a basic Exponential Moving Average.

 

At 15:36 and 15:37 today, the price was trying to move up a little on the YM. The $TIKI HL2 failed to go positive, The YM volume failed to go up, then the price had a big drop.

[wrbtrader 10]

Price Action Lab Blog | Quantifying Market Price Action lol?

 

His system looks and sounds really on point but i'm sure theres an easier way to just use mental math

 

do you use his system ?

 

Hi,

 

I don't use priceactionlab, don't know anyone personally that does use it and I have no affiliation with priceactionlab. Yet, I have seen them discussed at various trading websites about "Quantifying Price Action".

 

Further, they were one of the sites I noticed on the first page of google search.

 

Also, I do know there are a few traders here that's "into" quantifying price action". Hopefully, they'll be very helpful to you in answering your questions.

[Tradewinds 12]

When I program a signal, then have my indicator display that signal on the chart, invariably what happens, is that many of the signals are bad or false signals. The calculations don't lie. What I see on the chart, and think is a good signal, often isn't as good as I thought. Or the raw calculations cause me to see something I didn't see before. So it's good to have a programed indicator generate unbiased output as a test.

 

So, to quantify trading signals will take some programing skills. A person could invest years, and thousands of hours, and not be guaranteed success.

 

I like to convert data into oscillating indicators. So I'm using the change in the data from bar to bar as opposed to the net value. The change in values usually operate within a range, or within certain levels. One thing to look for is price or data to break a previous level. So there needs to be a way to define when a level was established. The price went higher on the last bar, but didn't on this bar. Maybe that was a new price level. But it's not always that simple.

 

If you want to quantify trading data on your own, it's like being a research scientist. There's a lot of trial and error. Regardless of how much time and effort anyone puts in, or how skilled you are, the odds are against you.

[equtrader 10]

Price Action Lab Blog | Quantifying Market Price Action lol?

 

His system looks and sounds really on point but i'm sure theres an easier way to just use mental math

 

do you use his system ?

 

I follow price action lab daily. His blogs are very informative. By quantifying price action I think they mean a consistent framework - whatever that is - for modeling price action and evaluating probabilities. They do that via price patterns. Other people do in other ways, easier or more complicated. I think the key point is to know the probability of a setup and the expectancy before opening a trade.

 

Here is a specific example from the blog I have followed since it was published:

 

Australian S&P/ASX 200 Index Scan For Monday, August 27, 2012 | Price Action Lab Blog

 

The "quantificatiom" of price action in the aussie index gave a long signal for the open of 08/27 with 3% target and stop. The target price is 4,481.94 based on the open of 08/27. As of the close of today at 4,452.4, the target is about 30 points away. For the quantification of price action the blog uses price patterns, backtesting, single and portfolio. This is just one method. I like it but I also use other methods. Quantifying means calculating numbers for whatever you are looking for. Imo the price action lab approach is a bit elaborate for most people not familiar with backtesting.

 

Also, they do other stuff too with correlations for example. This is another way of quantifying price action:

 

DBC is Full of Oil | Price Action Lab Blog

 

Overall it is a good blog amongst several other good blogs but at the end of the day you have to do your own homework and risk your own money.

 

This is another blog I like:

 

Quantifiable Edges

 

He uses backtesting to find repeatable patterns and potential setups. Again, I do not agree with all of his claims but his quantification is very good. I never take anyone's work for granted, I do my own homework to validate the claims. I suggest everyone does the same.

[zdo 20]

...in regards to Quantifying Price Action. How can it be done? ...

 

the whirlings are how first creation looks

 

 

 

 

cc: bobcollett

[zdo 20]

Suby, re quantifying

what is your ideal ?

what makes it ideal ?

how many price changes in each quant_ ? ie tf ? etc ...

how would you use it ?

[Tradewinds 12]

If looking for price patterns is what you wanted a computer program to do, the program would need to capture different conditions, store them, then constantly be looking for condition combinations that matched your definition. For example, if the price pattern required two lower highs, the computer program would need to identify a lower high, set the count to 1, and start looking for another lower high.

