Signature for V-tops & -bottoms?

S

sv651

OK-- I've tried posting this over on the TradeStation forums, but they seem to be swamped w/ newbies these days, so I thought I'd give ET a bash.

Every now & again I think it would be nice to have code that identifies V-tops & V-bottoms, especially something that quantifies how extreme the turn was. We all know what these look like, but it's not immediately obvious to me what their mathematical signature would look like (i.e., using standard TA indicators.)

Over the years I've tried a few things, but none have ever worked particularly well. Low R-squared values, for example, work some of the time, but pick up many other completely unrelated waveshapes. I've played with standard deviation, kalman filter overshoots, & all sorts of other silliness.

You could use pivot functions & compare price action before & after a pivot, but it seems like there must be a simpler solution.

Any ideas?
 
Quote from sv651:

OK-- I've tried posting this over on the TradeStation forums, but they seem to be swamped w/ newbies these days, so I thought I'd give ET a bash.

Every now & again I think it would be nice to have code that identifies V-tops & V-bottoms, especially something that quantifies how extreme the turn was. We all know what these look like, but it's not immediately obvious to me what their mathematical signature would look like (i.e., using standard TA indicators.)

Over the years I've tried a few things, but none have ever worked particularly well. Low R-squared values, for example, work some of the time, but pick up many other completely unrelated waveshapes. I've played with standard deviation, kalman filter overshoots, & all sorts of other silliness.

You could use pivot functions & compare price action before & after a pivot, but it seems like there must be a simpler solution.

Any ideas?
More...

The problem may be that your attempting to identify V-Tops or V-Bottoms via either a computer code or indicators.

Have you tried just using WRB (wide range bodies) intervals or sometimes called expansion bars along with intervals with long shadows (more to do with candlestick analysis).

Yet, I don't use such to look for V-Tops of V-Bottoms because I'm looking for something else...

Change in supply and demand.

However, some of the above when occurring together (WRB's and Long Shadows) within a few intervals of each other are more often than not...

The most common features of V-Tops and V-Bottoms...easy to spot visually as long as one doesn't go into it with the goal of trying to catch the knee jerk reaction of a parabolic price surge.

NihabaAshi
 
Thanks -- I hadn't thought of using candlesticks. I don't think they would work reliably, however. Sometimes you get dojis at market extremes, not wide-ranging bars, & candlesticks wouldn't help me to quantify how sharp the turn was.

I still don't see any reason why there shouldn't be a fairly simple way of describing these mathematically. The pattern doesnt' get any simpler & I think anyone with a background in signal processing should be able to come up with something workable pretty easily.

One potential use for such an indicator would be to characterize assets by their tendency to make V-tops/ bottoms vs. rounded tops & bottoms. This makes a huge difference in the type of trading systems you would design.

Thanks again.
 
why wouldn't a channel, like a bollinger band or keltner work? - e.g. if you have a wide enough channel.. - price hits one end, indicating a top/bottom and then if it rapidly hits the other end (or middle, or lower/upper range.. depending on the width of the channel), that would indicate a reversal...
 
Quote from sv651:

Thanks -- I hadn't thought of using candlesticks. I don't think they would work reliably, however. Sometimes you get dojis at market extremes, not wide-ranging bars, & candlesticks wouldn't help me to quantify how sharp the turn was.

I still don't see any reason why there shouldn't be a fairly simple way of describing these mathematically. The pattern doesnt' get any simpler & I think anyone with a background in signal processing should be able to come up with something workable pretty easily.

One potential use for such an indicator would be to characterize assets by their tendency to make V-tops/ bottoms vs. rounded tops & bottoms. This makes a huge difference in the type of trading systems you would design.

Thanks again.
More...

I don't think you understand.

You wouldn't be looking for specific candlestick patterns.

The key is to first understand the price action of a V-Top and V-Bottom.

Most of the time there's increased volatility that leads right into the V-Top Reversal or V-Bottom Reversal.

Sometimes...not often as the above...price action stalls a little...has a failed attempt to counter-thrust...retraces...

Then moves quickly into the V-Top Reversal or V-Bottom Reversal formation.

