Quote from Mike805:
Basically, you're looking for abrupt volatility changes - within measure. Gaps are an ok example. Intraday is a bit trickier but more reliable.
I trade MR systemically and use volatility filters as my primary filter. The "drift" as you call it is, in my eyes, the upward brownian drift that assets exhibit over time. The start of this upward drift usually indicates a lack of new sellers and is also the reason why MR strategies tend to be more effective as Long strategies versus short. Upward drift, based on my research, is easier to systemically quantify than downward breaks. Still working on the downward breaks though...
Mike
I measure off the premium as I stated. Pre open it is found listed at indexarb.com.
If you center the $INDU to DJXX or better still the YMXX spread on this established daily premium you have a reference neutral reference.
As you will see there is a movement of the spread and, that by using time bars, has a volatility. By watching these bars form one after another you then see the change in the length of the bars as a change of volatility.
As usual for all indicators there is a sequence of elements that forms the repetitive cycle over time. For the smart money and their bots, this is a very relaible set of indicators.
My reasoning logic is to make money all the time through instrument price change. when examining reversion strategies often there is an emphasis on reversion to the mean. In some thinking this is always going on as a consequence of the delta of the mean. I regard this differential consideration as less fruitful than extracting the offer of the market.
The portion of the cycle where reversion to an existing mean occur most significantly is the portion just after the end of volatility expansion and continung on until the volatility compression reaches a maximum.
I use all the signals generated by the volatility analysis combined with the spread analysis cycle signals. Fortunately, all these signals are leading indicators for me since I trade a lagging instrument of all of this analysis.
If a person sets up an indicator such as I have described, then the cycling becomes apparent and it can be calibrated for amplitude and time of event signals. I use a 10 second Excel format. From that you can develop your personal logic diagrams that afford creating the appropriate ATS.
One caveat is to account for the drift of the premium. Use te premium drift as the carrier of the indicator. Historically in instruments like the indexes which were floor traded, one of the most common floor techniques was to trade the compound signal of reversion to the mean and use the timing trigger of the extent of drift. As the floor moved to electronic there were the occasional big money traders who got their technicians to convert this trading edge to electronic. It is tough to get technicians to understand how to get down to where the rubber meets the road since their focus is on coding and they do not know how the market works as do the floor traders.
Thus it was very common to see in a trading room big money traders who were frustrated by not being able to get the "good old days" to show meaningfully on the screen. Putting it up there for them is sort of like creating human whiplash physically. Thy know it is there and there to "read" somehow but before it is seen they just simmer in frustration.
Thus, you can see this effort at play in today's markets. it appears in the indicator design I have described to you and it also appears as one of the "games" played on the DOM.
For me to explain this on the DOM would require going through a summary of the four most important games that show on the DOM.
If you are running at 2 to 3x the daily ATR, the addition of these indicator cycling triggers or gates, will take your return up towards the 6x the daily ATR.
The trade rate in comparison to guys like Greenspoon is half the rate however the ROI is about optimum rather than just marginal as is so in Greenspoon's case..
Greenspoon runs 400 contract levels. This is just under the minumum of the optimum trading range and the range has a factor of 20 between the minimum and the maximum.
At this point your orientation is on much slower fractals and I am addressing carving the offer 20 to 40 times a day (nominally 30 as I said above).
This is naive week for "B" people apparently. Enjoy your personal naivete in this post.