 

If the program was looking for correlations between different ticker symbols, multiple symbols or multiple data feeds would need to be accessed by the program. You would need a platform that can handle whatever the requirements are.

 

Scans can filter for lots of different criteria, and might not need a lot of programing knowledge.

[suby 10]

Suby, re quantifying

what is your ideal ?

what makes it ideal ?

how many price changes in each quant_ ? ie tf ? etc ...

how would you use it ?

 

ZDO,

 

What I am trying to do is get a better understanding for price action through quantitative methods.

 

I want to more or less make my trades based on weighted probabilities in regards to the prices distribution/mean/ Variance/Violatility.

 

The biggest problem i have right now is quantifying something like Support and Resistance levels

 

do you have an suggestions?

[addchild 10]

ZDO,

 

What I am trying to do is get a better understanding for price action through quantitative methods.

 

I want to more or less make my trades based on weighted probabilities in regards to the prices distribution/mean/ Variance/Violatility.

 

The biggest problem i have right now is quantifying something like Support and Resistance levels

 

do you have an suggestions?

 

 

ARCH/ GARCH

 

Autoregressive conditional heteroskedasticity - Wikipedia, the free encyclopedia

 

ARMA

 

Autoregressive

 

 

Implied volatility

 

Implied volatility - Wikipedia, the free encyclopedia

 

I hope you love math. Cause this is NOT an easy or typical path for a retailer to follow. (I would consider this a good thing)

 

Edit.. Also do some reading on sports betting. Its far more relevant than most people would like to think. (thats a lesson I learned the hard way.)

[Tradewinds 12]

The biggest problem i have right now is quantifying something like Support and Resistance levels

 

Every price pause is a Support/Resistance level. I have two basic formulas that define a peak or a bottom:

 

	Peak = h<=h[1] and H[1] >= H[2];
Pk2 = h<=h[1] and C[1] > O[1] and C[1] < O[2];

Bttm = l>l[1] and L[1] <= L[2];
Bttm2 = L>L[1] and C[1] < O[1] and C[1] > O[2];

 

I have an indicator that draws support and resistance levels automatically. Previous high and low levels have their lines extended. The above code is just a small piece. If the program needs to keep track of previous highs and lows for comparison to other data, an array, or multiple variables need to be defined.

 

The price level indicator I programed is in Tradestation. I'll post the entire code if anyone wants it. It could easily be translated to some other language.

 

If the program needed to use price levels from a different time frame than the chart being used, that might be more complicated. Some platforms can easily get previous daily or weekly highs and lows even in an intraday chart, and if that's what you need, it might not be that difficult. (Relatively)

[suby 10]

ARCH/ GARCH

 

Autoregressive conditional heteroskedasticity - Wikipedia, the free encyclopedia

 

ARMA

 

Autoregressive

 

 

Implied volatility

 

Implied volatility - Wikipedia, the free encyclopedia

 

I hope you love math. Cause this is NOT an easy or typical path for a retailer to follow. (I would consider this a good thing)

 

Edit.. Also do some reading on sports betting. Its far more relevant than most people would like to think. (thats a lesson I learned the hard way.)

 

ADDChild,

 

Thanks a lot for this I really appreciate it! this is exactly what i was looking for!

 

Do you trade like this? I recall you replying back in regards to another one of my posts about stats

[suby 10]

Every price pause is a Support/Resistance level. I have two basic formulas that define a peak or a bottom:

 

	Peak = h<=h[1] and H[1] >= H[2];
Pk2 = h<=h[1] and C[1] > O[1] and C[1] < O[2];

Bttm = l>l[1] and L[1] <= L[2];
Bttm2 = L>L[1] and C[1] < O[1] and C[1] > O[2];

 

I have an indicator that draws support and resistance levels automatically. Previous high and low levels have their lines extended. The above code is just a small piece. If the program needs to keep track of previous highs and lows for comparison to other data, an array, or multiple variables need to be defined.

