Technical Analysis During Volatility

[Peter8519]

The issue is the volatility...its not the popularity or lack of such involving the technical signal. Simply, the volatility will still impact technical signals not popular or custom designed (nobody else is using it except for that specific trader).

In October, a season trader would have noticed the increased speed in the price action, increased speed in profit targets being reached, increased speed in stop/loss protection being hit, increased number of no fills, increased number of trade signals, unusual profits, unusual losses and many other unusual things that a season trader should have picked up on.

Also, I think traders using a technical signal only for a couple of months will be more jumpy or less complacent when October showed up in comparison to someone using the exact same technical signal for many years. Thus, the less experience one has with a technical signal...the faster they are going to abandon it and look for something else at the first signs of trouble.

I'm sure months like October to the first few weeks of November taught many valuable lessons...primarily to pay attention to volatility analysis regardless to what type of a technical signal/pattern someone is using...at least it should encourage many to look at their backtest results to see how their technical signal performed in high volatility trading conditions.

The results of looking at the historical performance they can exploit it the next time unusual high volatility conditions show up in the markets or at least stay on the sideliness if their backtest results show poor trading during high volatility conditions.

wrbtrader

Exactly. Just name a few examples of volatility change.
CAT - Jan 2018
CBOE - Feb 2018
AMED - Oct 2018
ABMD - Jul 2018
TTGT - Aug 2018
DJI - Feb 2018
Just do a frequency plot (bar chart at 0.5% interval) of the absolute value of % daily change for the above before and after the dates. One can clearly see the "after" charts have fat tail.

DJI plot from my other post.

 

[qlai]

Options models fall apart under these assumptions leaving room for sophisticated arbitrageurs to take riskless profits using better and more accurate models.

Arbitrage?

Volatility is mean reverting and therefore predictable.

Predictable?

You must be the richest man in the world!

 

[panzerman]

...You can prove these things at least partly wrong on any series by identifying psychological price barriers.

...Even more to the point, certain formations of candles have predictive power that is statistically significant.

I'm sure with your intellect, you have proved both of these points already. And of course on this anonymous public forum you do intend share those proofs, right? You truly must be the wealthiest person in the world!

 

[gaussian]

Arbitrage?


Predictable?

You must be the richest man in the world!

I'm sure with your intellect, you have proved both of these points already. And of course on this anonymous public forum you do intend share those proofs, right? You truly must be the wealthiest person in the world!

I'm certainly not the richest man in the world (I'm still slumming it here with you guys). However, I know a few Joe Rogan tier wannabe traders and you two are shaped up like them. Zero content, zero retort, just a bunch of meaningless insults to me personally.

Do either of you understand the notion of debate or do both of you just troll forums for entertainment? If you're going to call me out for being wrong provide me some mathematical contradiction otherwise. I'm not going to hunt-and-peck a series to prove to you this. I can refer you to a series of books that demonstrate this for me if it'd be fine by you - however I don't think that's what either of you trolls want from me. I think you just want to get a rise from me in some pissing contest. So here you go: I see both of you keyed in on the same portion of my writing. Did you miss my exposition on the weakness in the GBM? Or are you too dense to understand even the simplest mathematical model of financial series available? I'm guess it's the latter. This forum doesn't produce much actual mathematical talent and it seems you two are no exception to that rule.

My offer stands, if you want some books and I remember to reply to you trolls at some point this week I'd be happy to send links to places to get them to each of you via PM. Otherwise, I'm not going to hang around this thread entertaining the mathematically illiterate.

 

[They]

One of the biggest mistakes traders make is getting too comfortable with a technical signal that they have been trading for a couple months

This is the biggest mistake - finding something that works for a couple of months and thinking it will work forever. It has nothing to do with technical analysis per se. It could just as easily be stated about price action or patterns.

It really doesn't matter if one is using mathematical formulas on micro time frames or traditional technical indicators or patterns on macro time frames it is still going to come down to the statistical analysis which many people don't want to do.

Does your TA trigger spawn a more favorable than adverse move of price over a fixed time or volume transaction allowing you to profit or not? Is there a positive expectancy over the long haul or not?

As far as increased volatility goes - wait for it, adjust for it, ride through it or sit it out. One should know which approach is best for their account before trading.

 

[Palindrome]

The more volatility the easier it is for me to trade. When vol kicks up, markets get less noisy and more technical. Classic technical analysis translates very well in fast markets as the machines kick in to obvious trade mode.

I have no hard facts backing this....but i make a lot more money during these times because the charts become incredibly easy to read...and the market focuses on the obvious classic set ups....in my opinion

 

[qlai]

I'm not going to hang around this thread entertaining the mathematically illiterate.

I never intended to troll, but this is not a math forum ... This is a trading forum ... As in making money out of hypothesis. If you can offer us books on how to make money predicting when volatility will mean revert, than please do. I'm not even touching the whole arbitrage thing.

https://blog.quantopian.com/predicting-volatility-by-dr-ernest-chan/

 

[wrbtrader]

The more volatility the easier it is for me to trade. When vol kicks up, markets get less noisy and more technical. Classic technical analysis translates very well in fast markets as the machines kick in to obvious trade mode.

I have no hard facts backing this....but i make a lot more money during these times because the charts become incredibly easy to read...and the market focuses on the obvious classic set ups....in my opinion

Traditionally that is very true for those using trade methods suitable for volatility. In contrast, there's a lot of trade methods out there on the other side of the coin that perform poorly when volatility rises. Yet, the volatility in October, November and now trying to slow a little here in December...it felt like the wild wild west or a bar room fight.

Oddly, it didn't go above 30 but it had more speed in the price movement than the volatility that hit 50 in February 2018.

The speed in October was as if the volatility was even higher along with the superfast chop that came with the unusual fast volatility. Easy answer is to just say its all due to the market infested with institution algorithm trading because retail manual traders can not trade that fast except for the retail algorithm trader (not many of these types) that are using a algorithm trading system.

Yet, no comparison to the high volatility trading conditions and speed of the price action that I saw and traded within towards the end of 2008 - early 2009. That was off the map but with more directional price movement.

As someone noted, it eventually mean reverts and you then see traders complain about how slow things are, trading is boring, switching to other trading instruments with more action and so on.

Never satisfied.

wrbtrader

 

[EsKiller]

The more volatility the easier it is for me to trade. When vol kicks up, markets get less noisy and more technical. Classic technical analysis translates very well in fast markets as the machines kick in to obvious trade mode.

I have no hard facts backing this....but i make a lot more money during these times because the charts become incredibly easy to read...and the market focuses on the obvious classic set ups....in my opinion

100% agree. Back in 2017 when markets were slow, a lot less signals, and a lot more b/e or scratch trades. Now that price is moving fast, its so much cleaner.

 

[qlai]

Yet, no comparison to the high volatility trading conditions and speed of the price action that I saw and traded within towards the end of 2008 - early 2009.

Spot on. Not sure if we will see this again though. Just notice how every time there's a relatively small spike in volatility, ET'ers complaining that their charts are slow or not working. Imagine trading like that every day ... Huge losses and missed opportunities! There are degerees to volatility.