Market normality

[tomorton]

Something I have occasionally looked at in the past.

We have to conclude that a price above a medium or long-term EMA has been rising. We can assume that it will now be more likely to rise than to fall. Conversely for prices below the same EMA. You could take this as a measure of "normality".

But to what extent does this hold true at any given moment and how does the picture change over time?

Last week, of the 26 major forex pairs I watch, only 3 moved according to the principle above. So prices for 23 of the 26 were either above the 50EMA but moved lower or were below the 50EMA but moved higher.

Likewise, only one of the 11 major stock indices or commodities I watch moved "normally", i.e. they were all either above the 50EMA but fell or were below the 50EMA but rose. The one that stood out was maybe not surprisingly the Nasdaq 100.

Generally, when these results fall to such a low extreme, we see a strong reversion to 50EMA-related "normality" in the following week. I expect to see most "high" markets (prices above the 50EMA) rise strongly and most "low" markets fall strongly. We shall see.....

 

[zdreg]

"We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction." - Bill Gates

 

[Xela]

Last week, of the 26 major forex pairs I watch, only 3 moved according to the principle above. So prices for 23 of the 26 were either above the 50EMA but moved lower or were below the 50EMA but moved higher.

Forex pairs are (more or less) all pretty closely (directly or inversely) correlated, though, aren't they? So that's maybe not quite the "surprise" it appears(?).

"We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction." - Bill Gates

Interesting - haven't seen this quoted before.

In his old book Business at the Speed of Sound (long ago), Gates himself certainly overestimated many changes he expected within 10 years (some took 20 years and others haven't happened yet).

On the other hand, what he says above certainly matches my own impression of aspiring traders: most overestimate what they can achieve quickly and underestimate what they could achieve slowly, if they weren't in such a hurry and had such unreasonable and unrealistic expectations.

 

[Scataphagos]

On the other hand, what he says above certainly matches my own impression of aspiring traders: most overestimate what they can achieve quickly and underestimate what they could achieve slowly, if they weren't in such a hurry and had such unreasonable and unrealistic expectations.

With low costs and no barrier to entry, the notion of "trading the markets" has an aura of "vast amounts of quick and easy money". Reality is much the opposite for most.

 

[tomorton]

Forex pairs are (more or less) all pretty closely (directly or inversely) correlated, though, aren't they? So that's maybe not quite the "surprise" it appears(?).

This is very true, but the low tally isn't a surprise, this number oscillates from very highs to very lows over a couple of months. What is interesting is that when such low levels have printed in the past, the reaction the next 1-3 weeks is dramatic. I hope.......

 

[zdreg]

it is the same with Congress of the US. e.g. the Democrats want to make everybody in the country eligible for medicare immediately which is a political and fiscal impossibility. they might have with Republican support lowered the age of eligibility by two or three years every year. doing that however, would not allow the Left to garner the hurrahs and praise resulting from an immediate takeover.

 

[Laissez Faire]

We have to conclude that a price above a medium or long-term EMA has been rising.

Mathematically correct, yes.

If price is above an MA, it tells you that price today is higher than the average price over the last N days. An EMA weights the most recent past more.

We can assume that it will now be more likely to rise than to fall. Conversely for prices below the same EMA. You could take this as a measure of "normality".

Why would you assume that?

 

[fordewind]

Something I have occasionally looked at in the past.

We have to conclude that a price above a medium or long-term EMA has been rising. We can assume that it will now be more likely to rise than to fall. Conversely for prices below the same EMA. You could take this as a measure of "normality".

But to what extent does this hold true at any given moment and how does the picture change over time?

Last week, of the 26 major forex pairs I watch, only 3 moved according to the principle above. So prices for 23 of the 26 were either above the 50EMA but moved lower or were below the 50EMA but moved higher.

Likewise, only one of the 11 major stock indices or commodities I watch moved "normally", i.e. they were all either above the 50EMA but fell or were below the 50EMA but rose. The one that stood out was maybe not surprisingly the Nasdaq 100.

Generally, when these results fall to such a low extreme, we see a strong reversion to 50EMA-related "normality" in the following week. I expect to see most "high" markets (prices above the 50EMA) rise strongly and most "low" markets fall strongly. We shall see.....

Why do you have to watch 26 pairs i wonder?Studying to be a market analyst?

Just choose a single one, watch it for some time and you`ll figure it out.

 

[Scataphagos]

Just choose a single one, watch it for some time and you`ll figure it out.

"You can observe a lot just by watching". -- Yogi Berra

 

[Handle123]

Something I have occasionally looked at in the past.

We have to conclude that a price above a medium or long-term EMA has been rising. We can assume that it will now be more likely to rise than to fall. Conversely for prices below the same EMA. You could take this as a measure of "normality".
....

Just an idea/reality....what if your definition and my definition of long term is differently? I can't stand word "conclude" other that man jumps off top of the John Hancock building hits concrete, we can conclude he is dead or he is Spirit. I don't know anyone who uses EMA for long term, nor 50 being long enough as this average moves too fast to be considered long term IMO.

But we can't conclude or assume anything, cause much of price action relies on where price is right now in relationship to age of trend. The worst parts of trend in any timeframe are beginnings/endings. Beginnings are usually "Thrust" bars as per John Hill's definition, this "Thrust" most likely be above the 50ema, but will this PA continue or stall out, what normally happens is this "Thrust" bar fakes out the ones that lack knowledge and these traders are getting in long too early, they buying the top of wave one in Elliott wave. As @zdreg quoted about Gates, some are overestimating trend and often times have not controlled their eagerness to get in a position. What often happens is small retracement after "Thrust" bar to allow veterans to get out of the shorts and newbies are unfunded often are taking losses cause they bought the highs of thrust, and of course the veterans are noticing what is going on and they reverse instead of just getting flat and price rises a bit. But, what if the Hedge funds HFTs have started program selling going on at double top to the original Thrust bar, the "veterans" and larger trading firms might get caught in this squeeze, but they got in lower and get stopped out or reverse back south unknowing whether continued selling either farther down for short time or continuation of downtrend? So we NEVER can conclude what price will do and always unsure of what price will do, but have to go on something, right?

Normality to me is several bars of certain amount of range like so many points in ES over 2 bars in a group of several bars, when price exceeds this range, my automations turns off until normality PA happens again.

But we all have definitions of what is normal and what is long term. And the definitions is the way to profits providing we have knowledge and risk management under our belts.

Nuts, spring ahead is today, it is one hour ahead, instead of get going on time for once, am already behind again, LOL