 

The price level indicator I programed is in Tradestation. I'll post the entire code if anyone wants it. It could easily be translated to some other language.

 

If the program needed to use price levels from a different time frame than the chart being used, that might be more complicated. Some platforms can easily get previous daily or weekly highs and lows even in an intraday chart, and if that's what you need, it might not be that difficult. (Relatively)

 

Tradewinds,

 

Thank you for this! Sorry for my tardy reply, I was away from the computer all weekend. This line of code looks really clutch. I don't use trade station but I was wondering if there was a way to program something like this into thinkorswim ...?

[Tradewinds 12]

I was wondering if there was a way to program something like this into thinkorswim ...?

 

Yes. You can use thinkScript. There are a couple of groups where you can find support:

 

TOS_thinkscript : Think or Swim Thinkscript programmer

 

ThinkScripter | thinkScript Indicators for thinkorswim

 

There is also a programing forum within TradersLaboratory.

 

coding-forum/

 

This indicator automatically draws price level lines on the chart, and extends previous lines. It uses subroutines in the program flow. I programmed this, but offer it freely to anyone wanting to use it. I do not ask for any reference to myself as the author. I'm offering the code so that I can go on my little ego trip, but trying to go on less of an ego trip than most.

 

 

//10-3-12

input: ShowOnlyToday(True),
	ShowAftrHrs(True); // True will plot lines for after hours also

//hh=higher high, ll=lower low
var: DayHrs(False), AftrHrs(False), NewDay(False),
hl(False),
CntHiDwn(0), CntLwUp(0),
CntLwDwn(0), CntHiUp(0),
CntMjrHiDwn(0), CntMjrLwUp(0),
Peak(False),Bttm(False),
pk2(False), Bttm2(False),
CrrntHi(0), CrrntLw(0),
MajorHigh(0), MajorLw(0),
MajorHigh2(0), MajorLw2(0),
HighExt(0), LowExt(0),
MjrHiExt(0), MjrLwExt(0);

Method void MainMethod()
Begin

Signals(); // Call Method subroutine to calc Peak and Bttm signals

If NewDay then Begin // Reset the Hi and Low at the Beg of a new day
	CrrntHi = H;
	CrrntLw = L;
End;

// If it's after hours, and the input is set to exclude After Hours, then quit here
If ShowAftrHrs = False and Aftrhrs[1] = False and Aftrhrs then Begin
	CrrntHi = 0;
	MajorHigh = 0;
	CrrntLw = 0;
	MajorLw = 0;
	Return;
End;

If Peak[1] or pk2[1] then
	CrrntHi = H[2];

If Bttm[1] or Bttm2[1] then
	CrrntLw = L[2];

If (Peak or pk2) and CrrntHi < CrrntHi[1] then
	CntHiDwn = CntHiDwn + 1
Else If (Peak or pk2) and CrrntHi > CrrntHi[1] then
	CntHiDwn = 0;

If (Bttm or Bttm2) and CrrntLw > CrrntLw[1] then
	CntLwUp = CntLwUp + 1
Else if (Bttm or Bttm2) and CrrntLw < CrrntLw[1] then
	CntLwUp = 0;

If CrrntLw < CrrntLw[1] then
	CntLwDwn = CntLwDwn + 1
Else if CrrntLw > CrrntLw[1] then
	CntLwDwn = 0;

If CrrntHi > CrrntHi[1] then
	CntHiUp = CntHiUp + 1
Else if CrrntHi < CrrntHi[1] then
	CntHiUp = 0;

If CrrntHi < CrrntHi[1] and CntHiDwn = 1 then
	MajorHigh = CrrntHi[1]
Else if CntHiUp = 1 and L < CrrntLw then
	MajorHigh = CrrntHi;

If CrrntLw > CrrntLw[1] and CntLwUp = 1 then
	MajorLw = CrrntLw[1]
Else if CntLwDwn = 1 and H > CrrntHi then
	MajorLw = CrrntLw;

