The ACD Method

[Maverick74]

Quote from koolaid:

Mav,

does the magnitude of the move contribute anything meaningful to your number line or it's just a matter of how price reacts with time at the A levels, as fisher had originally proposed.

Yes and no. Yes, in that as vol increases the A levels get wider and therefore it gets harder to confirm new A levels. This is true of every time frame. When monthly ranges expand, each new monthly A level going forward gets harder to confirm until the ranges begin to contract again. But no, 10% daily move that confirms an A up gets the same +2 score as a 1% move that confirms an A up. In fact, what makes ACD unique from other methodologies is that it's actually possible for a product to confirm A ups with price moving lower each day. Try doing that with your dad's old fashion moving average cross over system!

 

[Maverick74]

Quote from trader31:

Hi Maverick, Merry Christmas to you as well. General ACD question as it relates to the number line. I understand (assuming nothing changed) that you have basically have 3 number lines for a given product 1) the 5-day rolling "momentum" line 2) the Monthly number line (tied to your monthly A-levels), which resets every ~30 days and 3) the rolling 30-day number line or long-term trend indicator (as an aside, I know you have mentioned a 10 day vol number line indicator before, but not sure if that is still part of your system). My question relates to picking up a new product/market and how much historical perspective you require prior to trading the new product/market. As a hypothetical, if you were to pick up say CL tomorrow and have never traded it or watched it before, what would you do from an ACD/number line perspective to familiarize yourself with the market to trade it? With the 30-day rolling number line for example, how far back would you go back to calculate it given the circular problem of when you start the numberline could impact the actual number line results and also how would you know how rare or not a particular confirm is if you don't have significant historical perspective? Sorry if there is a lot here, but any perspective would be greatly appreciated. Thanks

If I add a new product, I go back and get the number line for the entire year. The good news is if it's in February I only go back to Jan 1st unless there is less then 30 days of data in which I will go back to the following year to fill up an entire 30 day span. The bottom line is, the further you go back the better. One, as you pointed out, you want to know what the patterns are. And two, by going back and scoring the daily charts each and every day, you are going to get a feel for how that product trades. I can't begin to tell you how important that is.

 

[Maverick74]

Quote from running_bare:

Doesn't it confirm around this time every year (winter demand)?

Likewise, gasoline NL confirms each year around Spring time (driving season)?

(with rare exceptions eg 2008 crisis)

NO!!!!!! I made this mistake as well in the beginning. Do not ASSUME anything. Last year rbob got destroyed during the summer driving season and rallied all during the previous winter. The only fundamental thing you need to be deeply aware of is, as we move through the winter and summer supplies of heating oil and rbob, the risk of a shortage becomes a serious issue. IF, IF we get a late season cold spell in the northeast into April or even May, prepare for the squeeze of your life in heating oil as most of the supply is pretty much gone. Same for rbob, if you get an indian summer, rbob supplies can run really tight and open the door for massive squeezes. This means If I noticed a longer then usual cold spell into the spring and I got a confirm on heating oil in April or May, I'm taking both the King and my money and going all in on that trade.

 

[Maverick74]

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Late Christmas present...

 

[cdcaveman]

Quote from Maverick74:

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Late Christmas present...

Nice.. This book is amazing.. These guys touch on so many things in this book.. Long gamma.. judging tail risk by looking at the portfolio if everything went to zero! .. These guys are like gangster as hell.. its like street risk management.. not bullsnap academia.. love it..

 

[partha]

Quote from Maverick74:

Heating Oil is going to confirm on the 30 day today for the first time in 6 months. The heating oil crack looks very attractive here.

Mav,
Do you do NL for the underlying, and trade a derivative ?
Eg, you got a confirm on HO, but trade the heating oil crack spread ?

 

[partha]

For a more concrete example, if I get a confirm on Gold, but actually want to trade XAU/JPY (gold in Yen terms), do you do a NL for the actual cross you are trading or use both NL (Gold and Yen) to control entry or just Gold NL ...

 

[sellindexvol66]

Quote from Maverick74:

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Late Christmas present...

Thanks, thoroughly enjoyed that.

Bass can possibly be wrong or early but I am one that feels a crisis as bad or worse than 2008, 1987, 1929, etc can hit at any time. A retail trader can always run cheap insurance if they believe as I do without bleeding to death despite Bass point re the masses.

 

[cdcaveman]

I really think he isn't talking about us when referring to retailers.. Plus he immediately alluded to otc stuff. I think that was more of a way to valuate his business really.. Obviously if your a really good derivatives trader you can cook up something with a low negative carry, and a high degree of convexity.. I am not referring to myself haha.. Just saying..

His numbers on Japan's public balance sheet are compelling.

 

[cornix]

Quote from sellindexvol66:

Thanks, thoroughly enjoyed that.

Bass can possibly be wrong or early but I am one that feels a crisis as bad or worse than 2008, 1987, 1929, etc can hit at any time. A retail trader can always run cheap insurance if they believe as I do without bleeding to death despite Bass point re the masses.

Not sure about the US, but Russia is surely in the process of slow-down to nearly a recession already. And as we know, global crises not always are born in developed economies only.

P. S. Sorry for off-topic, Maverick.