I'll repeat the following most common price action among those types of reversals:

* Wide Range Bars (WRBs)
* Long Shadows
* Parabolic price movement

Notice how I didn't say any specific candlestick pattern.

Can such be quantify ???

That I don't know and have never tried because when I do trade those V-Tops or V-Bottoms...

The trade wasn't based upon a V-Top or V-Bottom...

Instead, the trade was based upon something else that has to do with a sudden shift in supply/demand.

Also, you keep using the word simply and easy.

If so...why haven't you been able to find something reliable that does such for you ???

Simply, your approaching this from a mechanical system point of view.

Whereas for me in comparison...

I see these formations almost every trading day via a discretionary point of view by seeing those WRB's and Long Shadows are strong early hints into a shift in supply/demand.

Here's another hint to add to the other three I've given...

WRB price action divergence (no indicators).

They are usually involved in about 85% of the V-Tops or V-Bottoms I've notice in Futures trading instruments that I trade (can't speak for stuff I don't trade nor monitor).

Works well for me and I don't think it can be quantify in a way to make a mechanical system.

If it could...I'm sure I would have heard about it by now.

Anyways...good luck in your search for an easy and simple way of identifying those types of reversals from a mathmatical point of view.

NihabaAshi
 
Fader's 1min chart that shows the keltner 3/20 settings may be a way for you to develop it into a mechanical system for identifying V-Tops or V-Bottom Reversals.

Here's my chart example of the same price action via the 2min chart interval.

* WRBs
* Long Shadows
* Parabolic Price Movement into the price action of the Long Shadows.

(Note: WRB divergence can be only seen from a higher chart interval).

All the above helped identify the shift in supply/demand.

The same shift from buyers to sellers that formed a V-Top Reversal.

Think outside the box

NihabaAshi

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=859649>
 

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Thanks, fader -- I hadn't thought of using volatility-based channels. I'll give it a try.

Thanks again for the response, NihabaAshi. I did misunderstand what you were getting at. But I think we just have different approaches. No use getting into the whole discretionary/ mechanical debate here.

Candlesticks can be quantified -- TradeStation has built-in code for such, both TASC & Futures magazines have published many articles with code in the past, there's a guy called HamFon with code on the web, etc., etc.

Finding the signature would be easy for someone with the right knowledge base. Just because I or you can't do something doesn't mean that someone else can't.

Cheers.
 
Quote from sv651:

Thanks, fader -- I hadn't thought of using volatility-based channels. I'll give it a try.

Thanks again for the response, NihabaAshi. I did misunderstand what you were getting at. But I think we just have different approaches. No use getting into the whole discretionary/ mechanical debate here.

Candlesticks can be quantified -- TradeStation has built-in code for such, both TASC & Futures magazines have published many articles with code in the past, there's a guy called HamFon with code on the web, etc., etc.

Finding the signature would be easy for someone with the right knowledge base. Just because I or you can't do something doesn't mean that someone else can't.

Cheers.
More...

Hi sv651,

I was once a long time TradeStation user and once manage (many years ago) one of the user groups on the U.S. west coast (I gave easylanguage coding classes).

Yes...tradestation has candlestick codes of all the generic patterns.

Yet, it is unable to code nor quantify the individual sub-groups of each pattern because the sub-groups are differ from each other via the WRB analysis.

Besides...I wouldn't recommend someone placing trades via those codes nor spend much time analyzing those generic patterns...

At least not with real money on the line.

The most reliable sub-groups isn't coded by TradeStation because the codes doesn't involve WRB analysis.

Once again...be careful in your use of those generic candlestick pattern codes by tradestation, books, magazines and so on.

None of them have codes for the individual sub-groups...just the generic stuff.

Regardless, as I mentioned before...

You don't need knowleged of any specific candlestick pattern to identify V-Top Reversals nor V-Bottom Reversals.

WRB analysis does a nice job in measuring volatility, shifts in supply/demand and so on...

Been using them since the 80's when I first started via hand drawing charts for a few floor traders.

On that note...good luck in your search and good trading.

NihabaAshi
 
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