If MajorHigh < MajorHigh[1] then
	CntMjrHiDwn = CntMjrHiDwn + 1
Else If MajorHigh > MajorHigh[1] then
	CntMjrHiDwn = 0;

If MajorLw > MajorLw[1] then
	CntMjrLwUp = CntMjrLwUp + 1
Else if MajorLw < MajorLw[1] then
	CntMjrLwUp = 0;

If MajorHigh < MajorHigh[1] and CntMjrHiDwn = 1 then
	MajorHigh2 = MajorHigh[1];

If MajorLw > MajorLw[1] and CntMjrLwUp = 1 then
	MajorLw2 = MajorLw[1];

If CrrntHi < CrrntHi[1] then
	HighExt = CrrntHi[1]
Else if H[2] > HighExt[2] and HighExt[2] > 0 then
	HighExt = 0;

If CrrntLw > CrrntLw[1] then
	LowExt = CrrntLw[1]
Else if L[2] < LowExt[2] and LowExt[2] > 0 then
	LowExt = 0;

If MajorHigh <> MajorHigh[1] Then
	MjrHiExt = MajorHigh[1]
Else if H[2] > MjrHiExt[2] and MjrHiExt[2] > 0 then
	MjrHiExt = 0;

If MajorLw <> MajorLw[1] Then
	MjrLwExt = MajorLw[1]
Else if L[2] < MjrLwExt[2] and MjrLwExt[2] > 0 then
	MjrLwExt = 0;

RunPlots();

End;

Method void Signals()
Begin
DayHrs=T>930 and T<1558;
AftrHrs = (T>1558 and T<2300) or (T>200 and T<930);
NewDay = D[2] <> D[1];

Peak = h<=h[1] and H[1] >= H[2];
Pk2 = h<=h[1] and C[1] > O[1] and C[1] < O[2];

Bttm = l>l[1] and L[1] <= L[2];
Bttm2 = L>L[1] and C[1] < O[1] and C[1] > O[2];
End;

Method void RunPlots()
Begin

if CrrntHi > 0 then plot1(CrrntHi, "Current High") else NoPlot(1); // Set to points so that the price of the line shows up on the axis
if CrrntLw > 0 then plot2(CrrntLw, "Current Low") else NoPlot(2);

if MajorHigh > 0 and MajorHigh-C < 20 and MajorHigh-C > -20 then plot3(MajorHigh, "Major High") else NoPlot(3);
if MajorLw > 0 and MajorLw-C < 20 and MajorLw-C > -20 then plot4(MajorLw, "Major Bottom") else NoPlot(4);

if MajorHigh2 > 0 and MajorHigh2-C < 20 and MajorHigh2-C > -20 then plot5(MajorHigh2, "Major High2") else NoPlot(5);
if MajorLw2 > 0 and MajorLw2-C < 20 and MajorLw2-C > -20 then plot6(MajorLw2, "Major Bttm2") else NoPlot(6);

if HighExt > 0 and HighExt-C < 20 and HighExt-C > -20 then plot7(HighExt, "High Ext") else NoPlot(7);
if LowExt > 0 and LowExt-C < 20 and LowExt-C > -20 then plot8(LowExt, "Low Ext") else NoPlot(8);

if MjrHiExt > 0 and MjrHiExt-C < 20 and MjrHiExt-C > -20 then plot9(MjrHiExt, "Mjr Hi Ext") else NoPlot(9);
if MjrLwExt > 0 and MjrLwExt-C < 20 and MjrLwExt-C > -20 then plot10(MjrLwExt, "Mjr Lw Ext") else NoPlot(10);
End;

Method void OnError(int ErrorNum)
Begin
print("Error! ", ErrorNum, "Time of Error=", T);
End;

{ This triggers the Main Method subroutine to run, and restricts the lines to the
number of days set to show in the INPUT}
//If DateToJulian(D) > (LastCalcJDate - DaysToShow) then Begin
if ShowOnlyToday and D = CurrentDate then
MainMethod() // Process the lines being drawn
Else if ShowOnlyToday = False then
MainMethod();