How to Identify Choppy conditions

panzerman said:
Yes, but that is subjective to the eye of the beholder. If you want to take emotion out of the process, and especially if you are going to automate the trading method, you need a mathematically defined way of determining trend and chop.
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Mathematically defined by the person who creates the indicator to measure choppiness ina subjective way. If you don't think that the person has to measure choppiness then you might see issues in your trading.
 
market profile shows you where to trade reversion to the mean and where to trade momentum outside the value area. one of the most reliable tools ever when you get the hang of it. also think it's the only "indicator" that the cbot-cme licenses for use.

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panzerman said:
If you are in to indicators, check out the work of John Ehlers. Specifically, his trend mode/cycle mode, and signal-to-noise analysis. These won't help you predict when the transition from trend to chop will occur, but can give you a quantitative definition of when you are in a particular mode.

Basically, trade trend indicators, such as a MA when in trend mode, and oscillator indicators, such as RSI or bandpass when in cycle mode. Have predefined loss criteria for when the mode switches.
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There will be some times when you switch and the market switches following. The market's periodicity works like this. Certain times, a 20 SMA will get you entirely winning trades. Other days, it will give you completely losers. Specific times, the data you get will tell you the market is choppy and you will switch to a mean reversion system and then the market will change to trending.

Generally, a trend indicator is only good for telling you if the market has been trending, instead of if it's going to keep on trending. Regardless, the market can change at any place, so knowing that it has been trending is basically unhelpful.

Can someone post an example of when a trend indicator was useful?
 
1a2b3cppp said:
There will be some times when you switch and the market switches following. The market's periodicity works like this. Certain times, a 20 SMA will get you entirely winning trades. Other days, it will give you completely losers. Specific times, the data you get will tell you the market is choppy and you will switch to a mean reversion system and then the market will change to trending.

Generally, a trend indicator is only good for telling you if the market has been trending, instead of if it's going to keep on trending. Regardless, the market can change at any place, so knowing that it has been trending is basically unhelpful.

Can someone post an example of when a trend indicator was useful?
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This is true of all technical analysis if you view the market as a random walk process. It seems random walk, with all of its' well known short comings is still the best model of market behavior. The switching of regimes between trend and chop (however they get defined) is randomly distributed through time.

Anyone can give you an example of a trend indicator that was profitable on a given trade, but they probably can't, or will not, give you one that is quantifiably proven to be positive expectancy.

Here's one: Ehlers Zero-lag moving average with an alpha of 0.2. Just follow the slope for long and short entries.

Is it a positive expectancy MA? I can't tell you that at this time, not enough trades, but I doubt it will be. I doubt any indicator will be, because of random walk.
 
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