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Jack Hershey â MACD and Stochastics helpers for 123 and FTT's
- Thread starter callmate
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Partial quote from this thread, lj, 2-18-08: I could go on a bit further but I think that what I've said is enough crap for today and probably a few days to come.
A few days have passed and I thought it might be fun to restart the discussion if anyone is interested. PointOne's thoughts about dimensionality and wave superposition got me to thinking about introducing an alternative form of the oscillator model, i.e., calling on the anharmonic formulation, but this is kind o' messy and convoluted, so instead I thought perhaps one could approach the sentiment question more simply by using zeta to measure sentiment, where zeta is the damping ratio and is dimensionless just like the stochastic is. Here's a link to Wikpedia which has a nice discussion on damping http://en.wikipedia.org/wiki/Overdamping.
The other thing I did was to set up a "players" table which shows the options available for consideration of sentiment in relation to buying or selling of, let's say, a futures contract. Zero sum considerations do not affect the argument, in the sense that one can look at the 'other side' as simply being a reciprocal space.
Here's the outline:
Harmonics and Sentiment
The two basic postulates of this discussion are:
⢠âThe bookâ provides liquidity and âthe marketâ provides demand.
⢠The largest group of traders is the âneutralâ group, i.e., the group which has not yet committed themselves to being either Long or Short.
Types of âPureâ Market Order Activities
Buying an Instrument:
⢠Trader going Long, Trend Up, buys @ Bask, committed
⢠Trader closing out a Short, Trend Up, buys @ Bask, neutral
⢠Trader closing out a Short, Trend Down, buys @ Bask, neutral
⢠Trader going Long, Trend Down, buys @ Bask, committed
Selling an Instrument:
⢠Trader going Short, Trend Down, sells @ Bbid, committed
⢠Trader closing out a Long, Trend Down, sells @ Bbid, neutral
⢠Trader closing out a Long, Trend Up, sells @ Bbid, neutral
⢠Trader going Short, Trend Up, sells @ Bbid, committed
Types of âPureâ Limit Order Activities
Buying an Instrument:
⢠Trader going Long, Trend Up, buys @ Bbid, committed
⢠Trader closing out a Short, Trend Up, buys @ Bbid, neutral*
⢠Trader closing out a Short, Trend Down, buys @ Bbid, neutral*
⢠Trader going Long, Trend Down, buys @ Bbid, committed
Selling an Instrument:
⢠Trader going Short, Trend Down, sells @ Bask, committed*
⢠Trader closing out a Long, Trend Down, sells @ Bask, neutral
⢠Trader closing out a Long, Trend Up, sells @ Bask, neutral
⢠Trader going Short, Trend Up, sells @ Bask, committed*
The possibilities with an asterisk are NOT available to the short-sellers. ALL of their trading activities are conducted as market events. Thus there are 12 possible actions for a trader and each of these actions has a âsentimentâ associated with it. However this sentiment is NOT dictated by the action, in and of itself. For the sake of discussion we will call the trader who conducts business âat the marketâ, a MARKET (M) trader and a trader who conducts business âfrom the bookâ, a LIMIT (L) trader. A short-seller is held to conducting all business at the market, as a MARKET trader. What shows on the tape (the Last price) is the result of sales or purchases at the Bbid and Bask but the players at the Bask and Bbid are not of the same stripe. Some are âbuyingâ and some are âsellingâ to the buyers while others are âsellingâ and others are âbuyingâ from the sellers.
The analysis above shows that there are six actions which commit traders to the market and six actions which remove them from the market (or return them to the neutral camp). Of the six actions which commit traders to the market, three of them are âcounter-trendâ, e.g., going Long in a downtrend (M or L traders) or going Short in an uptrend (M trader) and three are with the trend, e.g., going Long in an uptrend (M or L traders) or going Short in a downtrend (M trader).
So how then does one determine whatâs âreallyâ going on in the sense of where it is that the market wants to go (up or down) at some particular point in time. Can the sentiments of the various players be determined from price action alone or from a combination of price and volume? More particularly will the sentiments of said players be manifested in the harmonic type and if so, how so and why so?
Any pertinent thoughts from anyone will be appreciated.
TIA
lj
A few days have passed and I thought it might be fun to restart the discussion if anyone is interested. PointOne's thoughts about dimensionality and wave superposition got me to thinking about introducing an alternative form of the oscillator model, i.e., calling on the anharmonic formulation, but this is kind o' messy and convoluted, so instead I thought perhaps one could approach the sentiment question more simply by using zeta to measure sentiment, where zeta is the damping ratio and is dimensionless just like the stochastic is. Here's a link to Wikpedia which has a nice discussion on damping http://en.wikipedia.org/wiki/Overdamping.
The other thing I did was to set up a "players" table which shows the options available for consideration of sentiment in relation to buying or selling of, let's say, a futures contract. Zero sum considerations do not affect the argument, in the sense that one can look at the 'other side' as simply being a reciprocal space.
