Yes only at the 2 STD. It is probably a combo of the two but can't say for sure. It may just be that I am fading at the extremes of the Average Range. Regardless most stocks will ride the vwap bands quite a bit, so entering at the A-levels with a stop does not give me alot of margin for error.
The ACD Method
- Thread starter sbrowne126
- Start date
Yes only at the 2 STD. It is probably a combo of the two but can't say for sure. It may just be that I am fading at the extremes of the Average Range. Regardless most stocks will ride the vwap bands quite a bit, so entering at the A-levels with a stop does not give me alot of margin for error.
Let me clarify a few things here. There seems to be a misunderstanding of what the daily pivot range is and isn't. I better nip this in the bud before any of you guys spend too much time back testing various scenarios. The daily pivot range has nothing to do with volatility. And measuring a declining pivot is not the same thing as declining volatility.
What the daily pivot range is, is simply a measure of where the market actually closed relative to the median of the day's range. That's it. You could have a 50 handle range in the ES with a very tight pivot if the market closed right in the middle of the range. You could have a 10 handle range in the ES with a wide pivot if the market closed on the high tick. What Fisher was trying to do was capture the information the market was giving you relative to the close. If we get repeated days where the market closes in the middle of the range (i.e a doji) then there is a good chance that the days following will produce follow through. And vice versa. If we get several days where the market closes at the high of the day, there is a good chance we will have choppy and sideways market action to follow. It's NOT a volatility measurement nor is it forecasting volatility. It's forecasting follow through.
I just want to point this out because I get the impression on here that many think the daily pivot is a volatility indicator. If you want to measure volatility you can use a high-low range calculation. I use to do this. I use to graph the high-low on a rolling basis on a chart and it corresponded somewhat with the VIX in that once ranges got really wide, they tended to produce less volatility going forward and rising risk asset prices and vice versa when volatility got really narrow. It wasn't terribly useful because you could not actually time anything, it was just a rough indication.
Now I should point out that there "can be" a volatility component priced into the pivot. For example say you had a 50 handle range in the ES and we closed at the high. Obviously that pivot would be wider then if we had a 10 handle range and the ES closed at the high. However, there will be several very wide range days that will produce narrow pivots due to where the market actually closed. I think this is important to understand.
Again, Fisher used this as a way to guage the probability of follow through on A up and A downs. He wanted to know if today the market was more likely to close at the extreme end of the days range i.e the high or low of the day. Therefore one would think that narrow pivots produced more follow through on A ups and A downs and wide pivots produced less follow through, but not less volatility. Follow through and volatility are not the same thing.
What the daily pivot range is, is simply a measure of where the market actually closed relative to the median of the day's range. That's it. You could have a 50 handle range in the ES with a very tight pivot if the market closed right in the middle of the range. You could have a 10 handle range in the ES with a wide pivot if the market closed on the high tick. What Fisher was trying to do was capture the information the market was giving you relative to the close. If we get repeated days where the market closes in the middle of the range (i.e a doji) then there is a good chance that the days following will produce follow through. And vice versa. If we get several days where the market closes at the high of the day, there is a good chance we will have choppy and sideways market action to follow. It's NOT a volatility measurement nor is it forecasting volatility. It's forecasting follow through.
I just want to point this out because I get the impression on here that many think the daily pivot is a volatility indicator. If you want to measure volatility you can use a high-low range calculation. I use to do this. I use to graph the high-low on a rolling basis on a chart and it corresponded somewhat with the VIX in that once ranges got really wide, they tended to produce less volatility going forward and rising risk asset prices and vice versa when volatility got really narrow. It wasn't terribly useful because you could not actually time anything, it was just a rough indication.
Now I should point out that there "can be" a volatility component priced into the pivot. For example say you had a 50 handle range in the ES and we closed at the high. Obviously that pivot would be wider then if we had a 10 handle range and the ES closed at the high. However, there will be several very wide range days that will produce narrow pivots due to where the market actually closed. I think this is important to understand.
Again, Fisher used this as a way to guage the probability of follow through on A up and A downs. He wanted to know if today the market was more likely to close at the extreme end of the days range i.e the high or low of the day. Therefore one would think that narrow pivots produced more follow through on A ups and A downs and wide pivots produced less follow through, but not less volatility. Follow through and volatility are not the same thing.
It's great to have reached the point on this thread where I can have a greatest hits album.
Let me add one more thing regarding mean reversion and wide ATR's. I'm going to use my favorite word again, nuance. In 2008, we had very wide OR almost every single day. And despite the wide OR, the market had a lot of follow through. Fading the A levels didn't work. However, when we are not in a "crisis" market environment with normal ranges, then fading A levels with wide opening ranges works very well. So there is nuance to the price action one has to understand. Not all wide opening ranges are created equal. Right now fading works well because the tape is dead. There is no volume and all the action is in the over night markets with news out of Europe. So every different market environment is going to have a different tape.
Along with Maverick greatest hits album, i am compiling a log of maverick " Nuance" regarding trading and ACD method.I got light flu, so using down time to read old posts. Currently on page number 55 of the thread. Nuance log will be released once completed.
Hail to the chief " Mark Fisher" and his method traders.
Can I get a copy of this? Seriously, how do I copyright this stuff? LOL. I might have to put a book together. I never thought I would put this much content on one thread.
Euro trading up on the open. Risk assets getting off to a good start.
ES opens up 6 handles and oil is going to try to break par tonight.