Here's the outline:
Harmonics and Sentiment
The two basic postulates of this discussion are:
⢠âThe bookâ provides liquidity and âthe marketâ provides demand.
⢠The largest group of traders is the âneutralâ group, i.e., the group which has not yet committed themselves to being either Long or Short.
Types of âPureâ Market Order Activities
Buying an Instrument:
⢠Trader going Long, Trend Up, buys @ Bask, committed
⢠Trader closing out a Short, Trend Up, buys @ Bask, neutral
⢠Trader closing out a Short, Trend Down, buys @ Bask, neutral
⢠Trader going Long, Trend Down, buys @ Bask, committed
Selling an Instrument:
⢠Trader going Short, Trend Down, sells @ Bbid, committed
⢠Trader closing out a Long, Trend Down, sells @ Bbid, neutral
⢠Trader closing out a Long, Trend Up, sells @ Bbid, neutral
⢠Trader going Short, Trend Up, sells @ Bbid, committed
Types of âPureâ Limit Order Activities
Buying an Instrument:
⢠Trader going Long, Trend Up, buys @ Bbid, committed
⢠Trader closing out a Short, Trend Up, buys @ Bbid, neutral*
⢠Trader closing out a Short, Trend Down, buys @ Bbid, neutral*
⢠Trader going Long, Trend Down, buys @ Bbid, committed
Selling an Instrument:
⢠Trader going Short, Trend Down, sells @ Bask, committed*
⢠Trader closing out a Long, Trend Down, sells @ Bask, neutral
⢠Trader closing out a Long, Trend Up, sells @ Bask, neutral
⢠Trader going Short, Trend Up, sells @ Bask, committed*
The possibilities with an asterisk are NOT available to the short-sellers. ALL of their trading activities are conducted as market events. Thus there are 12 possible actions for a trader and each of these actions has a âsentimentâ associated with it. However this sentiment is NOT dictated by the action, in and of itself. For the sake of discussion we will call the trader who conducts business âat the marketâ, a MARKET (M) trader and a trader who conducts business âfrom the bookâ, a LIMIT (L) trader. A short-seller is held to conducting all business at the market, as a MARKET trader. What shows on the tape (the Last price) is the result of sales or purchases at the Bbid and Bask but the players at the Bask and Bbid are not of the same stripe. Some are âbuyingâ and some are âsellingâ to the buyers while others are âsellingâ and others are âbuyingâ from the sellers.
The analysis above shows that there are six actions which commit traders to the market and six actions which remove them from the market (or return them to the neutral camp). Of the six actions which commit traders to the market, three of them are âcounter-trendâ, e.g., going Long in a downtrend (M or L traders) or going Short in an uptrend (M trader) and three are with the trend, e.g., going Long in an uptrend (M or L traders) or going Short in a downtrend (M trader).
So how then does one determine whatâs âreallyâ going on in the sense of where it is that the market wants to go (up or down) at some particular point in time. Can the sentiments of the various players be determined from price action alone or from a combination of price and volume? More particularly will the sentiments of said players be manifested in the harmonic type and if so, how so and why so?
Any pertinent thoughts from anyone will be appreciated.
TIA
lj
Sheesh!Quote from ljyoung:
.......So how then does one determine whatâs âreallyâ going on in the sense of where it is that the market wants to go (up or down) at some particular point in time. Can the sentiments of the various players be determined from price action alone or from a combination of price and volume? ....
Determination of market direction is based on properly annotated charts.
Can be done with price action alone.
Quote from Avi 8:
Sheesh!
Determination of market direction is based on properly annotated charts.
Can be done with price action alone.
You will observe avi that I prefaced the possible resumption of the discussion with a descriptor - "fun". Thinking is fun and it need not have of necessity anything at all to do with the simple mechanics of trading as it relates to trend determination and price action. We both know the critical importance of annotation and so then one decides what is going to be my annotation protocol. The topic under discussion involves the use of MACD and Stochastics as part of the annotation protocol. If, as I believe is the case for you, there is a belief that these indicators are just "squiggly lines at the bottom of the chart", that's just ducky. There are those who think otherwise and this thread is a forum for that viewpoint. It's as simple as that.
lj
Oh OK, you don't want me posting in 'your' thread. Did not realize you were the OP.Quote from ljyoung:
...There are those who think otherwise and this thread is a forum for that viewpoint. It's as simple as that....
Continue with your 'fun', you might make money when you decide to get serious.
Quote from Avi 8:
Oh OK, you don't want me posting in 'your' thread. Did not realize you were the OP.
Continue with your 'fun', you might make money when you decide to get serious.
Thank you for your vote of confidence avi and of course this is not my thread, it is callmate's. However aside from the occasional distraction I do try and keep things on topic.
lj
Quote from Avi 8:
I would hope so, as it is the very first step!
But, the last chart of your's, was far from correct. Are you sure you aren't 'adding' lagging indicators to cover for lax annotation?
Geesh avi. If I didn't know better I would think you were trying to hack away at the old "avi annotation paradigm". Hope you caught that ES LM BO, telegraphed long in advance by any number of things.
lj
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